State of WAX Q3 2023

Key Insights

• Funko’s Stranger Things collection reached almost $1.2 million in combined primary and secondary sales on the day of its drop. This was the second-highest daily trading volume for a WAX collection in the past year.
• Average daily new addresses increased 81% QoQ to 2,900. The August 2023 cohort of new addresses had the highest one-month retention rate of any cohort in the past year at 80%.
• WAX Labs launched a Cloud Wallet upgrade, allowing users to claim control over their admin keys. So far, over 17,000 addresses have claimed admin control.
• Wombat acquired AtomicHub, WAX’s most popular NFT marketplace by secondary sales volume. Wombat plans to integrate its existing features, including its wallet and $WOMBAT token, into the marketplace while also continuing development in other areas.

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 a token generation event (TGE) 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.

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Key Metrics

Financial Analysis

Q3’23 featured a largely quiet crypto market that largely traded sideways. The one major exception was a large selloff in mid-August. $WAX followed this trend — its circulating market cap decreased 8% QoQ to $141 million, largely from August 15-17. WAX’s market cap rank among all cryptocurrencies fell slightly QoQ from 158 to 165. However, total quarterly revenue in $WAX increased 22% QoQ to 2.1 million ($97,000).

WAX has a unique resource model where $WAX ($WAX on the WAX network, $WAXP on the Ethereum network) 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.

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). The WAX protocol mints $WAX at a 5% annual inflation rate which it distributes to validators (2%), delegators (2%), and its treasury (1%). The burn mechanism has not significantly impacted inflation, which has remained around 5%. Since all validator rewards come from inflation and the burn rate is low, WAX’s real staking yield (nominal staking yield adjusted for inflation) is negative (-1%).

WAX Labs is planning an overhaul of $WAX tokenomics and staking mechanisms by the end of 2023. The distribution 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. When there aren’t enough fees, inflationary $WAX will be minted to cover the difference. In the proposed system, inflation should not exceed 4%.

Network Analysis

Usage

Network activity has remained relatively constant in the past year. In Q3’23, average daily transactions fell 5% to 17 million and average daily active addresses fell 11% to 302,000. Daily transactions and active addresses reached their lowest figures in a year near the end of August, hitting 14.5 million and 237,000, respectively. After the dip, both figures quickly rebounded.

In Q3’23, there was a total of 877,000 unique active addresses, a 20% QoQ decrease. While there were fewer total active addresses, active addresses were generally more engaged this quarter than in Q2’23, measured by the number of days each address was active. In Q3’23, half of the 877,000 active addresses were active for over twenty one days, compared to seven days in Q2’23. Furthermore, 14% of Q3’23 active addresses were active for only one day in the quarter, compared to 24% in Q2’23. A relatively high percentage of addresses remained active every day in the quarter, at 10%.

Average daily new addresses grew 81% QoQ to 2,900. New address growth featured an upward trajectory throughout the quarter, after falling significantly in Q2’23. The August 2023 cohort of new addresses had the highest one month retention rate of any cohort in the past year. Of the 86,000 new addresses in August, 80% were active again in September.

Security and Decentralization

At the end of the quarter, there were 69 validators with WAX voting power; however, only the top 21 with the most voting power can participate in consensus in a given round. Last quarter, staked $WAX increased significantly due to WAX Labs staking tokens they had accumulated over the years but hadn’t staked until then. However, after the increase, the figure decreased by 4% this quarter to 1.9 billion $WAX ($79 million). Not all of these staked tokens are necessarily delegated to validators, though; they could just be staked in WAX’s resource model and not used for 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 end of the quarter, this threshold was 778 million $WAX ($33 million).

Geographic diversity is also an important factor in the resiliency of a validator network. Of the participating validators at the end of the quarter, Europe was the most popular hosting region with eight validators.

