State of Hedera Q1 2024

Key Insights

• In Q1, Hedera experienced QoQ growth across many key metrics, including average daily active addresses (+154%), average daily new addresses (+62%), DeFi TVL in USD (+87%), stablecoin market cap (+84%), and average daily DEX volume (+154%).
• HBAR's circulating market cap increased 31% QoQ to $3.8 billion. HBAR’s circulating market cap is up 124% over the past two quarters.
• Hedera’s total value locked (TVL) was $119.3 million. SaucerSwap’s TVL grew from $60.4 million to $117.0 million (+94% QoQ) and accounted for 98% of the network's total TVL.
• In January, the Hedera Council allocated 4.86 billion HBAR ($535 million at Q1 end) to enhance the Hedera network. This investment is intended to support various projects and initiatives within the Hedera ecosystem, promoting further development and adoption.
• Hitachi, Australian Payments Plus, Mondelēz International, and BitGo joined the Hedera Council, bringing the total count of institutional network validators to 32. The HBAR Foundation also announced partnerships with the Digital Euro Association, Pyth Network, Reality+, Momental, and others in Q1.

Primer

Hedera (HBAR) is an open-source, public-permissioned Proof-of-Stake (PoS) network. It is governed by 32 global organizations, known as the Hedera Council, with community input on the network’s features and ecosystem standards via Hedera Improvement Proposals (HIPs). Members of the Council operate Hedera’s validator nodes while the network has public plans to transition to fully permissionless node operation over time. Although Hedera's network operation is currently permissioned in nature, the division of responsibility across each of the 32 geographically and industry-diversified (collusion-proof) council members is unique among public networks.

The Hedera Network offers an optimized version of the Besu EVM for smart contracts (Hedera Smart Contract Service), alongside a native tokenization service (Hedera Token Service) and high-throughput data writing and verification service (Hedera Consensus Service). These services are known as the Hedera Network Services, which developers can use in a permissionless fashion to build decentralized applications in a variety of programming languages, including Solidity, JavaScript, and C++. The Hashgraph Consensus Algorithm powers the network, delivering high throughput, fair ordering, and low-latency consensus for all transactions.

Website / X (Twitter) / Discord

Key Metrics

Financial Overview

Market Cap and Revenue

HBAR’s circulating market cap increased for the third straight quarter, up 31% QoQ to $3.8 billion. However, HBAR’s market cap amongst all tokens fell 4 spots from 32 to 36. Despite this underperformance relative to other large-cap tokens in Q1, HBAR had impressive YoY gains, up 90% YoY from $2.0 billion. Furthermore, HBAR’s fully diluted market cap rose 30% QoQ from $4.4 billion to $5.7 billion.

In Q1 2024, Hedera Network's revenue, derived from network transaction fees, was down 31% QoQ to $1.1 million. This came after an all-time high quarterly revenue in Q4 ($1.6 million). Q1 marked the third straight quarter where revenue was above $1 million.

Revenue broken down by Hedera Services for Q1 was as follows:

1. Hedera Consensus Service - 9.1 million HBAR (73% of Q1 revenue)
2. Hedera Token Service - 1.2 million HBAR (10% of Q1 revenue)
3. Hedera Smart Contract Service - 1.2 million HBAR (10% of Q1 revenue)
4. Hedera Crypto Service - 780,500 HBAR (6% of Q1 revenue)
5. Other - 16,000 HBAR (0.1% of Q1 revenue)

Supply Dynamics

HBAR, Hedera's native token, serves multiple purposes within the network. It is utilized to pay network gas fees and Hedera Network Services fees, delegate to validators, and secure the network. It also rewards Proof-of-Stake validators for operating the network. Anyone can delegate HBAR to participate in the network validation and receive a staking reward. In the future, the Hedera network will also enable staking for operating permissionless public validators and rewarding validators.

HBAR has a fixed total supply of 50 billion. At the end of Q1, 33.7 billion HBAR, representing 67% of the total 50 billion supply, was in circulation. The distribution of HBAR occurs quarterly and is reported through the Hedera Treasury Management Report. The report estimates that an additional 3.6 billion HBAR will be unlocked next quarter. Of this amount, 97% is allocated to ecosystem and open-source development. The Hedera Treasury Management Report forecasts that approximately another 10% of the HBAR total supply will be unlocked, which includes the new ecosystem grants.

