Crypto Analysis: Tezos

SUMMARY

  • Project name: Tezos
  • Ticker symbol: XTZ
  • Token type: Infrastructure Protocol
  • Genesis block: June 30, 2018
  • ROI: 501.79%
  • Consensus mechanism: LPoS
  • Key exchanges: Binance, OKex, Coinbase, Kraken, Huobi, Bitfinex
  • Exchange volume: $124,485,797 USD
  • Wallets: Galleon Wallet, AirGap, Kukai, ZenGo, Ledger, Trezor

Overview

The battle of the protocols has been fierce and ongoing for the few years where we are still seeing new types coming up with slight differences in features, consensus mechanism, governance and possible use cases. Hard forks and disagreement have broken down the developer community even with the strongest projects while governance has always been a topic of polarized opinions. Enter Tezos, a blockchain platform that supports smart contracts and dapps, based on the idea of a digital commonwealth in which governance is to be democratized in an efficient and sustainable manner to avoid costly hard-fork scenarios. Tezos is a self-amending blockchain ledger that can be upgraded as seen fit by the community staked in the network. In July 2017, Tezos raised $232 million in BTC and ETH through an Initial Coin Offering, making it one of the largest ICOs in the industry. There has been legal issues on the securitized fundraise, but Tezos is a legitimate project ran by a star team that has a great product in the works.

Product

Tezos supports Turing complete smart contracts and provides a platform for building smart contracts and decentralized applications. It also facilitates formal verification helping secure smart contracts and avoid bugs with the protocol. This way a flexible environment for developers is created providing a launchpad for ideas within the decentralized space. One of the main issues that blockchains deal with is the issue around governance. Tezos tackles this problem through the use of a number of processes that happen in cycles leading up to agreed implementation of suggested features. Those can be observed in the table below:

Protocol amendments are adopted over election cycles that are 131,072 blocks long, or roughly three months. Transparent stakeholder community additionally improves governance as well as providing assurance on who actually votes and runs the blockchain exposing bad actors. One feature engineered by the project’s creators is the low level of current annual inflation of 5.5% with an average transaction fee $0.00232. This provides a stable base for price increase while the cheap transactions give competitive advantage versus other similar projects in the space.

Key features:

  • Self-amendment: The protocol can “upgrade itself” without having to fork the network into two different blockchains. The self-amendment process is split into four periods: the Proposal Period, Exploration Vote Period, Testing Period and Promotion Vote Period. Each of these four periods lasts eight baking cycles (i.e., 32,768 blocks or roughly 22 days, 18 hours), which is approximately three months from proposal to activation.
  • Liquid Proof-of-Stake (LPoS): LPoS assigns the probability of block production based on the proportion of stake held by each validator; and there is no limit to the number of bakers in the system. Bakers compete for holders’ XTZ by charging lower fees than others.
  • On-chain governance: All stakeholders can participate in protocol governance either directly or indirectly, through delegation.

Management

The Tezos foundation is incorporated in Zug, Switzerland. It deals with the marketing and promotion of the blockchain protocol. Ryan Jesperson is the president of Tezos coming with C-level executive experience of DivvyPay holding an MBA from Duke University. Their global head of Business Development Hubertus Thonhauisier is a partner of Enabling Future, social impact tech VC firm. Roman Schnider is managing the Finances of the organisation as well as its operations. A qualified accountant with more than a decade of experience with PwC. The best one for last, Arthur Breitman developed the protocol with his wife Kathleen. Arthur is an ex-Morgan Stanley well as a graduate from École Polytechnique who’s had a keen interested in the decentralized space. One of the main investors behind the project is Polychain Capital with notable advisors Emin Gün Sirer and Zooko Wilcox of Zcash. Tim Draper is one of the earliest supporters of the project participating in its initial ICO.

Development

The XTZ project is programmed in OCaml with the main repo on GitLab with more than 4400 commits and 6 releases. git repository contains the source code, the tests, and the developer documentation of the Tezos software running on the nodes of the main Tezos network. OCaml, a powerful functional programming language offering speed, an unambiguous syntax and semantic. The source code of Tezos is placed under the MIT Open Source License. Despite being quite costly the code has undergone professional audit.

Management show a rich history of banking experience and understanding of complex financial systems. This gives a solid foundation for building relationships and possible use cases within the industry. One such use cases that is potentially going to play a big part is the digitization of real assets on the protocol. In other words, tokenisation of assets such as property and fine art can open the doors to massive adoption and dapps building on the protocol. The broader team also have sufficient technical knowledge to be able to improve the platform as its usability rises.

SWOT

Strengths

  • Solving crippling governance issues that have previously plagued both Bitcoin and Ethereum.
  • The self-amending feature of Tezos allows for any disagreement to be settled through the on-chain governance.
  • Tezos foundation has sufficient resources to grow the protocol. Moreover grants for developers looking to built on it are available.

Weaknesses

  • Transaction throughput is not particularly high currently. This is an area that would require attention to achieve better competitiveness.

Opportunities

  • Tokenisation of real estate is starting to take place on the protocol putting it at the forefront among competitors in this area.
  • Secure institutional custodial solutions in combination with the protocol’s staking ability offer a great way to adoption.

Threats

  • Pending class action US$25 million lawsuit with significant legal headwinds ahead.

Conclusion

The project shows a significant strengths backed by a solid team with great future prospects. Tezos will never have a hard fork in addition to a significant war chest to expand the developer community and adoption of the protocol. The upgraded proof of stake consensus mechanism in combination with the on-chain governance gives an edge to the protocol against some of it’s main competitors. The protocol combines different technologies from different
cryptocurrencies to generate a more flexible process of governance and transaction management. This gives it an edge and potential upside on its price action.

References:

Disclaimer: Opinions are my own and not the views of my employer. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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