If you would like to view the full recording of the live State of Tezos Q2 call, you can find it on our YouTube channel.
Participants:
- Arthur Breitman – Tezos Co-Founder
- Nicholas Garcia – Messari Research Analyst
- Eshita Nandini – Messari Research Analyst
Nicholas Garcia (00:35): So thanks everyone for joining today, this is the Tezos Q2 Analyst Call. Today we’re going to talk about all things Tezos but first I’d like to introduce everyone who’s on this call beginning with myself. My name is Nick Garcia, I’m an Analyst over at Messari primarily focused on Quarterly reports looking at L1 specifically, Eshita are you on here?
Eshita Nandini (01:18): Okay. I’m on, I can intro myself and then try to get back connected. I’m Eshita. I’m also a research Analyst on the Messari team based out of San Francisco, California.
Arthur Breitman (02:21): All right my name is Arthur Bridgeman, I’m the Co-Founder of Tezos which is a blockchain network.
Nicholas Garcia (02:29): Awesome thanks Arthur. Okay so like I said we’re gonna talk about all things Tezos today. I think most important as we get going here we’d like to understand exactly what Tezos is and its history and how we got to this point. So Arthur, gonna turn it over to you right here, could you give it like a high level explanation as in depth as you’d like actually on Tezos, where we started, where we’ve been and where we are today?
Arthur Breitman (02:56): So Tezos this is a smart contract platform and cryptocurrency and it’s you know I would say originally it was characterised by three aspects and there’s many more that have come over the years but the three main pillars being, governance, it’s a blockchain which has an internal means of agreeing on how political rules can evolve. PoS it’s one of the original PoS platforms and the first to launch with actual economic incentives
around PoS and the third aspect being smart contract safety so that’s basically the
origin of Tezos. It’s an idea that took form in 2014, with a publication of a position paper and a white paper and 2014 is before most talk about smart contract security and governance were important and so that was I think a good pretty foreshadowing of what was going to happen a few years after. The network itself launched in 2018 with the betanets that became the mainnet and so it’s been running for a little over four years now. So today Tezos has evolved quite a bit it had 10 protocol upgrades, which were all voted upon and approved by the community of Tez holders and active validators which we call makers and over the years these upgrades have brought more features to the network and lately they have had, I would say an angle towards scaling and increasing the structure of the chain.
Nicholas Garcia (04:31): Yep, I totally appreciate that. I think one of the big things right that we like to talk about Tezos is the non or the self upgrade capabilities, the self self-amending functionality. You talked about these 10 network upgrades we had 2 in Q2 Ithaca and Jakarta. I know Ithaca will introduce Tenderbake, right, a new consensus algorithm for the protocol. You want to talk a little bit about that and how that impacted things?
Arthur Breitman (04:56): Yeah absolutely so our original PoS algorithm was called,
well actually, consensus algorithm based on PoS was called Emmy. Emmy is a little bit similar to Nakamura consensus. It tries to replicate sets with a random leader being chosen at every round and it’s based on the longest chain approach. Tenderbake is based on a more classical BFT approach, it’s similar to Tendermint which is using Cosmos but whereas Cosmos has a limit on the number of validators, we do away with limits by selecting a random set of validators for every block. So the benefit is that we have asynchronous safety which means that the safety of the network does not depend on assumptions on network delays which is important and it also gives us faster finality because we get finality in just two blocks on a chain. So it paves the way to faster consensus and lower latency. I would say that it was an achievement. It’s not very often that you see a blockchain switch consensus mechanism on the fly and this is what happened a few months ago with the move from Emmy to Tenderbake.
Nicholas Garcia (06:14): I’m not sure has that ever been done before, I maybe
overlooking that I’m not entirely sure but that seems like that’s one of only a few that’s probably taken place.
Arthur Breitman (06:23): Yeah I don’t know I’ve meant to look at it but I haven’t. I think some coins basically introduced like there were some changes in consensus but they all were quite like adding some feature on top of consensus like rear prevention but
like a major change like that I haven’t seen.
Nicholas Garcia (06:45): Yeah well, I think it speaks like the power of the self-amending functionality without the need to hard fork. Some of the reports I’ve covered I know
Polkadot has a similar type of metric, so nice to see those out in the wild. So yeah so happy to go anywhere we’d like on this call Arthur we can talk about some of the qualitative aspects that we’ve been talking about or we can kind of flow through this report look at
the Q2 metrics which also encompass the prior year. And kind of bounce around there, so let’s do that right I think that’s the natural flow.
Arthur Breitman (07:20): Sure absolutely.
