State of Tezos Q4 2023

Key Insights

• Tezos gaming active addresses increased by 358% and smart contract calls rose by 96% QoQ. This uptrend was fueled by the introduction of several new games like trivia platform Coin Blast and AI racing game Track Mind, with many more in the pipeline.
• Tezos ranked 30th with 250 developers as of December 2023, according to Electric Capital data.
• Tezos core developers released the updated Oxford proposal. The revision disables adaptive issuance and staking extensions, introduces PoS refinements, re-enables Timelocks, and brings various improvements to smart rollups.
• Tezos added OKCoin Japan as a corporate baker. OKCoin joins Deloitte and Ubisoft, among others, with Google Cloud also set to become a corporate baker.

Primer

Tezos (XTZ) is a Liquid Proof-of-Stake (LPoS) blockchain network, characterized by energy-efficient consensus with low power consumption. Tezos smart contracts are implemented using the Michelson language, a language designed to ease formal verification. The network features on-chain governance and self-amending functionality, enabling stakeholders to participate in voting for protocol upgrades that are subsequently implemented without requiring a network hard fork. To date, Tezos has undergone fourteen forkless network upgrades.

Tezos is enhancing its scalability through Smart Rollups and a Data Availability Layer. Smart Rollups, introduced in the Mumbai protocol upgrade, enable higher throughput beyond 1 million TPS on Layer-2 and integration of other technologies into the Tezos network. The Data Availability Layer, built to run in parallel to Tezos' Layer 1, will ensure, ensures data availability by leveraging the Tezos validators.

Tezos has a vibrant NFT ecosystem, attracting a diverse community of developers, artists, and entrepreneurs. NFTs constitute a significant portion of the Tezos ecosystem. Additionally, Unity and Ubisoft have built on Tezos with a focus on gaming, and there is a growing DeFi presence.

Website / X (Twitter) / Discord

Key Metrics

Financial Overview

Market Capitalization

In Q4 2023, the total crypto market cap experienced a sharp increase, largely driven by anticipation surrounding spot BTC ETFs. XTZ’s circulating market cap increased 42% QoQ to $914 million, mirroring the overall crypto market’s growth of 54%. This Q4 growth brought XTZ’s YoY change to 38%. XTZ’s market cap ranks in the mid-70s among all crypto projects.

Supply

The native token of Tezos, XTZ, performs multiple roles in the network, such as serving as a medium of exchange, covering gas fees, staking, delegation, rewarding validators, and facilitating governance. As of the end of 2023, the annual inflation rate for XTZ is fixed at 42 million tokens, which constitutes 4.3% of the current circulating supply of 987 million XTZ. The Mumbai upgrade adjusted the block time to 15 seconds and reduced the block rewards to 20 XTZ, in an effort to maintain this annual inflation rate.

At the end of Q4, stakers on Tezos earned a nominal annual staking yield of 6.2% and a real yield of 1.6%.

Network Overivew

Usage

In Q4 2023, Tezos saw an increase in active addresses by 8% QoQ, rising from 94,000 to 102,000. New addresses also witnessed an increase of 89% QoQ, going from 21,000 to 39,000. However, on a YoY basis, both metrics showed a decline, with active addresses down by 27% and new addresses down by 68%. The surge in activity during Q4 ‘22 and Q1 ‘23 was primarily due to the minting of Manchester United NFTs and McLaren F1 NFTs.

Usage on the Tezos crypto network is analyzed through smart contract calls and transactions. Smart contract calls are user-initiated interactions with smart contracts, while transactions are the transfers of tokens.

Throughout 2023, Tezos displayed consistent levels of usage. Daily transactions ranged between 40,000 to 45,000 each quarter. The average daily smart contract calls varied more, with an average of 50,000 in the first half of the year and around 45,000 in the second half. NFTs remained the primary driver of activity on Tezos for the entirety of 2023.

Additional highlights included:

• Fireblocks integrated Tezos XTZ token custody, supporting both FA1.2 and FA2 standards.
• France's Bank Delubac began crypto services by featuring Tezos XTZ.
• Project Vigicard, backed by the Tezos Foundation and developed by Montpellier University Hospital allergists with Codeinsight, began using the Tezos blockchain for drug allergy monitoring.

Development

The Q1 2023 Mumbai upgrade introduced significant changes to the Tezos development landscape. It integrated Smart Rollups and allowed for the creation of applications on a Tezos smart rollup using any language that compiles to WASM, like Rust (with an official SDK provided by Trilitech), C/C++, Go, etc. The Q2 2023 Nairobi upgrade expanded the capabilities of Smart Rollups and escalated the Smart Rollups TPS by a factor of 8. According to Electric Capital, as of September 2023 Tezos has the 30th largest developer base in crypto with 83 full-time developers and 250 total developers.