Upgrades and Roadmap

WAX Labs made several upgrades to the Cloud Wallet this quarter. The Cloud Wallet provides an easier onboarding experience by allowing users to create an account with Web2 credentials (email and password, Google, Facebook, etc.) and 2FA. It also abstracts away seed phrases by managing the admin key for accounts through a two-of-four multisig consisting of WAX’s president, COO, CTO, and blockchain lead. While the Cloud Wallet improves the new user experience, it comes with a tradeoff in trustlessness which users now have easier control over. At the end of July, WAX Labs added “soft claim” and “hard claim” features to the Cloud Wallet. These features let users claim ownership of their account while either continuing to use and benefit from other Cloud Wallet features or not. So far, over 17,000 addresses have claimed admin control.

The Antelope protocol powering WAX (along with other networks including EOS, UX Network, and Telos) is set for a milestone upgrade in Q4. The Antelope Coalition funded UX Network core development team 0rigin to develop a new consensus mechanism that will be a modified variant of HotStuff, a BFT-based protocol developed by the Facebook team working on Libra. The upgrade will bring several improvements including expanding the validator count beyond 21 and bringing near-instant finality. Additionally, it will separate the responsibilities of a validator within the consensus mechanism into three roles:

• Block Proposer: responsible for ordering transactions into a block.
• Block Finalizers: responsible for sending signatures on block proposals to the Consensus Leader.
• Consensus Leader: responsible for collecting signatures from Block Finalizers and generating a Quorum Certificate.

At the launch of Antelope Leap 5.0, active BPs will fulfill all three roles. But in the future, the different roles will be able to be fulfilled by different parties. For example, block proposers could continue being limited to around 21 nodes, but block finalizers could be opened up to a significant number of more validators. This would improve security and decentralization by having more voting validators without meaningfully reducing performance by keeping block proposers to high-performance nodes.

Ecosystem Analysis

Popular Contracts

Active address activity on WAX is dominated by Play-to-Earn (P2E) games Alien Worlds and Farmers World. In late August, Alien Worlds’ active addresses began to dip, causing a 26% QoQ decrease in its average daily active addresses to 178,000. Soon after, in early September, Farmers World’s active addresses began to rise, driving a 57% QoQ increase in average daily active addresses to 85,000. With active addresses falling on Alien Worlds and rising on Farmers World, Farmers World grew its market share of active addresses among other WAX contract groups 70% QoQ to 25%.

Given that the Farmers World team sold the entire treasury (worth around $50 million at the time) and halted all development and communication, it’s unclear what drove the recent increase in activity.

The WAX System contract averaged 16,000 daily active addresses this quarter, up from 13,000 last 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 almost 14,000 daily active addresses this quarter, up 41% QoQ

Other popular dapps by active address activity include NFT-based games Dungeon Master and Taco, which both had around a 10% QoQ decrease in average daily active addresses.

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

The increase in active addresses on Farmers World was driven in part by new addresses. The average number of daily newly created addresses increased by 974% to 904, overtaking the WAX system for the top spot. On September 10, almost 22,000 new addresses were created and then interacted with Farmers World on that same day. Alien Worlds also experienced a notable increase in average daily newly created addresses, up 51% QoQ to 561.

WAX accounts have two key roles: an admin key and an active key. The two roles have the same default permissions, except an active key cannot add or remove other active keys. Furthermore, admin keys can set up active keys with custom permissions. When users create an account through the Cloud Wallet, their admin key is by default managed by a managed.wax account. As noted above, the Cloud Wallet update at the end of July enabled addresses to easily take control of their admin key. After the update on July 24, the managed.wax contract averaged 68 daily newly created addresses. In general, over 17,000 total unique wallets interacted with the managed.wax address after the update, taking full control of their account.

This chart again only looks at contract calls from a subset of addresses; here, power addresses. Power addresses are defined as addresses that were active for over 80 days in the quarter. Out of the 877,000 total active addresses in Q2’23, 128,000 were power addresses.

A significant percentage of Alien Worlds’ and Farmers World’s daily active addresses are power addresses. About 37% of Alien Worlds’ daily active addresses are power addresses, while 53% of Farmers World’s daily active addresses are power addresses.

The two games combined for a 78% share of daily 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 games and is not exclusive to WAX.

