Tezos (XTZ) is a decentralized smart contract and application network, with an on-chain governance layer designed to enable efficient network upgrades and provide a transparent stakeholder community. The asset is currently 10th on the BraveNewCoin market cap table, with a market cap of US$1.6 billion, and US$72 million in trade volume over the past 24 hours.
A quick comparison between coins using a staking mechanism shows XTZ leading by market cap, total daily fees, and transactions per day. XTZ is near the bottom of the group in all other categories. According to stakingrewards.com, the average XTZ real staking yield, or staking yield minus inflation, is currently +0.62%. EOS (EOS) was excluded from the on-chain data comparison due to a lack of currently available reliable on-chain data.
Portions of the XTZ model were first conceived by Gordon Mohr and L.M. Goodman in late 2013 and early 2014. Kathleen Breitman and Arthur Breitman released the first Tezos position paper and white paper in late 2014.
Initial development started in the setting of both Bitcoin and Ethereum scaling and governance disputes. The project went on to secure funding in 2016, which was provided by Polychain Capital. Notable advisors include Emin Gün Sirer and Zooko Wilcox of Zcash.
The Switzerland-based Tezos Foundation was created in April 2017, with the goal of providing support to XTZ, related technologies, and the XTZ community. The project’s initial coin offering (ICO) occurred from July 1st to July 13th, 2017 when each token was sold for US$0.47. The ICO raised a total of 65,000 BTC and 325,000 ETH, or US$232 million, which made it one of the largest ICOs at the time.
As of March 2020, the Tezos Foundation holds a reported US$635 million in mixed assets; 47% in BTC, 23% in XTZ, 16% in bonds, ETFs, and commodities at Swiss banks, 8% in fiat, and 6% in other assets. The report also specified that the Foundation does not have plans to liquidate the XTZ from the genesis block allocation or related baking rewards.
Following the ICO, a dispute between then Tezos Foundation president Johann Gevers and the Breitmans pushed initial development back multiple months. Additionally, in October 2017, a class-action lawsuit was registered against Tezos in the Superior Court of California, citing "violation of the registration and anti-fraud provisions of the federal securities laws, as well as state false advertising, and unfair competition laws."
In June 2018, Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements were announced, which included user identity information that wasn’t initially collected during the ICO. The genesis block was also completed in June 2018, when 608 million XTZ were created. There is currently no limit on the total supply. The mainnet went live in September 2018 with ICO tokens unlocking in November 2018.
In late January, the Tezos Foundation announced a third round of ecosystem grants, for 21 new projects. These funded proposals involve applications built using XTZ smart contracts, tools for smart contract development, educational or training resources, and marketing materials.
Earlier this year, the Tezos Foundation president, Ryan Jesperson, announced he would not be seeking re-election for the role in the Spring. He will also abstain from voting on the new candidate. A Nomination Committee consisting of Hubertus Thonhauser, Alexis Bonte, Ryan Lackey, and Ulrich Sauter was formed and is set to release council nominations in the coming weeks.
In April, the Tezos Foundation announced a move to settle a pending US$25 million consolidated class-action lawsuit, after two years in court. A post from the Foundation stated, “it was decided that the one-time financial cost of a settlement was preferable to the distractions and legal costs associated with continuing to fight in the courts.” Earlier this month, a California judge gave preliminary approval for the settlement.
The Tezos ledger uses a delegated Proof of Stake consensus mechanism with a target block time of one minute and current annual inflation of 3.6% after the latest protocol upgrade. Just over 80% of the current circulating supply is participating in staking, or ‘baking’ on the XTZ chain, which is the highest total USD value of all Proof of Stake (PoS) chains.
Tokens need to be delegated to a baker to earn block rewards. There are seven exchange bakeries, with Coinbase holding the lion’s share. In total, just over 20% of the total Tezos circulating supply is held on exchange bakeries. Initially, bakers needed at least 10,000 XTZ to become a delegate, which has dropped to 8,000 XTZ, or US$21,520 at current prices. Users with less than 8,000 XTZ can also participate in staking through delegation services.