• Baking Bad's DipDup indexing framework for Tezos received the stable 7.0 update, enhancing developer experience and system performance.
• Acurast introduced its Tezos integration, designed to foster interoperability for Web3 projects and enable the creation of zero-trust applications.
• HomeDAO's expansion to London and Cambridge was supported by the Tezos Foundation, aligning with its mission to encourage ambition and development in Web3 through communal housing and workspaces.
• WAC Lab's fellowship program, Season 2, spotlighted institutions exploring blockchain technology in arts and culture using Tezos.
• ECAD Labs hosted "Taquito Tech Day", attracting developers for Tezos blockchain development and focusing on community building and technical support.
• Nomadic Labs unveiled TezTale, an interface and dashboard dedicated to monitoring Tezos' Tenderbake consensus algorithm, simplifying asset management, and enhancing smart contract operations on the Tezos blockchain.

Decentralization and Security

Tezos uses a Liquid Proof-of-Stake (LPoS) consensus mechanism. Tezos ended 2023 with 371 active validators with a total stake of 117 million XTZ. Tezos' validator stake distribution remains aligned with industry norms and is globally diverse.

Corporate baking on Tezos allows corporations to participate in Tezos consensus and governance. In November, Tezos expanded its corporate baking roster by welcoming OKCoin Japan as a new corporate baker. OKCoin joins Deloitte and Ubisoft, among others, with Google Cloud also set to become a corporate baker.

Active delegators on Tezos saw an increase for eight successive quarters until a moderate decline occurred in Q2 2023. In the second half of 2023, both the number of active delegators and the total delegator stake remained consistent. As of the end of 2023, Tezos had 187,000 active delegators holding a collective stake of 574 million XTZ.

In the fourth quarter, Homebase introduced a new delegation feature, allowing Tezos community members to delegate their voting rights to other participants. This update aims to enhance governance participation. Tezos Domains also released a similar delegation feature.

As of the end of 2023, there were 986 million XTZ in circulation. Out of the total supply, 690 million XTZ (71%) was staked. Of the staked XTZ, 574 million (83%) comes from delegators, while validators self-staked 117 million XTZ (17%). The percentage of supply staked has remained consistently around 70%, indicating a long-term commitment to the network by stakeholders. Tezos has a high staking rate relative to other base layer protocols.

Governance

Tezos is a self-amending blockchain that removes the need to hardfork by employing on-chain governance for protocol upgrades. Users delegate their XTZ to validators who participate in stake-weighted voting; therefore, validators are responsible for both consensus and governance. The governance process is split into five periods totaling approximately 2 months and 10 days.

To further bolster governance, Tezos Commons created the Tezos Ecosystem DAO, responsible for managing and allocating XTZ for community projects. Initial funding for the DAO came from NFT sales on Objkt and donations from ecosystem participants. In Q3 2023, the Tezos Foundation contributed 72,000 XTZ (equivalent to $50,000) to the DAO, which was also listed on The PASS during the same period. Additionally, Marigold launched Tezos Community in Q3 2023, a centralized platform designed to foster engagement, networking, and collaboration within the Tezos ecosystem.

The Tezos Foundation announced that Alexis Bonte has been appointed as the President of the Foundation Council, effective from Oct. 10, 2023. Jean-Frédéric Mognetti will assume the position of Executive Director beginning on Oct. 10, 2023. Former President, Roman Schnider, has chosen to step down from the presidency to "start his own venture," and will retain his position as a member of the Foundation Council.

Network Upgrades

Oxford Upgrade

In October, the Oxford protocol proposal for Tezos did not achieve the required votes for activation on the Mainnet. In December, Nomadic Labs released the updated Oxford proposal (named Oxford 2) which includes the following features and is due to go live on February 9th:

• Disabling Adaptive Issuance and Staking Extension: Oxford 2 excludes Adaptive Issuance activation and staking mechanism extension for delegators.
• PoS Refinement: Introduces changes to slashing policies and automated auto-staking for bakers, facilitating smoother staked funds management.
• Timelocks Reimplemented: Features a redesigned and secure Timelocks mechanism, rectifying previous security issues.
• Smart Rollups Development: Adds private Smart Rollups options and simplifies their deployment across various networks.

Rollups

Tezos has advanced its rollup infrastructure, with the implementation of WebAssembly (WASM) rollups spearheaded by teams like Baking Bad. Additionally, an Ethereum Virtual Machine (EVM) Smart Rollup developed by Trilitech, Marigold, Functori and Nomadic Labs has been introduced on the Ghostnet testnet.

