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 18th on the BraveNewCoin market cap table, with a market cap of US$1.80 billion, and US$66 million in trade volume over the past 24 hours.
A quick comparison between coins using a staking mechanism shows XTZ second in transactions per day and daily fees, third in market cap and daily active addresses, fourth in daily transaction volume, and behind most of the pack in developer commits on the main project repository. 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 held 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 year, 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 under 80% of the current circulating supply is participating in staking, or ‘baking’ on the XTZ chain, which is the second-highest total USD value of all Proof of Stake (PoS) chains at just over US$1.43 billion. According to stakingrewards.com, the average XTZ real staking yield, or staking yield minus inflation, is currently +0.71%.
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, over 23% 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$29,000 at current prices. Users with less than 8,000 XTZ can also participate in staking through delegation services. The OKEx bakery is currently 933,000 XTZ overcapacity and will need to buy XTZ to increase its staking bond.
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 the stake.
The Delphi proposal was announced on September 3rd, containing a number of small bug fixes and substantial improvements to the performance of the Michelson interpreter, as well as gas costs. The proposal would also reduce storage costs by a factor of 4 to reflect improvements in the underlying storage layer.
Source: Tezos Blog
On the network, the current total number of transactions per day (line, chart below) has continued to decrease over the past few months, closely correlating with the XTZ token price. Transactions per day now sit near 34,000, representing multi-month lows. Any future sustained increase in transactions per day should be considered a bullish indicator for price.
Average transaction fees (fill, chart below) have also increased over the past nine months, and are currently US$0.0033. In mid-August, transaction fees averaged US$0.02, an all-time high. Runaway transaction fees with slightly rising transactions per day may be a sign of poor scaling mechanisms, which will likely be addressed with the Delphi amendment. 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 66 and rising, at the bottom of the historic range. NVT below 100 typically indicates organic and sustained bull market conditions.
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.
Active and unique addresses are also 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), and have repeatedly made all-time highs 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.
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. 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. The upside recovery has been relatively sluggish compared to other high cap coins, despite the nearly 200% bounce from the bottom. 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 bullish in November 2019, and a 250% bull rally followed. Even with the price drop in March, there was no bearish EMA cross, however, a Death Cross did occur on October 1st. The 200-day EMA at US$2.44 should now act as resistance in the near term.
Volume increased substantially after January 2020 and hit an all-time high on March 12th. Immediate overhead Volume Profile of the Visible Range and yearly pivot resistance (horizontal bars, chart below) sits at US$2.71. Long term yearly pivot resistance also sits around US$4.39. Psychological and yearly pivot support sits at US$2.00 with heavy VPVR support from US$1.30 to US$1.60.
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 99% long. Additionally, a bullish divergence on RSI has formed, suggestive of weakening bullish momentum. Volume declined significantly since the March 12th low but has risen substantially over the past few weeks.
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.
Daily Cloud metrics, with doubled settings (20/60/120/30) for more accurate signals, are currently bearish; the spot price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and below the spot price. The trend will remain bearish so long as the spot price remains below the Cloud. However, a long flat Kumo at US$3.14 may act as a magnet for price in the near term.
On the daily chart for the XTZ/BTC pair, the spot price is also bearish as it’s below the 200-day EMA and daily Cloud. Price has declined 55% since the Death Cross in late September. Despite a large VPVR node and yearly pivot support at 20,000 sats, support failed to hold price. The next VPVR and yearly pivot supports sit at 10,000 sats and 8,500 sats, respectively.
RSI is showing a bullish divergence suggestive of waning bearish momentum. A capitulatory spike down on high volume is likely to occur in the near future and will mark an interim local bottom. Bitfinex open interest is 96% long with long positions flat over the past few weeks as short positions have declined dramatically.
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 been implemented flawlessly. The next upgrade, Delphi, is set to decrease gas costs on the chain. 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 also likely related to several exchanges and custody services allowing for staking participation. Currently, just over 23% of the XTZ circulating supply is held by exchange bakeries. Worldwide Google Trends have cooled over the past few months, suggesting declining bullish momentum for the spot price as well.
The recent boom for DeFi related coins has likely temporarily sucked buy-side demand away from XTZ in the near term. Technicals for both the XTZ/USD and XTZ/BTC pair show bearish trend metrics with spot prices far below the 200-day EMA and daily Cloud. Death Crosses have also occurred on both the XTZ/USD and XTZ/BTC pairs with heavy bearish follow-through. Support for XTZ/USD and XTZ/BTC sits at US$2.00 and 10,000 sats, respectively, as bearish divergences have also emerged on both pairs in recent days. Both pairs also have heavily skewed long open interest on Bitfinex, which may begin to unwind and bring further price lows.