Log In

State of Hedera Q1 2023

Apr 30, 2023 ⋅  17 min read

Key Insights

  • Dell Technologies joins the Hedera Governing Council as the 28th member. The Hedera Governing Council is a group of organizations dedicated to supporting the growth and development of Hedera, including the operation of Hedera validator nodes.
  • Hedera TVL increased 52% QoQ, setting another all-time high. Pangolin DEX launched and saw immediate success.
  • All Hedera Network Services saw key metrics rise.
  • The Hedera network faced a security breach when a bug in the Smart Contract Service code was exploited. The Hedera Mainnet was successfully upgraded with a patch to remove the vulnerability, restoring full functionality.
  • Hedera surpassed 6 billion total transactions. Hedera's TPS solely reflects end-user transactions and does not include internal transactions generated by its consensus algorithm.

Primer on Hedera

Hedera is a public-permissioned leaderless Proof-of-Stake (PoS) blockchain network. It is governed by 28 global enterprises, known as the Hedera Governing Council, with input from the community via Hedera Improvement Proposals (HIPs). Members of the Governing Council operate Hedera’s validator nodes while the network transitions to permissionless node hosting. Although Hedera's network operation is currently permissioned in nature, the division of responsibility across each of the 28 geographically and industry diversified (collusion-proof) council members is unique among public DLTs. This governance structure physically prevents aggregation of hash rate or stake to the same point that is threatening the security of other public ledgers.

Hedera offers developers core services, known as the Hedera Network Services, to build decentralized applications. The network is powered by the Hashgraph Consensus Algorithm, which offers high throughput, fair ordering, and low-latency consensus.

Key Metrics


In the face of a historically challenging crypto bear market in 2022, Hedera remained steadfast in its commitment to building and expanding the network. Hedera experienced growth across all its Network Services and made significant strides in the DeFi and NFT ecosystems. By the end of the year, numerous Hedera Network Services reached all-time highs in activity levels.

The momentum persisted into Q1 2023, with Hedera witnessing robust financial performance and further growth across all network services, setting new all-time highs in activity. Meanwhile, the DeFi ecosystem continued to grow, marked by the launch of an additional DEX.

Performance Analysis

Financial Overview

During Q1 2023, Hedera experienced strong financial performance. Hedera's circulating market cap surged 108% QoQ from $940 million to $2 billion, which was more than double the total crypto market's increase of 46% during the same period. Additionally, revenue, defined as total transaction fees, increased by 489% QoQ to $476,000. This spike in revenue was driven by a nearly 40-fold increase in transaction volume, primarily propelled by the Consensus Service.

HBAR is the native token of the Hedera Network, with a maximum total supply of 50 billion. As of the end of Q1, there were 30.5 billion HBAR in circulation, representing 61% of the total supply. During the quarter, approximately 5 billion HBAR, or 10% of the total supply, were released into circulation. The increase was due to a payment from Hedera to Swirlds Labs for outsourcing work. Swirlds Labs receives pre-payment for services, and noted in a blog post that “For the coins that will be sent to Swirlds Labs for 2024 operating expenses, we do not anticipate those to be used until January 2024 at the earliest.”

Network Overview

In Q1'23, the Hedera Network witnessed a surge in activity. Transaction volume soared nearly 40 times, primarily driven by the Consensus Service. Alongside this, account-related metrics experienced a significant uptick. The average daily active accounts increased by 350% QoQ, reaching 6,000, while the average daily new accounts created jumped by 170% to the same figure. Overall, transaction volume increased at a much faster rate than account metrics.

Nonetheless, the spike in account-related activity can be attributed to several factors. Firstly, existing DEXs, SaucerSwap and HeliSwap, have continued to enhance their functionality and features. Secondly, the launch of Pangolin in early February contributed to the increase. Initially launched on AVAX, Pangolin is a multichain DEX that has since expanded to encompass Hedera, Flare, EVMOS, and NEAR, further boosting Hedera's network activity.


Hedera concluded the quarter with a TVL of $36 million, marking a 52% increase QoQ. SaucerSwap remains the dominant protocol by TVL, accounting for 61% of the network's TVL with $22 million. Launched in early February, Pangolin quickly gained traction. By the end of the quarter, Pangolin's TVL reached $9 million, ranking second on the network and contributing to 24% of the total TVL. HeliSwap follows closely in third place with a TVL of $6 million.

In the coming quarters, it will be intriguing to observe whether Pangolin continues to capture a larger market share. Moreover, as the DeFi-focused fund begins to yield results, the Hedera DeFi ecosystem is expected to experience further expansion and growth.