Etherlink will feature MEV protection, DAL integration , low latency, and increased security. Etherlink will facilitate the deployment of Ethereum-based contracts on Tezos, offer MetaMask wallet connectivity, and integrate with Tezos' L1 protocol, promoting interoperability and functional expansion in the ecosystem.

Furthermore, Tezos architect Arthur Breitman hinted at the development of an all-in-one Ultra-High Throughput Rollup.

Data Availability Layer

The introduction of Smart Rollups in the Mumbai upgrade marked a significant advancement in Tezos' scalability potential. As Tezos continues to pursue its goal of achieving millions of transactions per second in a single rollup, the development of a robust data availability solution becomes crucial. In pursuit of this goal, Tezos core developers are working on a protocol-level solution called the Data Availability Layer.

The DAL will run in parallel with the Tezos Layer-1 as an independent peer-to-peer network. It will leverage Tezos bakers and guarantee data availability while significantly scaling bandwidth and storage capacity. The DAL is currently in development, with an early version available on the Mondaynet testnet, and is expected to be activated through a protocol upgrade in early 2024.

Ecosystem Overview

Protocols

In 2023, Tezos's leading protocols, as gauged by active addresses, predominantly featured NFT marketplaces.

• Objkt - objkt held the top position throughout the year. In the fourth quarter, it maintained an average of 78000 weekly active addresses. A significant development was the release of the objkt V2 beta. This update introduced a new UI with a curation and fee-sharing feature, as well as the introduction of $POLE.
• fxhash - fxhash ranked second with 1,400 average weekly active addresses. The year was marked by notable activities for fxhash. In Q2, fxhash 2.0 launched on Ethereum, and in Q3 fxhash announced $5 million in seed funding. Furthermore, Q4 featured the release of ONCHFS, a platform for artists to create and exhibit digital art on the blockchain.
• Tezos Domains - Tezos Domains saw a QoQ surge, reaching the third spot by weekly active addresses in Q4. In early October Tezos Domains launched its TED token on Gate.io leading to a yearly high of 5,700 active addresses that week.

Outside of NFTs, DeFi DEXs Plenty Network and QuipuSwap, along with aggregator 3Route, demonstrated consistent engagement. Each protocol averaged around 1,000 weekly active addresses.

NFTs

NFT activity on the Tezos network witnessed a decline in the fourth quarter of 2023. Cumulative active NFT addresses reduced by 25% QoQ, dropping from 46,000 to 35,000. Similarly, the count of new NFT addresses also saw a decline, falling 54% QoQ from 18,000 to 8,000. This trend of decreasing NFT addresses was observed in three out of the four quarters in 2023.

In terms of sales volume, both XTZ and USD metrics also followed a downward trajectory. NFT Sales Volume in XTZ decreased by 18% QoQ, moving from 3.4 million to 2.8 million. Similarly, NFT Sales Volume in USD also fell, albeit at a slightly more muted rate of 12% QoQ, from $2.5 million to $2.2 million. The less pronounced decrease in USD sales volume can be attributed to the increase in the price of XTZ during this period.

In spite of these declines, Tezos remained actively engaged in the NFT space through a variety of initiatives:

• The Tezos Foundation and Musée d'Orsay partnered to bring Web3 into the museum through a series of educational and exhibition projects. The first part of the partnership saw the launch of the museum's first digital souvenirs by KERU for the Van Gogh in Auvers-sur-Oise exhibition.
• The Tezos Community Treasure Hunt was held, enhancing community engagement.
• The French auction house Millon and Arteïa collaborated to use Tezos blockchain for art authentication.
• Madonna's "Celebration" tour and Brazilian artist Gabriel Massan's exhibition at Serpentine London, supported by Tezos, included a web3 component enabling visitors to mint a recording of their gameplay and showcased the protocol's cultural integration.
• The Tezos Art Community participated in Miami’s Art Basel.
• The MoMA Postcard project, in collaboration with Autonomy Wallet and minted on the Tezos, empowered 15 artists from around the world to create, distribute, and co-own digital postcards which are now available to the general public.
• DNS.xyz announced it is launching a new social platform on Tezos, combining features of Spotify and Instagram.

One of the leading NFT collaborations on Tezos is Manchester United. In its first year, this collaboration successfully launched Tezos-branded team gear and introduced a range of digital collectibles, including the popular "The Devils" NFT series. The initiative aims to deepen fan engagement by offering digital tokens for match attendance, with rewards like signed merchandise and VIP experiences.

