Hey, Metrics Explorers!

It’s Laura & Sooraj, back with another adventure in the crypto jungle!

HUGE thanks for throwing your questions and votes our way!

This week, we’re putting on our explorer hats and digging into Tezos (XTZ).

Remember Leo’s question from last week?

He was super curious about how new staking and adaptive issuance might shake things up for price.

Well, Leo, we’ve got some nuggets of wisdom coming your way in this issue!

Keep those awesome questions coming - they might light up the path for our next exploration!

Ready to jump into the Tezos jungle with us?

Let’s go!

PS: Quick heads up, folks! Last week's survey results are in, and it looks like we’re setting our sails towards Atom next week!

What you’ll learn today

Insight 1: Tezos's New Adaptive Issuance: A Game Changer?

• How might the new issuance model shake up XTZ's market and staking dynamics?

Insight 2: Tezos’s Valuation vs. Demand: A Balanced Scale or Tipping Point?

• Navigating through Tezos’s V/D ratio and what it reveals about its valuation and actual utility in the market.

Insight 3: Scalability vs Adoption: Does improving scalability mean that adoption is meant to happen?

• Looking at Tezos’s current level of adoption compared to the scalability it offers.

1. Market Overview

Circulating Market Cap

This metric serves as an indicator for evaluating the asset's relative size in the broader cryptocurrency market.

Current value in USD: $658 million

90-Day Trend: -15%

Current value in BTC: 23,865 BTC

90-Day Trend: -5.9%

Daily Volume

The daily trading volume of a crypto asset indicates both market interest and market liquidity. Higher volume corresponds to lower volatility, and vice versa.

Current value: $15.5 million

What does this daily volume and size of the market cap mean?

The market cap of Tezos puts it in the league of chains like MultiversX and Algorand. But if you look at the daily volume, Tezos has 300 more daily trading volume than MultiversX and 50% more trading volume than Algorand.

2. Supply and Demand

Token Inflation Rate

Inflation Rate's Significance

A high rate could dilute the token's worth, turning it into something less exciting. A low rate, however, could drive up both demand and price.

Current value: 4.6% Token Supply Growth

Tezos has a fixed number of new XTZ that are being created every block which amounts to approximately ~44.6 million XTZ per year or 4.6% inflation with the current Tezos supply.

But this is going to change with adaptive issuance!

The recently announced 15th protocol upgrade for Tezos, "Oxford," features "adaptive issuance," which could be the most significant change to its economic model since the mainnet launch.

What is Adaptive Issuance?

Adaptive Issuance is a modification to the existing issuance model in Tezos, aimed at dynamically adjusting the creation of new tokens (XTZ) based on the amount of XTZ that is staked to secure the network.

Unlike the current model, where the rate of new tokens is constant, adaptive issuance adjusts this rate to encourage or discourage staking.

Implications For Stakers:

Stakers in this context are individuals who lock their XTZ as bonds.

Staking will offer several advantages:

• Staking will carry twice the weight of delegations in terms of baking rights, resulting in higher rewards.

• Reward distribution for stakers is automatic, reducing the need for trust.

• By staking, individuals contribute to making the network more secure.

The target ratio for staked funds is 50% of the total supply, and reaching this target faster would mean fewer total emissions because the dynamic rate of issuance would be lower.

Implications For Bakers:

Bakers can set specific parameters including:

The proportion of their balance to be used as bonds.

Whether they will accept external stakes and how much they will accept.

The cap for staking is five times the baker's own funds, whereas the limit for delegations remains at nine times the baker's own funds. More staking is encouraged for bakers as it offers them an edge over their competition through the opportunity to bake more blocks, thereby earning more rewards.

Annualized Fee Revenue

Annualized fee revenue and token burn serve as a gauge of financial health for a protocol. Elevated revenue figures indicate a robust transactional activity within the network, while diminished numbers may suggest a decline in user engagement.

Current value: $554380

Annualized fee revenue = $293,800

Token burn =$260,580

In the context of Annualized Fee Revenue, Ethereum takes the lead with a notable $2 billion, far outpacing its competitors.