NFTs and Gaming

Hedera's NFT activity in gaming slowed in Q1 2023. The average daily NFT-related transactions remained flat, and the average daily NFT users fell 33% to 400. Nonetheless, several notable partnerships and announcements were made:

  • Inkys Art Club - A platform built on Hedera that empowers artists to create and monetize their work through NFTs, DeFi, and community governance. By leveraging the Hedera Token Service, Inkys aims to foster a sustainable and decentralized art ecosystem that supports artists.
  • Baron Davis NFTs - Zoop, a digital marketplace for NFTs and fan experiences, announced a partnership with two-time NBA All-Star Baron Davis.
  • AIverse - AIVerse has launched on the Hedera Network. The project aims to provide AI-generated digital personalities for use in virtual worlds, gaming, and social media platforms.
  • AfrofutureDAO - Launched a $1 million Africa Metaverse Fund to support Africa's creative industry. The fund will provide resources to African creatives interested in building virtual worlds and NFTs.
  • Kabila - Launched an NFT minting and trading platform. The platform aims to provide an affordable and easy-to-use solution for creators and artists to mint and sell their NFTs.

Additionally, Hedera launched an NFT Utilities SDK that aims to provide developers with easy-to-use tools for creating and managing NFTs. The NFT Utilities SDK offers features such as NFT creation, management, and transfer, as well as metadata management and storage. Developers can use the SDK to create custom NFTs for various use cases. The SDK is compatible with popular programming languages such as JavaScript, Java, and Go.

Astra Nova, a meta RPG game developed on Unreal Engine 5, has moved from Ethereum to Hedera for its gaming ecosystem. The game developers cited Hedera's fast transaction speeds and low costs as key reasons for the move.


Hedera's emphasis on developer support is evident with the introduction of Arkhia, a comprehensive suite of dev tooling streamlining the building and deployment of smart contracts on the network. Arkhia offers powerful querying capabilities, allowing developers to access and analyze transaction history, bolstering transparency and insight. The Arkhitect Awareness Series provides in-depth information on platform features, enabling developers to create efficient, scalable applications.

The HBAR Foundation, in collaboration with Lumos Labs, launched the second edition of the Hatch Web3 Accelerator to further aid developers and startups in the Hedera ecosystem. This initiative supports blockchain startups in building and scaling innovations on Hedera. In addition to the Hatch Web3 Accelerator, the HBAR Foundation joined forces with Tribe, a Singapore-based innovation ecosystem, offering a unique learning experience for developers venturing into Web3. The DLT Science Foundation also launched in partnership with Hedera to provide technical resources and support for projects leveraging distributed ledger technology. Furthermore, these collaborations aim to foster and expand the developer community surrounding Hedera's Hashgraph technology.


A significant milestone for Hedera in 2022 was the introduction of staking. In June, the Hedera Improvement Proposal (HIP-406) laid the groundwork for staking to be implemented on the network. Over the subsequent months, the first three phases of staking were launched, allowing users to stake their HBAR tokens and earn rewards.

By the end of Q1 2023, a total of 31 billion HBAR was staked by 30,000 entities. This staking figure includes contributions from the Hedera Treasury, Swirlds, and Swirlds Labs, which staked a percentage of the Treasury to help validators reach the minimum staking amount required. The final stage of staking, Phase 4, is anticipated to be launched in the near future, marking the completion of the staking functionality rollout on the Hedera network.

Project Launches and Announcements

Besides the previously mentioned projects, numerous projects have declared their launches on Hedera spanning various industries:

  • Unthink - Launched an AI-powered decentralized e-commerce platform. The platform uses AI algorithms to provide personalized product recommendations and pricing for buyers while allowing sellers to set their prices and earn revenue.
  • WiPay - Launched WiCoin, a settlement network on the Hedera Network, to provide banking solutions to the unbanked in Africa and the Caribbean.
  • C14 - Launched on the Hedera Network to provide seamless fiat on-ramping for exchanges and wallets. C14 aims to offer a scalable and secure solution for exchanging fiat for crypto.
  • Mynt - Mynt migrated from Ethereum to Hedera to provide a more scalable and sustainable solution for their blockchain-based products. Mynt aims to provide secure and efficient digital identity solutions.
  • Fresh Supply Co - The largest user of Mastercard Provenance, has migrated to Hedera to tokenize real-world assets. FSCO aims to provide a more efficient and secure solution for tracking and verifying the authenticity of products and goods.
  • AidTech - Is launching an innovative digital wallet on Hedera that merges digital identity with payments. The platform aims to provide secure and efficient payment solutions for humanitarian aid organizations and their beneficiaries.
  • DCENT - A leading blockchain wallet in Korea, integrated with the Hedera Token Service to provide scalable and secure tokenization solutions for their users. DCENT aims to provide an efficient and user-friendly platform for tokenizing assets and creating custom tokens.