WAX Labs has been consciously working to reduce bot activity. In June, WAX Labs integrated an AI/ML tool called TRUST into the WAX Cloud Wallet. Made by the NFT marketplace Chain Champs, TRUST analyzes an address’s transaction history and scores how likely it is to be a bot. TRUST scores are publicly available through the Cloud Wallet interface, on an API, and onchain through a smart contract. As a result, WAX dapps can use the scores within their own smart contracts, for use cases such as blocking addresses with a set likelihood of being a bot.

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

Similar to the trends in daily newly created addresses, both Farmers World and the managed.wax contract experienced sizable increases in daily new addresses. Alien Worlds also grew faster than last quarter, with average daily new addresses increasing 41% QoQ to 1,700.

NFTs and Gaming

In the past quarter, WAX averaged $78,000 in daily NFT sales volume, a 12% QoQ decrease. Average daily sales decreased less: 9% QoQ to 20,000. The spikes in NFT volume and number of sales were driven by Funko drops, which are explored in more detail below.

According to CryptoSlam!, WAX ranked 14th among blockchains in total Q3’23 NFT volume, compared to 12th last quarter. In the number of sales, it ranked 7th, compared to 5th last quarter. It should be noted that CryptoSlam! only includes secondary sales data, unlike the above data which includes primary sales.

Average daily NFT buyers decreased 68% QoQ to 1,400, and similarly average daily NFT sellers decreased 51% QoQ to 3,000. Both figures increased notably last quarter, reaching yearly highs.

Funko collections averaged $53,000 in daily sales volume, 68% of total WAX NFT volume. 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 Q3’23, Funko held four drops featuring licensed collectibles from Stranger Things, Power Rangers, Steven Universe, and Jurassic Park.

On July 13, the Stranger Things primary drop, combined with its secondary trading volume on that day, reached almost $1.2 million in volume. This was the second-highest daily trading volume for a WAX collection in the past year, only topped by Funko’s Game of Thrones drop in Q4’22.

Farmers World activity growth was not restrained to active address figures: its average daily sales volume increased by 2,200% QoQ to $863.

The Experimental Bananas, launched by WAX Ape Rave Club (WARC) were a new entry into the top six collections this quarter, averaging $981 in daily sales volume. In Q2’23, the WAX Ape Rave Club NFT collection launched, generating over $10,000 in volume from mints and secondary trading on the day of its drop. Near the end of Q3, the team launched a game where users compete to get the top-ranked Ape Gold Coin, with rewards up to 90,000 $WAX ($3,800). To upgrade their Ape Gold Coin, users can craft them with Ape Gold Coins, Astral Apes, and Experimental Bananas — all NFT projects launched by the WAX Ape Rave Club team. By the end of the quarter, all 10,000 Ape Gold Coins were minted, at 100 $WAX ($4.20) per NFT.

Average daily sales volume of both Alien Worlds and Dungeon Master decreased 30%+ QoQ, but they remained comfortably in the top three collections at $4,800 and $3,500 average daily sales volume, respectively. Dungeon Master is an NFT staking game on WAX and EOS created by gaming platform Wombat, which also features an in-house wallet.

At the beginning of September, Wombat acquired AtomicHub, the most popular NFT marketplace on WAX by secondary sales volume. AtomicHub was previously run by Pink.gg. Wombat announced that it plans to continue developing AtomicHub, along with integrating Wombat services such as its wallet login feature and its token $WOMBAT into the marketplace.

Rounding out the top six collections was Taco, whose average daily sales volume increased 50% QoQ to $1,200. At the end of September, Taco dropped packs for its new Play-to-Earn idle game Combz which launched a few days later. The drop sold out, raising over $23,000, half of which will go toward the prize pool of the first Combz season. Combz joins Brigade and Acryptia as games within the Taco Universe.