Nicholas Garcia (07:20): So we can talk about Market Cap here right, so everyone knows Q2 was the worst quarter for crypto in terms of a Market Cap decrease since 2011. 58% from the top to the bottom it was brutal. Most projects right looking at the spectrum fell within that range some of the smaller ones with some of the more poor token investing schedules fell 95% plus. While some of the L1 right some of the core l ones fell, like this you know 55-70%. Tezos right was pretty much in line with the broader market at 60% but, and Arthur you can speak about this, I know when you look at it compared to you know like Satoshi’s for example right or maybe it’s some of these other L1s it’s actually held up pretty well so I don’t know if you’ve got any high level thoughts there.
Arthur Breitman (08:10): I mean you know, I care about market capitalization in a few respects in so much as returns on the project you know one is the economic security of the of the protocol of course depends on our market capitalization but you know consensus attacks are quite hard to pull off and validators do not have a lot of power overall in the network and the other part is reflexivity because you’ll see for example middleware vendor who look at market cap as a proxy for adoption so you know it is relevant of course to the
project, but it is not the most important metric I would say in the development. You know it reflects on some other metrics and then it tends to influence them so it has its importance but you know the market’s going to do what it is going to do and mostly what we see here is just a broad reflection on the market behaviour as opposed to something specific about Tezos.
Nicholas Garcia (09:06): Agreed. Look I think everyone took a hit and retail likes to look at market cap because you know number go up is kind of the narrative here but in the grand scheme of things right as you want to build during these times of down drift and that’s what we’ll see as we go through this report that Tezos, despite the bleeding valuation, a lot of stuff went down.
Arthur Breitman (09:26): Yeah absolutely.
Nicholas Garcia (09:26): Yeah so let’s move down here, so let’s look at the actual network usage now because I think this is where some of the more positive stories start to unfold. So we open this right here we’ve got transactions, contract calls and transaction fees, okay. So the numbers here look generally flat but if you extend this to like a year further watch you see that the numbers are pretty high pretty significantly and what we’ll find is transactions were up 94% YoY despite the market downturn. At the same time smart contract calls have also been increasing Tezos likes to evaluate network performance looking at smart contract calls and transactions, so you want to elaborate on that, on how you’re seeing things from your side in terms of activity on the network?
Arthur Breitman (10:15): Yeah, absolutely. So we’ve always had a bit of transaction because the model of consensus and incentivization of consensus we have does tend to create payments between active validators and delegators. So there’s always many transactions but one number I’ve been monitoring is a number of smart contract calls because the smart contract calls really means you know someone wants to actually use the network there’s an application that they want to participate in and that number was quite small I would say for most of the life of the network until, end of 2020, beginning of 2021 and in the first half of 2021 we saw an explosive growth in the number of smart contract calls so we went from something to you know <100,000 smart contract calls per month to >6 million and that that number I would say reached a high probably with the height of the of the market. It’s gone down a bit now but it’s still quite, it’s still quite high at the 4/5 million area.
Nicholas Garcia (11:21): Yeah it’s still turning upward right network activity is looking upwards when you’re looking at both smart contract calls and transactions, the high level trend line there. At the same time though transaction fees right which is another important metric we like to look at have been low if you look at this chart here and the right axis less than you know a hundredth of a dollar right essentially so less than a cent on average so you want to talk about how Tezos maintains those low transaction fees?
Arthur Breitman (11:50): Yeah so you know, transaction fees is a function of supply and demand but today if we were to run the demand that we have the transactions today
in the network a few years ago they would be much higher because the blocks would be full and the reason for this is we’ve had major improvements in the protocols through this vertical upgrades they have reduced essentially or actually augmented the amount of gas that you can have in a block without increasing the computational requirement on the validators. We have people running validators on Raspberry Pi for the Tezos network so it’s been careful optimization of the virtual machine interpreter inside of the protocol through a series of optimization, optimization also of storage, optimization of various parts of
the pipeline we’ve managed to increase the capacity in every block faster than demand increase which is why transaction fees are still so low.
Nicholas Garcia (12:53): Nice and we’re going to get into it later but there’s further plans to scale this capacity in this kind of network speed so we’ll talk about that rollup centric future that Tezos is moving towards. All right let’s move down here so on a similar vein we have accounts right so what we have here is we have, total accounts, so your high level kind of how many accounts are on the network, we’ve got, cleared accounts, which are accounts that were essentially cleared right the total balance was moved to zero and then we’ve got new accounts i.e net no accounts that were funded or refunded from previous history. So again the general trend here is up and to the right so I’m assuming we’re going to follow something similar to what we just spoke about but anything on accounts right a lot of it’s driven by the NFT marketplaces which we’ll talk about, also DeFi but user accounts accessing Tez any ideas here?
