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State of WAX Q1 2023

Apr 3, 2023 ⋅  15 min read

Key Insights

  • WAX’s financial metrics rebounded after decreasing each quarter in 2022. Circulating market cap increased 70% QoQ, and total WAX tokens collected as revenue increased 28% QoQ.
  • Average daily new addresses increased 39% QoQ to 5,000, driven in part by a WAX BlastOff NFT marketing campaign.
  • P2E game Alien Worlds accounted for the majority share of active address activity. Relative to other decentralized apps (dapps) and contracts, the game is less popular among newly created addresses, suggesting that existing users are sticky.
  • Funko digital collectible collections made up 70% of total NFT sales volume on WAX. Funko released five new collections this quarter featuring licensed brands.
  • Core protocol upgrades planned for this year include an EVM solution, a new consensus mechanism, and an IBC implementation.

Primer on WAX

Worldwide Asset eXchange (WAX) is a Layer-1 (L1) network geared toward gaming and NFT use cases. WAX launched in June 2019 following an ICO that raised around $60 million at the end of 2017. The network is built using the open-source Antelope framework (formerly EOSIO) which features Delegated Proof-of-Stake consensus, smart contract programming in C++, a unique resource model with bandwidth and state storage components, and a smart contract accounts model with similar effects to account abstraction. On top of this core Antelope stack, WAX Labs built other services including a cloud-based wallet, an NFT creator and marketplace, an on-chain random number generator, and a block explorer. These services were built to provide a more familiar Web2 experience on top of the core blockchain protocol. For a full primer on WAX, refer to our Initiation of Coverage report.

Key Metrics

Financial Analysis

The first quarter of 2023 saw the crypto market rebound following the turmoil in the second half of 2022. WAX was no exception: Its circulating market cap rose 77% QoQ up to $172 million. WAX’s market cap rank among all cryptocurrencies fell slightly throughout the quarter from 168th to 176th.

WAX’s revenue (all fees collected by the protocol) also rebounded in the quarter, although not as much as market cap. WAX has a unique resource model where WAX tokens (“WAX” on the WAX blockchain, “WAXP” on the Ethereum blockchain) can often be recouped by the user if they no longer require bandwidth or state storage resources. Thus, WAX does not collect revenue through gas fees. Instead, WAX revenue comes from a 2% tax on NFT secondary sales backed by a “gentlemen’s agreement” with NFT marketplaces. Therefore, the increase in WAX revenue comes from greater NFT activity this quarter.

WAX burns 20% of its revenue and bridges the remaining 80% to Ethereum to distribute to liquidity providers (see the DeFi section for more details). WAX mints its WAX token at a 5% inflation rate which it distributes to validators (2%), delegators (2%), and its treasury (1%). The burn mechanism has not significantly impacted inflation, which has stayed around 4.9%. Since all validator rewards come from inflation and the burn mechanism does not significantly lower inflation, WAX’s real staking yield (nominal staking yield adjusted for inflation) is negative (-0.27%).

The WAX team is planning an overhaul of WAX tokenomics and staking mechanisms in Q2 2023. The number of rewards to each network participant (validators, delegators, and treasury) will remain roughly the same. However, if the fees collected by the protocol cover the rewards, no additional WAX will be minted, and all leftover fees will be burned. If there’s not enough activity to cover the rewards, inflationary WAX will be minted to cover the difference. In the proposed system, inflation should not exceed 4%.

Network Analysis

Users

Transactions and daily active address activity have remained relatively constant throughout the past year. Average daily transactions were up 4.8% QoQ to 20 million, while average daily active addresses were down 0.1% QoQ to 338,000.

Of the roughly 1.5 million total active addresses in Q1’23, just over half were active for 9 days or less. Around 6.5% were active for over 80 days throughout the quarter, with a spike of over 3% of addresses that were active every day (more details in the Ecosystem Analysis section).

New addresses and total active addresses decreased YoY more significantly than average daily active addresses. In January 2022, the WAX team added a 5 WAX creation fee for new Cloud Wallet accounts, partially to deter the creation of bots and spam accounts. The new fee helps explain the 81% year-over-year decline in quarterly new addresses. However, average daily new addresses grew by 39% QoQ up to 5,000.

On average in the past year, around 50% of new addresses in one month were active in the following month. The cohort of new addresses in January 2023 was an outlier compared to other cohorts. About 70% of these new addresses were active in February 2023.

WAX began a four-part NFT marketing campaign in January called “BlastOff” which airdropped NFTs to accounts. The event culminated in February, with the announcement that NiftyCompany, builders in the WAX NFT space, would be launching an NFT subscription package. The package would allow users to trade old NFTs that might have lost value in exchange for new drops. However, the team later postponed the product due to “market conditions.” Nonetheless, the campaign which began in January could explain some of the stickier growth of January new addresses.

