State of Tezos Q1 2024

Key Insights

• Active gaming addresses surged by 558% QoQ, reaching 97,000 in Q1 2024. The gaming application Coin Blast hit 36k peak active users in Jan 2024, while strategy sports game Cricket Stars hit 8k peak active users in Mar 2024.
• Tezos ranked 30th with 250 developers as of December 2023. According to Electric Capital.
• Oxford 2 protocol upgrade was successfully implemented. The upgrade introduced private (permissioned) rollups and changed slashing and automated staking protocols.
• Paris protocol upgrade launch in June 2024. The upgrade includes 10-second block times, adaptive issuance and the Data Availability Layer (DAL).
• Etherlink mainnet beta launch in Q2 2024. Etherlink is a non-custodial, EVM-compatible, fast, fair and low cost Layer 2 blockchain powered by Tezos Smart Rollups. Etherlink Mainnet beta is the final stage before launch.

Primer

Tezos (XTZ) is a Liquid Proof-of-Stake (LPoS) blockchain network known for its strong focus on security, upgradeability and democratic community governance. Its smart contracts are implemented using the Michelson language, designed to facilitate formal verification. The network features onchain governance and self-amending functionality, enabling stakeholders to vote on protocol upgrades without requiring a network hard fork. Recent upgrades on Tezos have focused on scalability and performance through Smart Rollups and a Data Availability Layer (DAL). The Mumbai protocol upgrade introduced Smart Rollups, a Layer-2 scaling solution that enables higher throughput beyond 1 million TPS on Layer-2 and customization to adapt to specific use cases, such as implementing new coding environments. The Oxford 2 protocol upgrade added private Smart Rollups, allowing developers to implement permissioned Layer-2 solutions, which is significant for enterprise and government sectors. The DAL is built to run on top of Tezos' Layer-1, ensuring data availability and security across the scaling infrastructure.

Gaming has become an emerging sector, with investment from the Tezos Foundation and major gaming partners like Unity, TapNation, and BITKRAFT choosing to build on the Tezos ecosystem.

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Key Metrics

Financial Overview

Market Capitalization and Revenue

In Q1 2024, XTZ’s market cap crossed the $1 billion mark and reached almost $1.4 billion by the end of the quarter, up 50% QoQ. This growth follows the overall increase in the crypto market, driven by the launch of the Bitcoin ETF at the end of Q4 2023 and renewed interest from retail investors.

Revenue is generated by mainnet transaction fees, which are distributed to validators in XTZ. Total fees collected in Q1 2024 were 19,000 XTZ, down 16% QoQ. However, due to the increase in the price of XTZ (37% QoQ), the USD value of fees paid was up 16% QoQ, amounting to $22,500. This metric indicates that validators accumulated more value in Q1 2024.

Supply

In addition to rewarding validators, XTZ is used as a medium of exchange and for staking, delegating, and facilitating governance. As of the end of Q1, the annual inflation rate for XTZ is fixed at 42 million tokens, constituting 4.3% of the current circulating supply of 1.0 billion XTZ. The Mumbai upgrade adjusted the block time to 15 seconds and reduced block rewards to 20 XTZ to maintain the annual inflation rate. The annualized real yield for validators remained at 1.6%, with a QoQ increase of 1.3%.

Network Overview

Usage

Tezos saw a yearly high in monthly active addresses in March 2024, with over 75,000 unique addresses interacting with the network. The average monthly active addresses in Q1 2024 was 70,000, up 37% QoQ. Average monthly new addresses, which count addresses that interact with the network for the first time, was 44,000 in Q1, up 50% QoQ.

Total new accounts funded in Q1 increased by 16% QoQ to 142,000. This growth aligns with the rise in contract calls and active addresses, indicating that new users are attracted to emerging protocols. The new accounts also demonstrate a significant increase in the distribution of XTZ among addresses.

Smart contract calls increased by 17% in Q1 2024, reaching 4.6 million calls. This was driven by an annual high of contract calls of 2 million in January 2024. The number of overall transactions remained steady QoQ at 4.1 million. Overall network activity (contract calls and transactions) grew by 8%, totaling 8.7 million in Q1. The activity was driven by interactions with applications built on Tezos rather than XTZ transfers.