Tezos lags significantly behind Ethereum but finds itself in a diverse competitive environment that includes Solana and Cardano, which reported $14.22 million and $2.8 million, respectively.

Supply/Demand (S/D) Ratio

The S/D ratio measures the network's financial balance. A ratio close to 1 indicates fee revenue and reward payouts are nearly equal.

A ratio below 1 suggests that more rewards are being paid out than fees are being earned, which could potentially call into question the long-term value of the token if this trend continues.

Current value:

▪️ Annual Fee Revenue: $293,793

▪️ Rewards Per Year: $23.98 million

▪️ Ratio: 0.012

With an S/D ratio of around 0.012, Tezos's reward payouts are approximately 81 times greater than its annual fee revenue.

For some perspective, the supply of ETH is approximately 1.170 times the demand.

Valuation to Demand (V/D) Ratio

Here we are looking at the valuation-to-demand ratio. So what does it mean?

All L1 token prices are based on optimism about the level of adoption achievable by the network in the future.

The market cap of L1 tokens in dollar terms suggests the speculative price people are willing to pay for future adoption.

However, the transaction fees paid in the last 365 days in dollar terms suggest the actual demand for the L1 network.

So let's take a look at how many times these networks are valued today compared to the transaction fees paid in the last 365 days.

Annualized Fee Revenue: $293,793

Current Market Cap: 624 million USD

The total market cap of Tezos (XTZ) is being valued at approximately 2123 times the total fees paid in the last 365 days.

To give you some context

Ethereum is valued at 95.74 times the total fees paid in the last 365 days.

Solana is valued at 554 times the total fees paid in the last 365 days.

MultiversX is valued at 1433 times the total fees paid in the last 365 days.

Cardano is valued at 3082 times the total fees paid in the last 365 days.

In this context, the higher V/D ratio could be interpreted in two ways:

Overvaluation: XTZ could be overvalued compared to its actual utility.

Higher Speculation: It may also imply that there's relatively more speculative activity around XTZ, compared to tokens like EGLD.

🗳️ What's Next? Your Vote Counts!

3. Security & Participation: Key Staking Metrics

Staking Ratio

Staking ratio can provide insights into the level of network participation among token holders, as well as the overall health and security of the network.

Current value: 70.87%

90-Day Trend: +0.62%

When compared to Ethereum's 20.51%, Cardano's 62.41%, and Solana's 71.19%, the staking ratio of Tezos looks strong.

Staking Market Cap

The staking market cap reflects the total value of staked tokens and indicates network security and participant commitment. A high staking market cap suggests a more secure and stable network.

Current value: $ 461 million

90 Day Trend: -24%

The decline of -24% over the past 3 months in Tezos’s Staking Market Cap is mainly due to the price depreciation of XTZ.

Staking Wallets

The number of Staking Wallets is more than a count; it indicates network participation and decentralization. A higher number suggests an active, engaged community, while a lower number might indicate centralized control or lesser community involvement.

Current value: 185,250 Staking Wallets 

In comparison, Ethereum has a significantly higher number of staking wallets at 781,320 and Cardano around 1.3 million.

90-Day Trend: +2%

4. Reward Metrics

Reward Rate

It is the current annualized average reward rate across the network. This is the rate at which stakers can earn rewards for participating in network consensus and/or governance.

Current value: Tezo’s current reward rate is approximately 4.6%.

However, Tezos is a  liquid proof of stake protocol: holders can delegate their XTZ to a baker while keeping them liquid. Bakers then pay them an annual reward of about 5.2%, more than cancelling the token supply growth.

Source: https://forum.tezosagora.org/t/adaptive-inflation/4552

Reward Stability

This is computed by comparing the realized reward rate over the last 365 days to the expected reward rate 365 days ago.

Current value: 96.47%

According to stakingrewards.com Tezos’s reward stability is relatively high, with minor fluctuations observed over the past 30-90 days.

Remember: this metric may not be that accurate as it is currently in beta, and continuously being worked and improved upon to better the scoring framework.

5. Risk

Decentralization

A. Governance

Tezos was the first blockchain to implement on-chain governance that allows for seamless upgrades to the economic protocol.