Network Overview

Usage

Average daily active addresses experienced a large increase in Q1, up 154% QoQ from 6,600 to 16,800. Part of this increase was driven by new addresses, as the average daily number of new addresses was up 62% QoQ from 5,200 to 8,400.

Address activity on Hedera began picking up in January. Hedera MetaMask Wallet Snap, a browser plug-in extension for MetaMask, went live on January 16, 2024. This plug-in allows Hedera to integrate with the MetaMask wallet, enabling MetaMask’s 30 million monthly active users to interact with Hedera-based applications.

There was a noticeable decrease in transaction activity in Q1. After six consecutive quarters of increases, average daily transactions decreased 45% QoQ from 163.8 million to 90.9 million. The Hedera Consensus Service remains the predominant source of this activity, responsible for 99% of all transactions on the network.

Development

In Q3’23, Hedera integrated the JSON-RPC codebase, allowing developers to use Ethereum Virtual Machine (EVM) tools. Additionally, HIP-729 was introduced, refining contract creation transactions to align more closely with EVM equivalence. These various developer-focused tools and products have helped development. In Q1, average daily active smart contracts increased 37% QoQ from 93 to 128.

The Hedera network underwent two onchain upgrades in Q1:

• V0.45 Upgrade (January 9) - This release contains an extensive list of changes that include implementing TransactionRateMultiplierSource, fixing tests in ContractBurnHTSSuite, and fixing canUseEip1014AliasesForXfers and updateMaxAutoAssociationsWorks. The complete list of changes can be found in the release notes.
• V0.46 Upgrade (February 21) - This release contains an extensive list of changes including adding implementation in throttling facility to handle N-Of-Unscaled type of throttling, fixing PCES unit tests, and fixing ContractKeysHTSSuite records. The complete list of changes can be found in the release notes.

Decentralization and Security

Source: Hedera “X”

In Q1, Hitachi, Australian Payments Plus, Mondelēz International, and BitGo joined the Hedera Council, bringing the total count of members to 32 global institutions.

As Hedera's network expands, the Council anticipates adding more public nodes to bolster its infrastructure. Council members serve three-year terms, are 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. While it has an equal vote in decision making, it lacks additional privileges.

The Council primarily focuses on governance for network stability and Hedera Treasury management through various committees:

• TechCom: Oversees and provides insights on the Hedera Network's technological functionality, stability, and security.
• MemCom: Guides strategic decisions concerning Council membership, encompassing recruitment, selection methods, policies, and retention.
• CoinCom: Counsels the Council on treasury management, network pricing, and economic incentive structures, encompassing staking and node operations.
• CorpCom: Aids Members in identifying Hedera Network use cases and orchestrates Council-wide collaboration on market entry strategies.
• GovCom: Addresses public policy and regulatory matters impacting the Hedera Network, Council operations, or Member interactions with the network.
• MarCom: Supervises and advises the Council on marketing, public relations, and outreach initiatives.

Hedera Network consensus nodes are run by the Governing Council members. Many Layer-1 networks struggle with the geographical concentration of their nodes. Too many nodes in the same location could jeopardize the health of a network due to geopolitical risks, regulations, and acts of nature, among other reasons. The geographical distribution of the Hedera network's validators is balanced and includes every continent except Antarctica. North America is home to 14 of the 32 consensus nodes, accounting for 43.75%, while Europe and Asia are home to 10 (31.25%) and 5 (15.63%), respectively.

In Q1, the Hedera network reported 22 billion HBAR staked, representing 65.3% of the circulating supply and 44.1% of the total supply. This high staking percentage relative to the circulating supply can be attributed to entities such as Swirlds and Swirlds Labs. They are staking their HBAR allocations and the Hedera Treasury to assist validators in meeting the minimum staking threshold to participate in network consensus. Notably, these entities have chosen not to collect staking rewards.

Notably, 34% of staked HBAR opted to receive rewards, up 34% QoQ from 26% in Q4’23. During Q3’23, the Hedera Council made modifications to the staking rewards structure. The prior staking reward rate of 6.5% was adjusted to 2.5% in August. Furthermore, a maximum of 13% of the total 50 billion HBAR supply (6.5 billion HBAR) can be staked and qualify for the full 2.5% reward rate. The reward rate will proportionally decrease if the total staked amount exceeds 13% of the overall supply.