Development

Tezos is a smart contract Layer-1 network, allowing complex applications to be built on top of it. These applications can serve various purposes, including decentralized finance, NFTs, gaming, identity, and more. Select development updates from Q1 include:

• tzBTC: Bitcoin on Tezos announced the launch of version 2.0, a cost-efficient and accessible improvement of the original tzBTC.
• Tezos Foundation Grants: These grants included infrastructure projects like Sign-in-with-Tezos, a user and messaging authentication protocol, and Blockscout, a blockchain explorer developer that has built the Etherlink Testnet explorer.
• Biometric signing:A Tezos developer group demonstrated biometric signing on Tezos from the Android platform. They also developed a new ticket transfer UX, enabling tickets to be transferred from implicit accounts directly to smart contracts.
• TezDev 2024: Tezos' flagship annual conference is planned for 11th July in Brussels, Belgium.
• Tezos hackathons: Launched a collaboration for four Tezos hackathons in Paris, Luxembourg, London, and New York with consulting firm Sia Partners. The series will culminate in an international final in Q4 2024.

According to Electric Capital’s report Tezos had 83 full-time developers and 235 monthly active developers on December 31, 2023.

Tezos Smart Rollups allow development of rollups using any programming language, such as Rust, C/C++, and Go, that can be compiled into WebAssembly (WASM). Etherlink will be the first EVM-compatible non custodial Smart Rollup. This opens opportunities for developers using other programming languages and virtual machines to contribute to the Tezos ecosystem.

Network Upgrades

Smart Rollups

The Q1 2023 Mumbai upgrade introduced Smart Rollups, allowing for the creation of applications on a Tezos Smart Rollup using any language compatible with WebAssembly. The Q2 2023 Nairobi upgrade expanded the capabilities of Smart Rollups and increased the TPS by a factor of 8. The Q1 2024 Oxford 2 upgrade introduced Private Rollups, which allow developers to choose between public and permissioned L2s. Oxford 2 also introduced changes to slashing and automated staking. The latter works to transition the network towards a new staked funds management API and avoid manual bookkeeping. The Octez V19.0 upgrade in Q1 2024 made rollups protocol-agnostic, meaning any protocol built on Tezos can use rollups.

Etherlink

Etherlink, the first EVM-compatible non-custodial Smart Rollup on Tezos, is planned for launch in Q3 2024. It will facilitate the deployment of Ethereum-based contracts on Tezos and offer full compatibility with the Ethereum ecosystem (e.g., MetaMask wallet connectivity). In addition, it will feature low fees, MEV protection, DAL integration, low latency, and increased security with permissionless fraud proofs. Etherlink is implementing full decentralization: on-chain governance controls both upgrades and sequencer operators. Etherlink will integrate with Tezos' L1 protocol, promoting interoperability and functional expansion in the ecosystem.

Data Availability Layer

To improve coordination, speed, and deployment of rollups, it is crucial to focus on the development of a robust data availability solution. Tezos core developers are working on a protocol-level solution called the Data Availability Layer (DAL). The DAL will run on top of the Tezos Layer-1 as an independent peer-to-peer network where data publication is attested by Tezos validators. These secured attestations guarantee data availability while significantly scaling bandwidth. In Q1 2024, the DAL launched on testnet and solicited testing and input from the community.

Security

Tezos uses a Liquid Proof-of-Stake mechanism, which requires validators (known as bakers in the Tezos ecosystem) and delegators to stake XTZ as collateral to secure the network. Rewards and fees collected from transactions are paid to validators and delegators for maintaining the network. Active validators and active validator stake have remained consistent over the last three quarters. In Q1, active validators saw a 0.5% decrease, and active stake increased by 1.5% QoQ.

Delegators stake XTZ on active validators and receive a portion of fees and rewards collected. Active delegators and stake from delegators decreased marginally in Q1, by 1.4% and 2.5% QoQ, respectively.

While Smart Rollups are dependent on Layer-1 security for settlement, they also benefit from Tezos validators to determine input transactions on Layer-2 as well. The Tezos network has shown consistent year-over-year stability in the number of validators and delegators, as well as in staked XTZ. This stability is crucial for secure and scalable Layer-2 growth. Validators in the ecosystem are also decentralized geographically and by host service providers, further ensuring the network's resilience and security.

Governance

Tezos utilizes a Liquid Proof-of-Stake mechanism, enabling staked XTZ to be used for both network security and governance. The network's self-amending blockchain reduces the need for hard forks by employing onchain governance for protocol upgrades. Users delegate their XTZ to validators who participate in stake-weighted voting. The governance process is divided into five periods, spanning approximately 2 months and 10 days.