The process is decentralized and involves validators voting on proposals, with the most popular proposal going through a multi-step voting and adoption process.

The Tezos Agora Forum is a place for off-chain discussions to happen. Tezos has already gone through 14 major protocol upgrades successfully, with the 15th being voted on at the moment.

Here’s a link to dig deeper into the Tezos’s governance.

B. Initial Token Distribution

Tezos has a balanced token distribution. Around 80% of the tokens went to ICO (Initial Coin Offering) participants while the remaining 20% went to the Tezos Foundation, early backers, and the dynamic ledger solutions business entity representing Tezos.

C. Network

At present, Tezos has 491 active validators, of which 166 are public validators. Both categories of validators, known as bakers in the Tezos network, contribute to block production and transaction validation, earning rewards for their efforts.

Public bakers accept delegations from other users, while private bakers do not.

The current Minimum Attack Vector (MAV) for Tezos stands at 3. (Tezos Foundation: 14.84%, Coinbase Custody 14.03%, Everstake: 6.52% control more than 33% of the staked XTZ)

In the context of chains using pBFT consensus protocol, like Tezos, an MAV of 3 indicates that an attacker would need to control a minimum of 33% of the network's nodes to successfully launch an attack or manipulate the network.

Adaptive Issuance: Enhancing Competitive Edge for Bakers

Adaptive issuance has introduced changes to the Tezos network. Bakers now have the flexibility to set specific parameters, such as the proportion of their balance to be used as bonds and the limits on accepting external stakes.

The staking cap is set at five times a baker's own funds, and the limit for delegations is nine times a baker's own funds. This encourages more staking among bakers, offering them a competitive edge by allowing them to produce more blocks and earn additional rewards.

So, how could adaptive issuance affect the MAV of Tezos?

Adaptive issuance facilitates a dynamic staking environment by enabling bakers to adjust their parameters. This can make smaller bakers more competitive, potentially leading to a more decentralized distribution of staking power. This could inherently raise the MAV, making it more challenging for an attacker to control a significant portion of the network's nodes.

Fully Diluted Market Cap

The Fully Diluted Market Cap (FDV) indicates potential value dilution. If any tokens are set to enter circulation, this could exert downward pressure on the asset's price.

Current value: $ 658 million

Similar to Ethereum, which does not have a maximum supply and is technically infinite, Tezos also lacks a hard cap on the maximum supply of XTZ tokens. Consequently, the fully diluted valuation of XTZ tokens is the same as the current circulating supply.

Slashing

Tezos has a slashing mechanism in place to penalize validators who behave badly. If a validator misses too many blocks or double signs a block, the network will penalize them by slashing the staked amount on that validator.

How the Oxford upgrade will change slashing?

In the upcoming Oxford update, slashing penalties are largely unchanged but are now percentage-based. Double baking incurs a 10% penalty of the staked amount, replacing the fixed 640 XTZ penalty. Double attesting retains its 50% penalty.

For clarity, slashing events are extremely rare on tezos.

Upcoming Unlocks

Upcoming unlocks can influence the token’s price as large amounts of tokens might enter the market.

There are no upcoming unlocks for tezos!

6. Conclusion: Narrative vs. Metrics

🧰 Your Toolbox - to boost your token metrics research

• https://tzkt.io/stats: Primary block explorer for Tezos, essential for transaction and block activity insights.

• Stakingrewards.com - Continues to be a valuable resource for staking metrics, including EGLD's staking ratio and reward rates.

• Messari.io - Known for its quality research, Messari offers in-depth analysis and metrics on EGLD among other assets.#

• Tokenmetrics.com - One of the best sources of reliable on-chain metrics.

• Remember: Cross-verify information, understand each metric, and stay updated with reliable sources. Especially researching outside the network’s databases to verify the numbers.

We’re sending you this newsletter straight from a chill evening in Berlin.

As the sun dipped below the horizon, we wrapped up our deep dive into Tezos.

It's been a week of numbers, graphs, and a bit of wanderlust.

Keep those analytical hats on and see you in the next edition with fresh metrics and new tales from our travels.

Laura & Sooraj

#FollowTheMetricsNotTheHype