Network Services Overview

The Hedera Network Services are the core offerings of the Hedera Network. These services include the Consensus Service, Crypto Service, Smart Contract Service, and Token Service, all of which are supported by the Hashgraph algorithm and offer official SDKs for accessing the API in popular programming languages such as JavaScript, Java, and Go, and community SDKs supporting C++, Python, Swift, and Rust. Each service has its intended use and primary users, and usage frequency varies depending on the service.

During Q1 2023, the Hedera network Services all saw increases in activity. The Consensus Service experienced the largest spike in activity with a nearly 40x increase in transactions as the integration with Avery Dennison’s platform went live. The Smart Contract Service also had a spike in activity, although not as significant as the Consensus Service. The Crypto Service had a nearly two-fold increase in daily active users but experienced a decrease in transactions. The Token Service saw an increase in transactions and a consistent number of users.

In late March, Hedera surpassed 6 billion total transactions, which sparked criticism within the crypto community regarding the platform's transaction methodology. In response, Hedera published a blog post clarifying its approach to transactions per second (TPS). The post emphasized that Hedera's TPS solely reflects end-user transactions and does not include internal transactions generated by its consensus algorithm.

Consensus Service

The Hedera Consensus Service enables the verifiable time-stamping and ordering of events for Web2 and Web3 applications. Users submit messages to the Hedera Network, where the messages are time-stamped and ordered by the Hashgraph algorithm. These messages are used to form an auditable history of verifiable and trustless events. The Consensus Service is utilized by various applications such as tracking supply chain provenance, logging asset transfers between blockchain networks, counting votes in a decentralized autonomous organization (DAO), monitoring Internet of Things (IoT) devices, and more.

Over the last two quarters, the Hedera Consensus Service has experienced significant growth, becoming the fastest expanding Network Service. This surge in activity was initially fueled by the introduction of staking in Q4. As Q1'23 rolled in, the momentum continued to build with the integration of Avery Dennison's platform with the Hedera network. This innovative digital venture assigns a unique digital ID to products, fostering sustainable and trusted connections across the value chain. By offering an app store approach, the platform empowers brands and partners to develop applications that unlock a myriad of connected product use cases.

Crypto Service

The Hedera Crypto Service enables users to perform basic operations on the Hedera Network. These operations include transferring fungible and non-fungible tokens, creating and updating accounts, clearing accounts, and approving account allowances.

The Hedera Crypto Service saw mixed activity during Q1. While the service had set an all-time high for average daily transactions at 309,000 during Q4, mainly driven by the launches of HeliSwap and Bubbleswap, it experienced a 27% QoQ decrease in transactions to 224,000 during Q1. At the same time, the number of active users almost doubled and set an all-time high during the quarter. The discrepancy is likely driven by an increase in accounts for NFT campaigns, but a lack of activity once a user has participated.

Smart Contract Service

The Hedera Smart Contract Service enables developers to create and deploy smart contracts to power their applications, with benefits such as no congestion, guaranteed cost, and seamless integration with the Hedera Token Service to create and deploy fungible and non-fungible tokens. In February 2022, the launch of Smart Contracts 2.0 introduced EVM compatibility, support for Solidity-based smart contracts, and core Ethereum tooling, resulting in a steady growth of the service.

The Hedera Smart Contract Service experienced a surge in activity during Q1, with key metrics reaching all-time highs. Average daily active users increased by 27%, reaching a record 1,200, while average daily transactions rose by 37%, setting an all-time high of 24,000. These increases can be attributed to the ongoing growth of Hedera's DEXs and applications building on top of the DEX ecosystem.

Token Service

The Hedera Token Service allows users to configure, mint, and manage their own fungible and non-fungible tokens. Contrary to the Smart Contract Service, the Token Service saw an increase in transactions and consistent daily active users.

Qualitative Analysis

Governing Council

The Hedera Governing Council is a group of organizations dedicated to supporting the growth and development of Hedera, including the operation of Hedera validator nodes. In Q1, the Council welcomed its 28th member, Dell Technologies. With a maximum of 39 members, each holding an equal vote in Hedera's decision-making process, the Council aims for balanced governance.

As Hedera's network expands, Hedera anticipates more public nodes to bolster its infrastructure. Council members serve three-year terms, limited to two consecutive terms, and possess equal voting rights on network and platform decisions. Swirlds, the creator of Hashgraph, maintains a permanent Council seat but lacks additional privileges. The Council primarily focuses on governance for network stability and Hedera Treasury management.

The Council holds a monthly meeting and publishes minutes from the meeting:

  • January meeting - The Council members approved the October 8-9 and December 14, 2022, meeting minutes and the formation of a group of no less than five Council members — all of whom must be unaffiliated with current Directors — to clarify service level requirements in the Hedera Director Compensation Plan.
  • February meeting - The Council members approved the January meeting minutes.
  • March meeting - The Council members approved the February meeting minutes and a revised charter for the Regulatory & Policy Committee.