Gaming

Over the past 18 months, the Tezos ecosystem has focused on securing innovative game content with meaningful integrations on Tezos, and many of these games are close to launch. The pioneering batch of game launches led to a large influx of on-chain players. increased by 358% QoQ, from 1,000 to 4,700 (and 21,000 in January 2024). Additionally, gaming smart contract calls witnessed a 96% increase from 46,000 to 90,000.

This increase in gaming activity on Tezos can be attributed to several new games being built & launched such as Cricket Stars, The Six Dragons, Crossroads: Myth, BattleTabs, KAYO, and Third World: The Bottom Dimension. Notably, Stables, an immersive horse racing platform, has emerged as a success story within the Tezos gaming ecosystem, attracting over 4,000 weekly active users and registering more than 22,000 horses.

The fourth quarter brought additional exciting developments to the Tezos gaming scene:

• Coin Blast, a cross-platform gaming platform where players can play casual games like Trivia and compete with each other
• TrackMind, a chat-based AI game where players manage racing teams to win races and earn NFT trophies.
• DOGAMÍ launched DOGAMÍ Academy, an auto-racing game where players level up and equip their pet NFTs and race them to earn rewards.
• Cricket Stars, a strategy cricket game where players pick different pitching and batting moves, and can mint these moves as tradable NFTs of different rarities.
• Tezos SDK for Unity introduced a revamped codebase and documentation, which allows simplified and swift integration into the Tezos ecosystem on Unity-based games.
• EMERGE, a Southeast Asian marketing technology firm, partnered with TZ APAC to facilitate the introduction of Web3 games into the Tezos ecosystem.
• Fibo Partner & Farquhar VC (FVC), a Singapore based VC, partnered with TZ APAC to provide investment and advisory to projects in Tezos ecosystem.
• KAP.GG, one of the top Web3 game publishers and platform, partnered with Trilitech to offer co-grant and marketing support to games built on the Tezos ecosystem.

The next quarter will see more innovative, high-quality games launch on Tezos:

• StarSymphony.io, a rhythm-based game on Tezos, integrating music, gaming, and blockchain.
• MetaPals, a virtual-pet extension on Tezos blockchain with IPs such as Teletubbies, Neopets, Sanrio and many more.

DeFi

In the fourth quarter, Tezos DeFi TVL in USD saw an increase of 40% QoQ, rising from $76 million to $106 million. Conversely, TVL in XTZ reported a decrease of 13% QoQ, moving from 115 million XTZ down to 101 million XTZ. The disparity between the USD and XTZ TVL figures suggests that Tezos's TVL in USD has been positively impacted by the increase in the price of XTZ. Tezos's TVL positions it around the 30th largest chain in terms of TVL.

Youves continued its dominance as the leading protocol by TVL on Tezos, marking a TVL of $56 million, a 32% increase QoQ, and accounting for 53% of Tezos's aggregate TVL. 3Route followed as the second-largest protocol with a TVL of $22 million, up 35% QoQ, representing 21% of the total TVL. Other significant protocols include Kord.Fi with a TVL of $9 million (up 107% QoQ), Kolibri at $5 million (up 61% QoQ), QuipuSwap at $4 million (up 35% QoQ), and Plenty Network at $1 million (up 27% QoQ).

DeFi Diversity denotes the number of protocols comprising the top 90% of DeFi TVL. A wider spread of TVL across protocols can mitigate potential systemic risks from negative events. Tezos concluded Q3 with a DeFi Diversity score of 5.

Closing Summary

2023 marked a significant year for the Tezos ecosystem, characterized by substantial development and network growth. The Mumbai upgrade at the year's start introduced Smart Rollups, enabling application creation in various languages like Rust, C/C++, and Go. The Nairobi upgrade in Q2 2023 further enhanced Smart Rollups, increasing transaction throughput eightfold.

The upcoming Oxford 2 upgrade, scheduled for February 9th, 2023, disables adaptive issuance and staking extensions, introduces PoS refinements, re-enables Timelocks, and brings various improvements to smart rollups. Etherlink will offer MEV protection, Data Availability Layer integration, and facilitate Ethereum contract deployment. These upgrades are laying a solid foundation for future developments.

In Q4, network usage on Tezos saw growth. Gaming active addresses increased by 358% and gaming smart contract calls increased by 96% QoQ. This rise was driven by new game launches, including Coin Blast and Track Mind, with more anticipated. The NFT sector remained the leading sector, led by objkt and fxhash. The Tezos NFT ecosystem also witnessed various collaborations and real-world art event integrations, showcasing its expanding influence.

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 the Tezos Foundation. 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®.