Recently, the blockchain analysis company Messari conducted a performance evaluation of the Tezos (XTZ) protocol in the third quarter of 2022. At the end of this analysis, the observations are striking. Indeed, while some indicators clearly reflect the current gloom in the market, others, on the other hand, are part of a positive dynamic.
Market sentiment remained negative
In this post, Tremplin.io invites you to discover in detail the nuances that emerge from this study. the bear market plunged the crypto ecosystem into a state of paralysis. And like the majority of cryptocurrencies, the Tez (XTZ), the native token of the Tezos blockchain has paid the price.
During Q3 2022, the XTZ token achieved its worst performance in terms of capitalization over the last 6 quarters. Indeed, it fell significantly during Q2 2022 (-61.2%) following the tightening of monetary policies by the US Federal Reserve. Its downward momentum eased (-1.3%) during the third quarter to return close to stability. In addition, the valuation of the supply in circulation in Q3 2022 is now only a quarter of its initial value dating from Q3 2021.
Furthermore, the data shows that revenue generated in the third quarter was estimated at $191,423. This corresponds to a fall of 59.5% compared to the previous quarter. This difference arises from lower transaction fees (-58%), itself caused by the decrease in traffic on the network.
To close this chapter, it should be noted that the Tez’s average annual inflation rate fell to 4.5% in the previous quarter. It is also noted that over time, overall supply of XTZ tokens increased very little quarter over quarter.
Transactional activity decreases while the volume of creation of smart contracts increases
Overall, activity on the Tezos blockchain declined in Q3 compared to Q2. First of all the number of new accounts decreased by 30.2%. This suggests that the number of people joining the Tezos project has decreased. Then, the number of active accounts fell by 14%, going from 291,000 to 250,000 active accounts respectively. Since the transaction volume has remained relatively constant, it can be concluded that the users present were particularly active during Q3.
Finally, in this period, smart contract calls fell by 11.1%. However, the number of smart contracts created reached an all-time high with 29,000 new deployments in Q3. This index proves that developer activity is growing. That said, this commitment should evolve more after rolling out the M-Upgrade. This will integrate support for new environments such as WebAssembly (WASM) and Ethereum Virtual Machine (EVM). In addition, it will allow developers to write decentralized applications using additional programming languages, whether those dedicated to smart contracts like Solidity or general purpose ones like Rust or C++.
NFTs and DeFi are on the rise
Despite the bear market, NFT sales volume (in tez) on Tezos hit an all-time high in Q3, with more than 11 million sales recorded during this period. In fact, this metric has not stopped growing since the beginning of 2021. In the space of one year (Q3 2021-Q3 2022), it has experienced an increase of more than 42%. During the 3rd trimester, 4 marketplaces NFT alone absorbed nearly 75% of active network users. This proves the dominance of the NFT sector within the Tezos ecosystem.
On his side, the DeFi sector also held up well against the downtrend. Despite an 18.7% drop in the number of active users, it ended the third quarter of 2022 with nearly $40 million in total value locked (TVL). This corresponds to a decrease of only 2.6% compared to the previous quarter. However, on a longer prism, this is 76% less than the $162 million recorded last year. That said, after NFTs, DeFi is one of the sectors that has attracted the most active users.
Staking and decentralization maintain the status quo
On the one hand, in the third quarter, the number of validators (bakers) assets increased very slightly (3%) compared to the previous quarter. On the other hand, the number of delegators also increased slightly (2.7%), while their participation remained stable overall. These data show some stability around staking activity, which is rather positive from the point of view of securing the network.
Moreover, at the same time, the Nakamoto coefficient – which measures the degree of decentralization within a network – was equal to 5 for Tezos. This means that all it took was for the five addresses that own the majority of staked XTZs to gang up for the network to crash.. A configuration which, without being ideal, is all the same compliant.
The launch of the Kathmandu protocol
In addition to its quantifiable performance, the third quarter was also marked by the deployment of the Kathmandu upgrade. Deployed in September 2022, it introduced block pipelined validation to optimize transaction throughput. In addition, it enabled support for increased paid storage, smart contract event logging, and the semi-permanent testnet, Ghostnet. It was supposed to significantly increase network scalability capabilities through Smart Contract Optimistic Rollups (SCORU). Eventually, this functionality, currently in the experimental phase, will be deployed during the M-Upgrade, planned by the end of February 2023.
In summary, compared to the second quarter of 2022, Tezos has lost momentum in terms of its economic performance and transactional activity. However, NFT sales volume statistics (in Tez) show that this sector is booming. At the same time, staking and decentralization seem to have kept the same level of performance. As for the issue of scalability optimization, it remains unresolved, as it could not be addressed with the Kathmandu update. However, this should change very soon with the deployment of the Smart Contract Optimistic Rollups integrated into the amendment.
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