Ecosystem Overview

DeFi

DeFi total value locked (TVL) on Hedera hit an all-time high in Q1. By the end of the quarter, TVL in USD was up 87% QoQ from $63.9 million to $119.3 million. As of writing, Hedera is ranked #44 by TVL among blockchain networks. Furthermore, TVL denominated in HBAR also saw a QoQ increase, up 43% from 733.2 million to 1.1 billion. This dynamic indicates that HBAR price appreciation and capital inflows drove the TVL increase in USD.

Hedera’s DeFi ecosystem, led by SaucerSwap, is off to a promising start in 2024. In Q1, SaucerSwap further solidified its dominance within the Hedera network ecosystem, increasing its TVL from $60.4 million to $117.0 million (up 94% QoQ), accounting for 98% of its total TVL. SaucerSwap's launch of SaucerSwap V2 in November brought new features and improvements, including concentrated liquidity, MetaMask support, Tokenomics V2, and the Liquidity-Aligned Reward Initiative (LARI), which all helped improve SaucerSwap’s TVL. Additionally, in Q1, SauceSwap launched Auto Pools. Leveraging ICHI’s “Yield IQ,” Auto pools provide Active Liquidity Management (ALM) for SaucerSwap V2 liquidity pools. Auto pools efficiently rebalance deposited funds across specific price ranges, making liquidity provision simpler and more user-friendly.

As for HeliSwap and Pangolin, both DEXs saw a decrease in TVL in Q1. HeliSwap was down 26% QoQ to $2.2 million, while Pangolin was down 20% QoQ to $150,00. DeFi Diversity measures the number of protocols that constitute the top 90% of DeFi TVL. A greater distribution of TVL across protocols reduces the risk of widespread ecosystem contagion resulting from adverse events like exploits or protocol migrations. The Hedera network ended Q1 with a DeFi diversity at 1.

Liquid staking is not included in the TVL figure. Despite this, it remains a relevant metric with growing significance. Stader is the only provider of liquid staking on the Hedera network. Upon the introduction of the Hedera network's staking program, Stader's TVL peaked in Q1 2023. Following this peak, there has been a gradual net outflow of Stader's TVL in HBAR. This trend continued in Q1 as liquid staking TVL in HBAR decreased 16% QoQ to 320.3 million, while liquid staking TVL in USD increased 11% to $36.4 million.

Onchain activity has been elevated across most networks due to the recent “Memecoin Mania” and the resurgence of a bull market, and Hedera was no exception. DEX volumes on Hedera reached all-time highs in Q1. The average daily DEX volume increased 154% QoQ from $1.3 million to $3.2 million. Additionally, each month of Q1 set a record for monthly DEX volumes:

• January - $139.3 million (69% higher than the previous monthly all-time high)
• February - $180.5 million (up 30% MoM)
• March - $265.4 million (up 47% MoM).

Essentially all DEX volumes on Hedera occur on SaucerSwap. In Q4’23, SaucerSwap introduced a concentrated liquidity (CL) AMM to its product suite (SaucerSwap V2). Due to this, SaucerSwap can offer more efficient pricing for token swaps, leading to higher volume. For example, prior to the launch of V2, SaucerSwap averaged $438,500 daily volume in Q3 (7% of Q1’s average daily DEX volume).

The only natively deployed stablecoin on the Hedera Network is USDC. USDC built on its strong Q4, finishing Q1 up 84% QoQ to a market cap of $11.6 million. Furthermore, a significant portion of this USDC is being used in Hedera’s DeFi ecosystem. There was also $3.1 million USDC (27% of Hedera’s USDC supply) deposited into SaucerSwap liquidity pools.

Additionally, USDT and DAI were bridged to Hedera using Hashport. There was also $462,100 USDT and $118,100 DAI deposited into SaucerSwap liquidity pools.

On February 26, the Digital Euro Association, a think tank for central bank digital currencies (CBDCs), stablecoins, and other forms of digital money, announced a partnership with The HBAR Foundation. The partnership aims to explore technological solutions technologies that ensure that CBDCs and other forms of digital money are “secure, efficient, and advances the public good.”