Near the end of February, the WAX team unveiled onboarding and user experience upgrades to the WAX Cloud Wallet. Since its launch at the end of 2019, the Cloud Wallet has allowed users to create an account with 2FA and familiar Web2 logins. In the past year, 72% of new addresses joined through Cloud Wallet. The February upgrade streamlined onboarding by allowing users to create an account without having to pay the 5 WAX creation fee until their first blockchain interaction. The upgrade also featured a new dashboard, an overall UI re-design, and an NFT token bridge to Ethereum and BNB Chain.

Validators

There are currently 65 validators with WAX voting power; however, only the top 21 with the most voting power can participate in consensus in a given round. Almost 1.6 billion WAX ($114 million) is staked, representing 68% of the total supply. Not all of these staked tokens are necessarily delegated to validators, though, they could just be staked in WAX’s resource model and not voting for validators.

In WAX’s Delegated Proof-of-Stake (DPoS) model, a tokenholder does not delegate tokens toward one validator; instead, they stake their tokens and then can vote for up to 30 validators. Each validator would then receive that tokenholder’s full amount as voting power. For example, if a tokenholder has 1 million voting power and votes for 30 validators, each validator would have 1 million voting power. Due to this system, it is impossible to precisely measure how much stake is delegated to all validators versus the top 21 (participating validators).

In order to take over the network through a two-thirds attack, a malicious actor would need to control 15 validators. Because of the abovementioned voting power system, a malicious actor would need enough stake to control the seventh highest validator by voting power. At the moment, this threshold is 1.29 billion WAX tokens ($92 million).

Along with the rest of the Antelope Coalition (EOS, Telos, and UX Network), WAX plans to implement a consensus mechanism upgrade to improve network performance by the end of the year. The Coalition is funding 0rigin, the core development team of UX Network, to develop the new mechanism. The mechanism will be a modified variant of HotStuff (Aptos’ consensus mechanism). The upgrade will expand Antelope validator sets beyond 21, improving decentralization. It will also bring near-instant finality (compared to the current three-minute transaction process), improving user experience and developer capabilities.

In the meantime, the Coalition will continue driving upgrades to improve network performance. For example, at the end of this quarter, WAX hard-forked to Antelope 3.1, which improves the predictability of transaction lifecycles.

Ecosystem Analysis

Play-to-Earn (P2E) game Alien Worlds accounts for a majority share of daily active address activity among all WAX contracts. Alien Worlds is a high-click outer space mining game, which also recently launched a PVP battle mode.

The next most popular set of contracts by active addresses is Farmers World, another high-click P2E game. However, over a year ago the Farmers World team sold the entire treasury (worth around $50 million at the time) and halted all development and communication. Despite this, Farmers World continues to average around 60,000 daily active addresses.

The WAX System contract averaged 24,000 daily active addresses throughout the quarter. It manages functions such as staking, delegation, and resource management

Many NFT marketplaces and projects that conduct primary drops use the same set of contracts in their backend. We grouped these into the “NFT Marketplaces” bucket. As a group, these contracts averaged over 14,000 daily active addresses in the quarter.

Other popular dapps by active address activity include NFT-based games Dungeon Master and Taco.

Instead of contract interactions from all addresses, this chart only looks at contract interactions on the same day that the address is created (“newly created addresses”). This highlights what addresses are doing when they join the network, and the results offer several noticeable differences from the above analysis on all addresses.

The most popular contract for newly created addresses is the WAX System. Over the quarter, the WAX System had a 49% share of newly created address interactions compared to a 6% share of all address interactions. This discrepancy indicates that many addresses are joining the network just to stake their WAX rather than for a specific ecosystem use case.

Of the addresses that join and participate in the ecosystem on the same day, the majority are either playing Alien Worlds or trading/minting NFTs. On average in the quarter, Alien Worlds had a 27% share of newly created address interactions compared to its 58% share of all address interactions. While Alien Worlds’ activity is driven by existing users, it still has a significant share of newly created addresses. On the other hand, Farmers World only had a 0.9% share of newly created address interactions compared to its 16% share of all address interactions.

Power addresses are defined as addresses that were active for over 80 days in the quarter. In Q1’23, there were 97,000 power addresses out of the 1.5 million total active addresses.

Again, there are notable differences compared to the above two charts. Most notably, Farmers World and Alien Worlds have a large, almost equal share of power addresses. Both averaged around 41,000 daily active power addresses. High-click Play-to-Earn games like Farmers World and Alien Worlds are prime for bot usage because they incentivize repeatedly clicking buttons. As such, the nature of these games could be accounting for the large amount of power addresses for these dapps. It should be noted that bot activity occurs on many popular games and is not exclusive to WAX.

The WAX team has been consciously working to reduce bot activity. In March, the WAX team announced an AI/ML tool called TRUST by the NFT marketplace Chain Champs. Once it’s released, TRUST will analyze an address’s transaction history and score how likely it is to be a bot. The scores will be made publicly visible and available through an API, allowing WAX dapps to then block addresses beyond a certain threshold probability of being a bot.

This chart re-examines all addresses (rather than just newly created or power addresses), but it now counts only the first interaction instead of measuring each daily interaction with a contract group. This analysis reveals the number of daily new addresses each contract group has.