Bakers can manage XTZ nodes and participate in protocol amendments, as well as software updates and patches. Bakers also charge delegators for their services as network amenders and block producers. At the beginning of each cycle (4,096 blocks or about three days), the Bakers for each block are randomly selected and published. Bakers earn a block reward of 16 XTZ for baking a block. In addition to the Baker, 32 Endorsers are randomly selected to verify the last block that was baked. Endorsers receive 2 XTZ for each block they endorse.
Protocol amendments are adopted over election cycles which are 131,072 blocks long, or roughly three months. Amendments are only voted on by the community, and not by the Tezos Foundation. In late May 2019, the XTZ community voted to activate Athens, the first XTZ on-chain governance proposal. Athens increased the gas limit to allow for larger transaction throughput and reduced the minimum amount of XTZ required to bake, from 10,000 XTZ to 8,000 XTZ.
The Babylon 2.0 amendment was implemented in October. The Babylon upgrades included; changing the consensus algorithm to Emmy+, which makes smart contracts in the scripting language Michelson easier to write, distinguishing accounts from smart contracts, and changing quorum floors and caps.
The Carthage 2.0 amendment was implemented earlier this year. The Carthage upgrades included; increasing the gas limit per block and per operation by 30%, improving the accuracy and resiliency of the formula used for calculating baking and endorsing rewards and various other small fixes. The reward formula was also altered to grant up to 40 XTZ to the baker and 1.25 XTZ to each endorser. This change holds expected rewards constant and makes selfish baking effectively unprofitable for bakers who control less than 20-25% of stake.
Source: Tezos Blog
On the network, the current total number of transactions per day (line, chart below) have continued to slowly increase over the past year, closely correlated with the XTZ token price. The recent drop in transactions per day matched a drop in XTZ token price.
Average transaction fees (fill, chart below) have also continued to increase in this same period, and are currently US$0.00473. Runaway transaction fees with slightly rising transactions per day may be a sign of poor scaling mechanisms currently on the XTZ chain. Average transaction values have ranged from US$200 to US$6,000 over the past 15 months (not shown).
The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) is currently 94, slowly rising, and at the bottom of the historic range. Inflection points in NVT can be leading indicators of a reversal in asset value.
An uptrend in NVT often suggests a coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator, whereas a downtrend in NVT suggests the opposite. NVT below 100 typically indicates organic and sustained bull market conditions.
Active and unique addresses also are important to consider, specifically when determining the fundamental value of the network based on Metcalfe's law. Monthly active addresses (MAAs) have continued to increase since January 2019 (fill, chart below), recently hitting an all-time high post ICO distribution. In November 2018, addresses spiked due to the release of the claimed tokens from the ICO. A consistent and sustained increase in MAAs paints a bullish picture for any asset.
The XTZ project is programmed in OCaml with the main repo on GitLab recording nearly 1,500 commits over the past year (shown below). As of last year, the Tezos Foundation reported 1,338 developers have completed or are working to complete the Tezos training course.
Most coins use the developer community of Github or GitLab where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.
XTZ has had a slurry of listings over the past several years.
- July 2017 - HitBTC
- July 2018 - Gate.io
- September 2018 - Bitfinex
- October 2018 - Kraken
- August 2019 - Coinbase and eToro
- September 2019 - Binance
- November 2019 - OKEx
- December 2019 - Bittrex
- March 2020 - Poloniex
Bitfinex also added XTZ/USD and XTZ/BTC margin pairs in August 2019. Kraken added XTZ/EUR, XTZ/USD, XTZ/XBT, and XTZ/ETH margin pairs in February. Last month, OKEx also announced XTZ/USD and XTZ/USDT margin pairs.
Binance, Binance.US, Bitfinex, Coinbase, Coinone, Gate.io, Huobi, Kraken, Kucoin, OKEx, and the Trezor and Ledger hardware wallets provide staking support for XTZ. The asset is not currently listed on Gemini and Poloniex does not currently have XTZ staking capabilities.
Worldwide Google Trends data for the term "tezos" has increased with each voting amendment and spot price increases. The July 2017 spike in “tezos” searches corresponds with the project’s ICO. Google Trends data has been found to have some correlation with crypto prices. A 2015 study found a strong correlation between the Google Trends data and BTC price, while a 2017 study concluded that when the U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.