The Hedera ecosystem has several key developments related to oracles in Q1. On February 26, Pyth Network announced its integration of the Hedera network. Pyth Network is an oracle network that aims to offer accurate prices for cryptocurrencies, equities, foreign exchange pairs, ETFs, and commodities. As a part of the partnership, an expansive suite of over 400 real-time price feeds from Pyth Network will be available on the Hedera network. Furthermore, through this integration, HLiquidty will utilize Pyth price feeds to power its decentralized borrowing protocol on Hedera (slated for Q2’24 launch).

In addition to Pyth Network, Supra Oracles also integrated the Hedera network Supra’s, launching its decentralized oracle price feeds in Q1 via the DORA (Distributed Oracle Agreement) protocol. This integration allows developers to integrate their applications with an additional oracle price feed provider.

NFTs and Gaming

The Hedera NFT sector witnessed significant technical updates during the second half of 2023. Notably, the Hedera Governing Council revised the fee structure for NFT minting in the third quarter, introduced with the V0.41 upgrade. This adjustment reduced the cost of minting an individual NFT to $0.02 from $0.05, while the cost for bulk minting 10,000 NFTs increased to $200 from $76.80. Subsequent upgrades, V0.43 and V0.44, further expanded the capabilities by increasing the maximum allowable NFT mints and implementing NFT allowance checks on auto-creation.

Additionally, the Hedera NFT ecosystem saw a series of partnership announcements. In Q4, XP.NETWORK connected Hedera's NFT ecosystem to over 30 blockchains, including Ethereum, Polygon, and Solana. Furthermore, two music platforms, Amplify and Tune.FM, announced their involvement with Hedera. In January 2024, Reality+ announced a partnership with The HBAR Foundation to leverage the Hedera network for digital collectibles solutions. Reality+ aims to mint over 1.4 million digital collectible NFTs on Hedera. Additionally, Dropper, an NFT marketplace and launchpad for gaming projects on Hedera, announced a partnership with NeoTokyo, a cohort of gaming founders and investors. The partnership aims to onboard AAA gaming developers to the Web3 gaming community. As a part of this partnership, a $5 million grant program for Web3 gaming was established.

Despite these developments, Hedera NFT activity has yet to fully reflect the technical upgrades and partnerships fully. In Q1, the network averaged 4,800 daily NFT transactions, a 4% QoQ decline. However, average daily NFT active addresses were up 94% QoQ to 1,500, perhaps suggesting a growing interest by users in Hedera’s NFT and gaming sector.

Looking forward to the rest of 2024, Web3 gaming partner Momental aims to launch The MLPB Armory in July. The MLPB Armory will be the official destination for pro paintball NFTs and other officially licensed digital collectibles from NXL, WNXL, NXL EU, NXL Asia, and more. Users will be able to collect and trade NFTs from various different pro paintball teams and leagues.

Ecosystem Growth

Sustainable ecosystem growth is paramount to the success of the Hedera network. On January 12, the Hedera Council allocated 4.86 billion HBAR ($535 million at Q1 end) to enhance the Hedera network. A substantial portion, 4.25 billion HBAR, was allocated to grant and support-giving organizations such as the HBAR Foundation, Hashgraph Association, and DLT Science Foundation, with planned distributions over the course of the year. The remaining 614 million HBAR was earmarked for the Hedera Council's operational costs and payments to initial SAFT investors.

Additionally, the DLT Science Foundation (DSF), in collaboration with The HBAR Foundation Sustainable Impact Fund, hosted a three-month-long hackathon in Q1 for projects building on the Hedera Guardian. The Hedera Guardian is an open-source platform that enables auditable carbon credit markets. Over 700 different projects participated in the hackathon. Winners will be announced in May, and winning projects will split a prize pool of $100,000.

Network Services Overview

The Hedera Network Services are the core offerings of the Hedera network. These services include the Consensus Service, Smart Contract Service, and Token Service. All these services are supported by the Hashgraph algorithm and offer official SDKs for accessing the API in programming languages such as JavaScript, Java, Go, and Swift, as well as community SDKs supporting .NET and Venin SDK or JavaScript. Each service has its intended use and primary users, and usage frequency varies depending on the service.

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.

In 2023, the Hedera Consensus Service witnessed substantial growth, culminating with record-high transaction activity in Q4. Average daily transactions sharply decreased, dropping 45% QoQ from 163.6 million to 90.5 million. However, daily average active addresses saw QoQ growth, up 14% to 2,500.