Arthur Breitman (13:46): Yeah absolutely so the one thing that’s important I think when looking at these metrics is that the notion of of an account in this graph is specific, so you could be holding an NFT for example not holding Tez in which case you wouldn’t show up as an account here so this is like accounts which are registered on-chain. There’s also a cost when you issue an account which it varies with the cost of Tez but it could be as high as a ten cents so it’s not cheap to do account farming so there’s not millions of millions of account that can be created on the cheap every single accounts required you know requires a spend for creation. Yeah as you can see we’ve had a number of accounts that has been steadily growing over the past few months and these are funded accounts, accounts that hold Tez. This is not just, I have interacted with a smart contract but I actually fund this account, I paid to create this.
Nicholas Garcia (14:41): Exactly. There’s no fluff behind these accounts right these are actual accounts that people are on the network they’ve got Tez some other ideas blow up metrics but this is what we have live on the network.
Arthur Breitman (14:53): Throughout the past year I think, and I could get his number wrong but it was in the order of like 25 cents in dollars, over the past year or two to create an account.
Nicholas Garcia (15:02): Exactly. All right so now let’s move on here so the majority of the network activities taking place is over on these NFT marketplaces, so I don’t know how deep in the weeds you are like actually with these marketplaces but you know that people love Tezos NFTs and they love their CleanNFTs. So we look here at this visual and Eshita is going to cover this but if she is, she’s in and out, she’s having some tech issues, so if she hops back in we’ll pivot this to her. But yeah so these are your top five NFT marketplaces on Tezos in terms of percentage of users, breaking it down by 100% over time we’ll see that Object, objkt on the bottom is the largest one, fxhash has had its moment it got none because that is time, you know we’ve got we’ve got a bunch of marketplaces here so any high level thoughts on Tezos marketplaces, Tezos NFTs in general?
Arthur Breitman (15:58): Yes, so NFTs have definitely been an engine of growth over the past year. I would say it’s definitely number one with number two being DeFi probably. Yeah so objkt.com has become I would say the dominant marketplace for Tezos NFT, it’s very much centred on art NFTs. Of course we have PFPs, we have game NFTs you know with Ubisoft, we have some sports NFTs which have been on various platforms but by and large the activity is around art NFTs primarily on objkt.com. Fxhash is also a platform that’s been growing very fast we don’t see a July here but they’ve been exploding in size in July they have a focus on generative art. Hic et nunc is the original aft NFT platform on Tezos and probably the one that kickstarts all of this phenomenon it’s product which is truly in Web3 spirit because its creator Raphael made it completely open source everything on IPFS and on-chain and as a result one day Rafael decided to shut down the platform but because it was Web3 within a few hours there were mirrors online and the entire community took their different NFTs and created a new platforms. You have Teia for example which is a direct bit of service to this community and a few others and Versum which is also a newcomer here.
Nicholas Garcia (17:35): Hell of a story. Yeah NFTs are kind of where we will talk about the majority of activities that happen. We’ve also got an asset DeFi ecosystem. So here we’ve got a bunch of different DeFi protocols listed. We’ve got a few DEXs, we’ve got a lending protocol, looks like we’ve got some stablecoin borrowing essentially. So here’s kind of your DeFi TVL breakdown at the end of Q2 2022 for Tezos. $41 million total. Any of these projects or anything DeFi related you’d like to touch on?
Arthur Breitman (18:17): Yeah absolutely so you know first the TVL on Tezos is quite small compared to other chains at only $41 million. It still I think took some iteration for these projects to come to fruition and to start picking up steam so it’s still new. Liquidity making is interesting. It’s a pool that is subsidised at the protocol level so the protocol decides to mint a little bit of Tez at every block which goes into a wBTC/Tez constant product market making pool. So it’s basically a way for the whole chain to incentivize liquidity provision for Tez
and it’s done in a transparent and decentralised fashion which is quite nice so that has attracted a lot of TVL. You have Youves which has stablecoins and lending, Kolibri which is also a dollar stablecoin and we have Quipuswap which is one of the largest decentralised exchange on the Tezos network and a few others like Vortex and SpicySwap which also has a bridge.
Nicholas Garcia (19:24): Correct yeah we’ll see kind of the long tail here some of the DEXs are with some bridging functionality. So yeah, so that’s Tezos DeFi essentially right like we said early days but we’re starting to see like if we were to put this on a time series we see the numbers actually trending upwards. Liquidity making is playing a nice role in that, so interesting especially how that’s baked into like the core of the protocol itself.
Arthur Breitman (19:46): Yeah I think every protocol will end up doing that in some sense.