Of note, Alien Worlds averaged 5,200 new addresses per day in Q1’23, just above the WAX System (4,900) and NFT Marketplace (3,100) contracts. On January 13, all three groups saw a significant spike in new addresses, likely brought on by the announcement of the BlastOff NFT marketing campaign two days earlier.

NFTs

In the past quarter, WAX averaged $129,000 in daily NFT sales volume, a QoQ decrease of 20%. Average daily sales, however, were almost constant QoQ. The spikes in NFT volume and number of sales were driven by Funko drops (see below for more details).

According to CryptoSlam!, WAX ranked 10th among blockchains in total NFT volume but 4th in the number of sales in Q1’23. It should be noted that CryptoSlam! only includes secondary sales data, unlike the above data which includes primary sales.

According to CryptoSlam! (again, only secondary sales) both daily unique NFT buyers and sellers increased in the past quarter. Daily unique buyers increased significantly, up 68% to 2,900 on average, whereas daily unique sellers increased 13% to 3,700 on average. The number of unique NFT buyers spiked in late March and has so far remained at elevated levels. The increase is largely driven by buyers of Alien Worlds NFTs.

Funko collections accounted for 70% of total NFT volume in Q1’23. Funko is a toy company that sells licensed pop culture collectibles. In Q3’21, it partnered with WAX to launch digital collectibles, some of which are redeemable for physical toys. Funko sells these digital collectibles in pack drops, which explains the significant spikes in WAX NFT sales volume. In Q1’23, Funko held six drops featuring licensed collectibles from Sid and Marty Krofft, DC Teen Titans, Nicktoons, House of the Dragon, Dungeons & Dragons, and Hanna-Barbera.

In total, Funko collections did over $7.9 million in sales volume. No other NFT collection on WAX did over $530,000.

DeFi

In the past quarter, DeFi TVL denominated in USD increased 46% to $523,000. This ranks WAX roughly 138th among all chains. The increase in TVL can mostly be attributed to price appreciation throughout the quarter, as the TVL denominated in WAX decreased 14%. The main DeFi protocol on WAX is Alcor Exchange, a decentralized exchange with automated market making and order book features.

At the moment, WAX does not have any natively minted stablecoins. The WAX team has brought over several Ethereum native stablecoins, namely USDC, USDT, and DAI, via a two-of-four multisig bridge (consisting of WAX’s president, COO, CTO, and blockchain lead). However, stablecoin usage on WAX has been low, with only around 25,000 tokens circulating outside the bridge.

As mentioned above, 80% of WAX revenue is bridged to Ethereum to distribute to liquidity providers in a WAX-ETH Uniswap V2 pool. At the end of the quarter, TVL in the pool stood at $4.8 million. However, the team plans to migrate the system back to WAX around the end of 2023.

Development

WAX’s ecosystem development growth slowed over the past year. In Q1’23, there were 267 new contracts called, a 7% QoQ decrease and a 49% YoY decrease. The total number of unique contracts called throughout the quarter plateaued at 1,300.

Upcoming technical updates to the core Antelope protocol could spur development growth on WAX. There are two major improvements that WAX plans on implementing in Q2 or Q3 2023:

  • EVM: Driven by the EOS Network Foundation, the Antelope Coalition has been developing an EVM solution. Currently, Antelope chains feature C++ smart contract programmability. The EVM solution will be deployed as a set of smart contracts within each chain, similar to Aurora on NEAR. Once implemented, it will allow developers to build protocols on WAX in Solidity or fork existing EVM-compatible projects.
  • Antelope IBC: Driven by 0rigin, the Antelope Coalition has been building a light-client inter-blockchain communication (IBC) protocol. Antelope IBC will work in tandem with the consensus mechanism upgrade to enable near-instant cross-chain messaging between Antelope chains. Furthermore, it will allow popular dapps to create their own Antelope sidechains that remain connected to the ecosystem. Antelope IBC went live on EOS and UX Network in Q1’23.

Closing Summary

WAX financial metrics rebounded in Q1’23 after decreasing in each quarter in 2022. Future tokenomic upgrades will seek to strengthen WAX’s financials by reducing inflation and distributing more revenue back to WAX rather than to liquidity pools on Ethereum. Although the number of transactions and daily active addresses were relatively constant QoQ (and YoY), new addresses increased 39% in Q1’23 due to the BlastOff marketing campaign. Core protocol upgrades planned for this year including an EVM solution, a new consensus mechanism, and an IBC implementation could boost the diversity and strength of WAX’s ecosystem.

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This report was commissioned by Exposition Park Holdings SEZC. 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.

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Peter is a Research Analyst in Protocol Services focused on Layer-1s. He recently graduated from Boston College where he studied economics and computer science and led the school's blockchain club.

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About the author

Peter is a Research Analyst in Protocol Services focused on Layer-1s. He recently graduated from Boston College where he studied economics and computer science and led the school's blockchain club.

Mentioned in this report