To complement governance, Tezos Commons established the Tezos Ecosystem DAO, which manages and allocates XTZ for community projects. The DAO’s initial funding came from NFT sales on Objkt and donations from ecosystem participants.

Etherlink, anEVM-compatible, non-custodial Smart Rollup, is proposed to follow a governance model similar to Tezos Layer-1, ensuring fairness and transparency. Governance for Etherlink will be maintained through Tezos Layer-1 smart contracts, validators participating in stake-weighted voting. The governance process will consist of three stages: a Proposal period, a Promotion period enforced by the governance contract on Tezos Layer-1, and a Cooldown period enforced by Etherlink.

Ecosystem Overview

Q1 saw numerous partnerships and projects choosing to build on Tezos. Select ecosystem highlights include:

• Baanx: A crypto payments app, raised over $20 million in Series A funding, supported by the Tezos Foundation, Ledger, Chiron, and the British Business Bank. Baanx announced a web3 card with partners like Mastercard and 1inch.
• Magic Labs: A wallet-as-a- service provider, strengthened its relationship with Tezos, maintaining Tezos as a top 10 chain in its ecosystem for the past 12 months. Magic Labs has over 180k developers and clients such as Macy’s and Mattel.
• UHT: Universal Health Token (UHT) seeks to improve preventative healthcare by incentivizing healthy behaviors, and has chosen Tezos as the blockchain ecosystem of choice for launch. UHT was developed by Force of Good Foundation in partnership with Animoca Brands-funded healthcare start-up GOQii.
• Zeeve.io: An infrastructure provider, now offers Rollup-as-a-Service for Tezos, alongside partners like zkSync, Polygon, Arbitrum and Vodafone.
• United Africa Blockchain Association: Announced a collaboration with Tether to pioneer blockchain use in South Africa, the Democratic Republic of Congo, Uganda, Tanzania, and Zambia.

Gaming

Q1 2024 saw significant growth in gaming protocols on Tezos. Coin Blast, a social gaming application launched in Q4 2023, rapidly became the protocol with the largest active addresses, averaging over 7,000 unique addresses weekly. Active addresses playing games on Tezos increased by 557% QoQ, with a total of 97,000 unique addresses interacting with games in Q1 2024. The number of contract calls to games rose by 1,815% QoQ, totaling 1.7 million interactions with games on Tezos. This demonstrates the ecosystem's adaptability to new use cases, with gaming joining NFTs as one of the meaningful use cases of the Tezos blockchain.

Other gaming updates include:

• Battlerise: A turn-based RPG game from Triumph Games received funding from the Tezos Foundation in February.
• TZ APAC: A Tezos development organization focused on the Asia Pacific region has teamed up with Farqhuar Venture Capital and Fibo Partners to fund games built on Tezos.
• Metapals: An AI-companion game partnered with Sanrio, the creators of Hello Kitty, and British children’s program Teletubbies. . Players can purchase these NFT companions in Q2 2024 to start playing with these interactive companions directly within their web browser.
• Auto Hero: Auto Hero is an existing Web2 game with over 5M downloads, and are integrating in-game items as NFTs on the Tezos blockchain, with characters, skins, and weapons.
• X World Games: A gaming platform with over 1 million users, partnered with TZ APAC.

GameFi and OpenPad: Several top tier launchpads have integrated Tezos and are supporting the token launch for upcoming games like Battlerise.

NFTs

NFT sales were down 28% QoQ in Q1 2024, with a total of $1.6 million in sales. New addresses interacting with NFTs also decreased by 63% QoQ to 3,000 new addresses in Q1. Despite this, overall unique active users remained stable at 35,000, down 0.8% QoQ, demonstrating retention in active addresses.

Development in the NFT ecosystem remained strong in Q1:

• fx(hash): A generative art platform, launched "Spellbound," a voice-to-image generator that allows users to create their own fashion pieces.
• Objkt: An NFT marketplace introduced fee sharing for community curators, incentivizing more curation of NFTs on its platform. Objkt also launched Objkt Galleries for personalized storefronts and gallery spaces.
• Stellar: An immersive art experience in New York during NFT NYC NY, featuring artworks by over 60 artists, live minting, music, and talks.
• Musée d’Orsay: Presented “{Le Code d’Orsay}”,a one-month exhibition featuring Agoria’s artworks, including “Σ Lumina” by Agoria and Johan Lescure, allowing visitors to mint unique digital art on Tezos, marking the museum's first web3 artwork display.
• WAC Museums: 24 museums, including the Van Gogh Museum and Palais de Tokyo, joined WAC Museums to explore how cultural institutions can embrace Web3 technologies, organized by We Are Museums and powered by Tezos.
• Manchester United: Continued their season-long engagement programs, Collect United and The Devil Rewards, averaging 15K claims per home match day in Q1. The club also launched their first Players Collection featuring Men’s team captain Bruno Fernandes, celebrating his top ten goals.
• Glenfiddich: Partnered with Obvious to launch 300 NFTs on the Tezos blockchain using the FXHash platform. These NFTs were sold starting January 31 at €100 each, with all proceeds donated to The River Trust, a charity dedicated to preserving Scotland's rivers.

DeFi

Total value locked (TVL) in USD increased by 28% QoQ in Q1 2024, reaching a yearly high of over $78 million. This increase was partly driven by the rise in the price of XTZ, as its TVL was down 8% QoQ.

Most TVL in crypto exists on EVM-compatible networks. With the launch of Etherlink, developers can deploy EVM-compatible protocols in the Tezos ecosystem. As a result, EVM-based developers can expand their protocols to a new network. The Tezos ecosystem also benefits as it can attract users and liquidity from other EVM-compatible networks.

Youves, a decentralized synthetic assets application, is the largest protocol by TVL, securing $36 million in assets. Sirius, a liquidity-baking protocol for XTZ/tzBTC pools, had the second-largest TVL at over $23 million. Kord.Fi, another liquidity-baking protocol for XTZ-tzBTC, had the third-largest TVL with over $10 million. With the proposed capital efficiency improvements in tzBTC 2.0, these liquidity-baking protocols may provide additional incentives and thus increase their TVL.

Tether’s USDT increased its dominance in the stablecoin market year-over-year, going from 67% to 73% of all stablecoins. Tether had over $39 million in USDT issued on Tezos by the end of Q1. The largest stablecoins exclusively issued on Tezos were Kolibri’s kUSD and USDTez’s USDtz, which had over $1 million and over $250,000 in stablecoins issued, respectively.

Future Development

The Paris protocol upgrade proposal had the option of either Paris A or Paris B upgrades. Both proposals will introduce:

• 10-Second block times: Providing lower latency and faster transaction speeds. This upgrade has been tested and shown not to compromise security.
• Activation of the Data Availability Layer (DAL): Improving rollup deployment and coordination, moving from testnet (launched in Q1 2024) to mainnet.
• Improvements to Tezos' Proof-of-Stake: Simplifying the process of baking (validator) rights.

Paris B includes an additional proposal (not included in Paris A) regarding Adaptive Issuance Staking and Adaptive Slashing. These adaptive features are designed to allow the network to adapt to real-world changes. For example, issuance of XTZ is set at 5%. The adaptive issuances proposed having variable inflation that adapts to a “minimal viable level” to avoid excessive inflation. Paris B was proposed separately as it would introduce significant changes to the LPoS mechanism on Tezos.

Etherlink Development

Etherlink, the first EVM-compatible rollup, is planned for mainnet in 2024 and would be the first step to integrating other coding environments into the Tezos ecosystem.

Several partners have begun deploying during the Mainnet beta stage to enhance developer tooling and user experience:

• LayerZero: Providing interoperability between Etherlink and other networks.
• Secret Network SDK: Enabling confidential computing and smart contracts.
• The Graph: Indexing protocol activity on Etherlink.
• Redstone: Offering oracle services.
• Thirdweb: Providing full-stack Web3 development.
• Layer3: Offering design, development, and launch services for Etherlink campaigns.

Closing Summary

Q1 2024 was a period of significant growth and innovation for the Tezos ecosystem. Active gaming addresses surged by 558%, driven by the success of Coin Blast. Meanwhile, TVL reached a yearly high of $78 million. There continues to be development in gaming, NFTs, and DeFi, with Tezos native projects building new products and fostering partnerships with real-world groups.

The successful implementation of the Oxford 2 protocol upgrade introduced private rollups, enhancing utility in rollups. Additionally, the Paris protocol upgrade aims to further improve transaction speeds and data availability. The introduction of Etherlink, a non-custodial, EVM-compatible rollup, promises to enhance interoperability with other EVM networks and attract more developers to the Tezos network.

Overall, Tezos is positioning itself for continued growth, driven by its strong community and key upgrades to the network.

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