In March, XTZ/USD saw a 75% drawdown from the all-time high, which mirrored the wider crypto markets. A roadmap for potential trend changes can be deduced using Exponential Moving Averages, Pivot Points, Volume Profile of the Visible Range, Pitchforks, and the Ichimoku Cloud. Further background information on the technical indicators discussed below can be found here.
On the daily chart for the XTZ/USD pair, the 50-day Exponential Moving Average (EMA) and 200-day EMA crossed bullishly on November 18th, and a 250% bull rally followed. Even with the recent March drop in price, there was no bearish EMA cross. The 200-day EMA at US$2.10 should act as support in the near term.
Volume increased substantially after January 2020 and hit an all-time high on March 12th. VPVR and yearly pivot support (horizontal bars, chart below) sits at US$1.20 with volume and pivot resistance around US$2.80.
Bitfinex open interest (top panel, chart below) has sloshed around since the beginning of the year, with both shorts and longs reaching a new all-time high, then decreasing substantially. Open interest is currently 78% long. Additionally, there are no bullish or bearish divergences on volume or RSI.
Price currently sits in the lower half of a bullish Pitchfork (PF) with anchor points in December 2018, and May and October 2019. Both the February local top and March 12th drop have held within the PF. Throughout any given trend price returns to the median line several times, currently at US$6.24. The PF will be invalidated when price closes outside of the lowest support, currently at US$1.55. The maximum upside target is currently near US$15.25.
Turning to the Ichimoku Cloud, four metrics are used to indicate if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
Cloud metrics on the daily time frame, with doubled settings (20/60/120/30) for more accurate signals, are currently bullish; price is above the Cloud, the Cloud is bearish, the TK cross is bullish, and the Lagging Span is above both the Cloud and price. An upcoming bullish Kumo twist will solidify bullish trend conditions. The trend will remain bullish until the spot price is above the Cloud.
On the daily chart for the XTZ/BTC pair, the spot price broke above both the 200-day EMA and daily Cloud on November 7th, leading to a 108% bull rally. Price returned to the 200-day EMA on January 16th and then led to a 95% bullish rally. Since early March, the spot price has weaved above and below the Cloud but has held above the 200-day EMA. Looking forward, a bullish TK cross while price above the Cloud is the most bullish trend continuation signal in the Cloud system.
RSI and volume show no bearish or bullish divergences. Historic volume support sits at the psychological zone of 20,000 sats, with the 200-day EMA at 25,000 sats. Bitfinex open interest is 59% short with shorts dropping dramatically earlier this month. Price may need to reconsolidate near the all-time high zone before further attempts at higher highs.
After a rocky start in 2017, Tezos enters a crowded field of PoS coins with the hopes of solving crippling governance issues that have previously plagued both Bitcoin and Ethereum. All three protocol upgrades thus far - Athens, Babylon, and Carthage - have all been implemented flawlessly. Fundamentals reflect a nascent chain with rising daily transactions and increasing active addresses over the past year.
The high percentage of staked circulating supply, at above 80%, may suggest there is not much else to do with XTZ currently, as smart contracts and dapps have yet to take hold. The high staking percentage is likely related to several exchanges and custody services allowing for staking participation. Currently, over 20% of the XTZ circulating supply is held by exchange bakeries. Worldwide Google Trends continues to paint a bullish picture for the asset so long as Trends holds above historic levels.
Technicals for the XTZ/USD pair have recovered from the March 12th drop and have slowly become bullish once again. The spot price back above the 200-day EMA and daily Cloud is a strong indicator of a strong bullish bias in the market. Upside resistance sits at the VPVR level of US$2.80 and US$3.60 while strong VPVR support sits at US$1.75 and US$1.30.
Technicals for the XTZ/BTC have been bullishly ranging since the beginning of the year. The spot price sits at the previous all-time high zone with a pending bullish TK cross. Strong downside support sits at the VPVR and psychological level of 20,000 sats, as well as the 200-day EMA at 25,000 sats. A bullish resolution to the current price structure will very likely bring the spot price to new all-time highs over the next few weeks.