Nicholas Garcia (19:24): Very cool so it’s still the early days for Tezos DeFi. All right let’s get down here to the decentralisation and staking section, so what we’re going to look at here essentially is kind of the validator breakdown right, how many validators do we have, what’s the distribution like, what do validators even do on the network, what’s the staking percentage like. So let’s start I think Arthur, with a definition of this liquid PoS right because it’s a slight difference from the traditional DPoS we’ll see. At a high level the Liquid PoS (LPoS) is delegating while maintaining custody. Correct? You want to touch on that?
Arthur Breitman (20:32): Yeah, it’s a big difference from the DPoS and I blame that nominer so essentially Tezos uses PoS. What that means is that its consensus mechanism uses stake as a civil resistance mechanism. There’s a concept of delegation which was built in the protocol from the get-go and it gives them the obligation that many people would want to
participate in securing the network but they don’t necessarily want to run infrastructure.
That was you know always going to be the case, the way it’s addressed in a lot of PoS protocols today is to build on top of the chain some forms of staking derivatives. Here we take a different approach where essentially the validators, the active validators, the
bakers have to put up a stake. The stake is at risk to create blocks but they also need to receive some delegation power from everyone in the network and so the people who will Tez and who delegate their Tez, the Baker never takes custody of the Tez so they remain within the custody of the user. It adds another layer of serious prevention in some sense. It’s very different from, so there’s a delegation but because of that people looked at it and says oh it’s delegated PoS it’s DPoS but DPOS now refers to a very, very specific design that Larimer built for his many many different blockchains and it’s quite different from that so you know it doesn’t suffer from a lot from the problem that you see in DPoS. So think of it as PoS with some delegation added we call it LPoS to avoid any confusion with so-called
DPoS.
Nicholas Garcia (22:14): I think the name is fitting right. It is kind of a liquid model to it. To your point right if you look at this visual right here so this is the Tezos XTZ Token Distribution and what you’ll see is that 80% of the state tokens on the network are from delegators the remaining 20% are from the validators but it makes up a huge portion of network tokens like 75-77% of all tokens on average through the quarter were staked, which shows that if people are active or partaking on Tezos, you’re most likely staking your tokens. Three out of four people so that is a sign of a healthy ecosystem. On top of that Tezos has…
Arthur Breitman (23:02): I want to add something just here, because different people have different notions for the word stake. So what you see in green here is this validator stake that’s, you know, that is staking in the pure sense of the definition. It’s at risk, it’s frozen, it’s a you know it’s a deposit that’s necessary for creating block the parts in blue which is the delegator stake it is not frozen. It’s completely liquid you can transfer it there’s no lockups, nothing of the sort. And I think it’s important the fact that the number is large means that there’s a lot of participation from delegators as you mentioned which is a good thing but this is also floating. There could be a misconception somehow that 75% of the tokens are staked therefore there’s only a few tokens remaining. That’s not true. All the tokens that you see in blue those staked tokens they’re still circulating even though they are delegated.
Nicholas Garcia (23:55): So they’re liquid in a sense they can be used across the network should someone want to?
Arthur Breitman (23:56): That’s right, yes exactly.
Nicholas Garcia (23:59): Which is nice because what you’ll see in a lot of other ecosystems essentially those tokens that are staked are locked or you have to take some liquid derivative of it and then it becomes you know you’re gonna have a liquidity crunch. So nice to see that on the market. So real quick let’s touch on this, so I think what’s cool about the validator set is that there’s validators from all over the world right from a bunch of different centralised exchanges or funds or whatnot we’ll touch on that. Real quick what you see here is on the last day of the quarter where essentially validators were participating in the consensus of the network. You got a global presence here, anything you want to touch on in terms of just the global distribution of validators and just network activity in general for Tezos.
Arthur Breitman (24:46): Yeah I just think it’s healthy to have a global distribution of course it makes you more resilient. So that’s fantastic. Definitely big presence in Europe, we look forward to increasing presence in India, Africa and South America which are I think interesting areas of development.
Nicholas Garcia (25:06): Definitely a huge European presence when we get to kind of some of the NFT activity that happened during the quarter, you’ll see a lot of conferences, events showcasings took place in Europe, so we’ll touch on that. So let’s get down to like now the validator distribution in terms of stake, I know you caveated earlier what exactly staking means here but for this part right what we’re going to talk about is how much stake these validators are controlling in terms of consensus power, in terms of voting power, okay. So you’ve got a nice little you know scatter plot breakdown right here I’m sorry breakdown right here, values by distribution. Let’s look at this table. I think this is a little more clean so top to bottom we’ll see centralised exchanges make up some of the top of the validator distributions. We’ve also got some Tezos foundation Bakers in there, you want to touch on some of these top Bakers and then kind of the long tail also?