Other NFT and gaming-related events include:

• BC Brawlers Updates: At the end of July, BC Brawlers became available to play on MacOS. BC Brawlers is a PVP card game developed by WAX Labs that launched at the end of 2021. At the end of the quarter, BC Brawlers announced that it is set to launch on the Epic Games store. Despite the upgrades, volume of the BC Brawlers NFT collection has continued to decrease QoQ, averaging $86 in daily sales volume in Q3.
• NFT World Cup: IntraVerse hosted an NFT World Cup sponsored by WAX, Polygon, Sandbox, DappRadar, and more. The tournament features a “Street Fighter” type gameplay, where players can choose from avatars created based on the 32 participating NFT projects. From WAX, participating projects included Taco, Aphelium, and others. Over 4,500 players joined, with around 8 ETH in total prizes distributed.
• Aphelium Tournament: Aphelium, a planet-based game played through Discord chats, hosted a tournament with up to $5,000 in prizes to celebrate its mainnet launch at the beginning of Q3. The game’s associated NFT collection featured $240 in average daily trading volume in Q3.

DeFi

DeFi TVL in USD fell 8% QoQ to $192,000 ranking WAX 160th among all chains. Denominated in $WAX, DeFi TVL slightly increased QoQ by 1%. The significant drop in TVL at the end of April came right after DEX Alcor Exchange launched its AMM V2, introducing concentrated liquidity. While concentrated liquidity can bring better capital efficiency, it can also make it more difficult to be a profitable liquidity provider, as has been seen with Uniswap V3. Following the upgrade, Alcor TVL almost halved.

At the beginning of Q3, Alcor launched a front end for Antelope IBC. Antelope IBC is an inter-blockchain protocol developed by UX Network core development team 0rigin, with funding from the Antelope Coalition (the collection of teams from WAX, EOS, UX Network, and Telos). In Q2, WAX integrated Antelope IBC into the network, connecting it with all the other Antelope networks. Alcor updated the feature several times in the quarter, including tracking transfer status and history and supporting $WOMBAT transfers.

At the moment, WAX does not have any natively minted stablecoins. WAX Labs 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). The combined market caps of the above stablecoins decreased by 6% QoQ to $26,000.

As mentioned earlier, 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 and Growth

While the number of total unique active contracts called remained steady in the past year, new contracts continued to decline. Total active contracts decreased by 4% QoQ to just under 1,240. Meanwhile, new contracts fell 5% QoQ to 115. The network will continue tapping into its treasury to incentivize new builders on WAX. Its treasury currently stands at $3.6 million, and it is projected to grow at a yearly rate of $1.4 million based on current prices from its allocation of 1% network inflation.

Furthermore, WAX Labs launched several tools and resources that open up new use cases for ecosystem builders:

• Cloud Wallet Emails: The Cloud Wallet allows users to make an account and sign in through an email address. In mid-September, WAX Labs added a feature that allows developers to request access to read a user’s email address through OAuth.
• Cloud Wallet NFT bridge: At the beginning of Q2, WAX Labs integrated an NFT bridge into the Cloud Wallet. The bridge allows WAX NFT collection creators to map the collection to an ERC-721 smart contract, initially supporting NFT transfers to and from WAX, Ethereum, and BNB Chain. Then in Q3, WAX Labs integrated Polygon into the Cloud Wallet bridge. Members from WAX and Polygon development teams hosted a Twitter space to discuss the integration and explore future possibilities.
• Cloud Wallet Alerts: Near the end of the quarter, WAX Labs added a notification icon to the Cloud Wallet dashboard. By clicking on the icon, users can see read and unread messages from events including email changes, API key creations, auto-sign transaction revokes, and more.
• Revamped Developer Portal: WAX Labs launched the WAX Developer Portal, featuring documentation, tutorials, examples, and more to help developers build on WAX.

Closing Summary

Most of WAX’s key metrics, including market cap, average daily transactions, average daily active addresses, and NFT sales volume decreased slightly QoQ. However, these decreases largely aligned with the overall market. One notable exception to this trend on WAX was the 81% QoQ increase in average daily new addresses to 2,900. The growth was partially driven by addresses created to play Farmers World, which increased its activity and sales volume this quarter despite the team selling the treasury and halting development over a year ago.

Notable activity occurred in other areas as well, with Funko’s Stranger Things collection reaching $1.2 million in combined primary and secondary sales on the day of its drop. Additionally, WAX Labs continued to launch new features for the Cloud Wallet, including enabling users to easily claim control over their admin keys. Lastly, WAX Labs revamped its developer portal to attract more developers and help them build, which will be crucial to WAX’s success.

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