One avenue of growth for the Hedera Consensus Service in Q1 was inscriptions, specifically  Hashinals (HCS-5). Hashinals enable metadata to be stored entirely onchain through the Hedera Consensus Service. Unlike traditional NFTs, Hashinals typically store metadata offchain. As of writing, over 109,000 Hashinals have been minted on the Hedera Consensus Service.

Crypto Service

The Hedera Crypto Service plays a vital role in tracking the flow of HBAR throughout the ecosystem, making the asset more liquid and mobile. Users can perform essential operations on the Hedera Network through this service, including transferring HBAR, fungible, and non-fungible tokens, creating and updating accounts, clearing accounts, and approving account allowances.

In Q1, the Hedera Crypto Service exhibited impressive QoQ growth. Average daily transactions grew 68% QoQ from 135,400 to 227,300, while average daily active addresses increased 130% from 3,500 to 8,000.

Smart Contract Service

The Hedera Smart Contract Service enables developers to create and deploy smart contracts on Hedera. The service works with the Hedera Token Service to enable users to create and deploy fungible and non-fungible tokens. The service is also EVM-compatible via the HyperLedger Besu EVM client, providing support for Solidity-based smart contracts and core Ethereum tooling.

Over the second half of 2023, there were multiple developments that improved the Hedera Smart Contract Service. In Q3 2023, Hedera's core developers implemented an update that revamped the authorization process. This change prevents account key signatures from granting authorization for contract actions, limiting smart contracts to modifying only their own storage or that of delegate calls made to them. Additionally, the Hedera community unveiled developer-centric products and forged strategic partnerships to enhance EVM tooling and compatibility.

In Q4 2023, Hedera core developers released two more important security updates for the Smart Contract Service. The first update, HSCS Security Model V2, enhanced security by refining authorization rules, introducing a three-level security approach, and addressing vulnerabilities. The second update was the introduction of Smart Contract Verification, aimed at enhancing trust among smart contract users. This feature enables the verification of smart contract source code, categorizing results as no match, partial match, or full match. Hedera hosts this service through Sourcify, ensuring accessibility at verify.hashscan.io and other Hedera blockchain explorers.

These efforts resulted in triple-digit QoQ growth by the Hedera Smart Contract Service in Q1. Average daily transactions were up 343% QoQ from 22,000 to 97,700, while average daily active addresses were up 312% QoQ from 1,500 to 6,100.

Token Service

The Hedera Token Service allows users to mint and manage custom fungible and non-fungible tokens on Hedera. Tokens issued on Hedera are also configurable with customizable parameters such as account KYC verification, freeze, token supply management, transfer, etc. Token transfers on Hedera always cost a transaction fee of $0.0001 USD, paid in HBAR.

Similar to the Hedera Smart Contract Service, the Hedera Token Service exhibited impressive growth in Q1. Average daily transactions were up 183% QoQ from 42,900 to 121,100, while average daily active addresses grew 22% QoQ to 3,100.

Closing Summary

After a strong 2023, where many key metrics saw significant growth, Hedera followed up with an equally impressive Q1. QoQ increases in key metrics included market cap (+31%), average daily active addresses (+154%), average daily new addresses (+62%), DeFi TVL in USD (+87%), stablecoin market cap (+84%), and average daily DEX volume (+154%). Furthermore, Hedera’s DeFi ecosystem emerged as a key driver of network growth in Q1, reaching ATHs in both TVL ($119.3 million) and DEX volume ($6.4 million). The recent success of Hedera’s DeFi ecosystem has been underpinned by SaucerSwap, which saw its TVL grow from $60.4 million to $117.0 million (+94% QoQ).

Hedera is also actively investing in its future and is well-positioned for the rest of 2024. Key developments on this front include The Hedera Council allocating 4.86 billion HBAR ($535 million at Q1 end) to support various projects and initiatives within the Hedera ecosystem, promoting further development and adoption. Also, Hedera integrated with the MetaMask wallet, providing an easy access point for new users. Finally, Hedera brought on integrations of established projects, such as Pyth Network and Supra, which will continue to provide the necessary tooling for the Hedera ecosystem to grow throughout 2024.

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®.