Hedera Improvement Proposals

  • HIP-213: Application Signs for End User: Describes the concept of how transactions can be issued by one account, but paid for by another account. Oftentimes it is appropriate for the application to pay fees associated with a transaction rather than the end user.
  • HIP-405: Fungible Token Metadata JSON Schema: This specification provides a standard scheme for fungible token metadata on Hedera Token Service (HTS). Fungible tokens minted to this specification will be able to be served by explorers, wallets, and other applications, allowing those applications to display information about the token that is additional to that stored directly on-ledger in the token.
  • HIP-412: NFT Token Metadata JSON Schema v2: This specification provides a standard scheme for non-fungible token metadata on HTS. The intent is to provide a flexible specification, which will serve as the base format for all NFTs. NFTs minted to this specification will be able to be served by explorers, wallets, and other applications, allowing those applications to display a minimum amount of information regardless of the use case of the NFT and providing a standardized format for specialized token types.
  • HIP-513: Smart Contract Traceability Extension: Extends traceability with new sidecar records ContractActions and ContractBytecode. Proposes additional data placed in sidecar transaction records to enable full replay of transactions by mirror nodes and downstream users of Hedera. Enabling mirror nodes to download traceability info only if they need or want to process it.
  • HIP-583: Expand alias support in CryptoCreate & CryptoTransfer Transactions: The Hedera Network supports the auto-creation of accounts using an ECDSA or ED25519 public key to establish an account alias. This alias can be used as a unique identifier for a Hedera account as part of crypto transfers before and after it is created in place of the shard.realm.num accountId format.
  • HIP-584: Mirror EVM Archive Node: This HIP describes EVM execution APIs on the mirror node and transaction simulations. The HIP also describes initial Mirror Node APIs that will handle contract execution-related queries, thus allowing the Mirror Node to serve the role of an EVM Archive Node. Ongoing user experience work needs EVM execution to enable features such as cost-free execution of read-only smart contract queries, gas estimation, and transient simulation of read-write operations.

Network Security Incident and Resolution

On March 9, 2023, the Hedera network faced a security breach when a bug in the Smart Contract Service code was exploited by an attacker. The attacker targeted multiple DEXs, including Pangolin, SaucerSwap, and HeliSwap, and managed to transfer nearly $600,000 worth of Hedera Token Service tokens to their account.

In response, Hedera DevOps shut off proxy access to the mainnet, while the DEXs and bridges halted the flow of tokens. The Hedera team collaborated with partners to investigate and develop a solution. By March 11, the Hedera Mainnet was successfully upgraded with a patch to remove the vulnerability, restoring full functionality. In a postmortem, the Hedera team assured no retail user accounts or wallets were at risk moving forward.

Closing Summary

Overall, Hedera demonstrated growth and expansion throughout Q1 2023, with its strong financial performance, increased network activity, and numerous project launches. The adoption of the Hedera Network Services, particularly the Consensus Service, further highlights the potential of the network. Notable milestones such as surpassing 6 billion total transactions, the launch of the NFT Utilities SDK, and the ongoing development of the staking functionality showcase Hedera's continued innovation.

Hedera's focus on building a supportive ecosystem for developers, as evidenced by the introduction of Arkhia and strategic partnerships with Lumos Labs, Tribe, and the DLT Science Foundation, signifies a long-term vision to foster growth. The appointment of Brian Brooks to the HBAR Foundation board demonstrates Hedera's dedication to strong leadership and compliance.

Moving forward, Hedera will continue to build out its DeFi, NFT, and gaming ecosystems, in addition to expanding the Hedera Network Services. Hedera faces tough competition, but the network continues to ship products and services.

Let us know what you loved about the report, what may be missing, or share any other feedback by filling out this short form. All responses are subject to our Privacy Policy and Terms of Service.

This report was commissioned by Hedera Hashgraph, LLC. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

No part of this report may be (a) copied, photocopied, duplicated in any form by any means or (b) redistributed without the prior written consent of Messari®.

Upgrade to Messari Pro

Gain an edge over the market with professional grade tools, data and research.

Already a member? Sign in

Upgrade to Messari Pro

Gain an edge over the market with professional grade tools, data and research.

Already a member? Sign in

Nick is a research analyst at Messari on the Protocol Services team. Prior to joining Messari, Nick worked in Deloitte's Consulting practice.

Mentioned in this report

Read more

Research Reports

Read more

Based on your watchlists

Create a new watchlist
Read more

Research Reports

Read more

Based on your watchlists

Create a new watchlist

About the author

Nick is a research analyst at Messari on the Protocol Services team. Prior to joining Messari, Nick worked in Deloitte's Consulting practice.

Mentioned in this report