Arthur Breitman (26:08): Yeah, so I mean a lot of them you know speak for themselves. Coinbase Custody is Coinbase Custody, Binance is Binance, Kraken is Kraken. Everstake are famous stackers active in many protocols, there’s Stakefish and then you know we have a few others. Certain ones you don’t really know who they are so you just see their address, you know tz1Nf6t and that’s unknown. Then of course the foundation had an allocation of Tez in the genesis block of the Titus network and runs Bakers to help secure every other Tez holder. It’s using the tokens to help generate blocks but it’s doing it directly with its own Bakers. So you see there’s an “Others” with 86 validators, it can be difficult to count the number of validators on a blockchain network. There are some networks which put a cap on the amount that you can have as a stake, so people will run many of them and then the number becomes meaningless. So to some extent there’s not many strong incentives to split your stake on the Tezos network or to do single attacks. You can have multiple Bakers obviously you know the foundation runs multiple Bakers, you can see it here. Part of that is for resiliency so there’s some resiliency reasons to do it but by and large I think the number
of validators represent the number of independent parties who are validating the chain. It’s you know if you’re looking at these two they’ve decided to call a validator anyone who has 32ETHm so the number becomes a little bit meaningless. But yeah that’s a picture obviously you know it’s top heavy with exchanges. I think that’s largely unavoidable. I don’t think you can avoid that at the protocol level. What you can do is you can have applications which are so compelling that people will want to have self-custody of their tokens so that they can participate into those applications and that’s the way we diminish the power of
exchanges in all of this.
Nicholas Garcia (28:24): Exactly. So and yeah so at the end of the quarter Tezos had, what we got here I think 406 validators that had registered so you know pretty large validator set looking at other ecosystems. I want to say Eshita is back hopefully. We briefly touched on the NFTs, I’m gonna hop back up here real quick Arthur, I don’t know if you had anything there Eshita. I can also go down here and we can talk about some of the NFT collaborations we got going on here. Eshita, I don’t know if you have got any NFT questions.
Eshita Nandini (29:02): Yeah so what did you guys cover if you don’t mind me asking around the NFT section?
Arthur Breitman (29:09): Mostly we talked about the different marketplaces, how they came to be. A bit of a history of Hic et Nunc and talked about how we had different use cases, you know some PFPs, some gaming NFTs with different platforms but the bulk of it was around art.
Eshita Nandini (29:30): I mean from our end we’ve noticed that a lot of creators and collectors tend to gravitate towards Tezos because of its low energy consumption and that tends to be the reason why they picked that as their chain of choice.
Arthur Breitman (29:43): I think that might have been true at the beginning of 2021. That was one of the reasons why it was initially popular and it definitely continues to be a factor but I don’t think it’s any longer a dominating factor. At this point it’s more about the artistic communities that’s active on the Tezos chain.
Eshita Nandini (30:02): Yeah, yeah my question was going to be like what do you think has continued to contribute to its growth since it stayed pretty active since objkt passed 100 million in volume this past May and a lot of people continue to stay on the network like as you can see from this chart.
Arthur Breitman (30:22): Yeah absolutely, so I think it comes down to the networking effect, so there’s more just using the platform, more collectors coming into the platform and people improving their marketplaces and building better and better tools. So it’s you know the cycle between the toolings, collectors and the artists building a better environment for them to flourish.
Eshita Nandini (30:42): Got it.
Nicholas Garcia (30:44): Yeah and to Eshita’s point there is that CleanNFT thing trending on Twitter that was a thing back in the daym you’ll still see it every now and then but it was cool to see that and the associated little emoji slash icon that would pop up next to that.
Arthur Breitman (30:58): Yes, yes.
Nicholas Garcia (31:00): Cool. So we’ll talk, we’ll touch a little more on some of the NFT activity that actually happened during the quarter later on but let’s go back to where we were at so developer activity. So I think what’s really exciting when looking at some of these numbers, one of the metrics that popped out to me the most was the increase in developer activity so through the first half of 2022 when compared to the first half of 2021 developer activity is up 288%. Tezos some confusion I could say, we’ll have Arthur speak on it a little more in terms of the virtual machine in terms of some of the smart contract languages that are available. Tezos is also moving towards having WASM compatibility, so can we touch on the developer activity. Arthur, Michelson (Tezos smart contract language) everything else happening there.
Arthur Breitman (31:53): Sure so let’s start with clearing the confusion because you’ll hear things like oh in Tezos you have to write your smart contract you know Caml a weird like marginal programming language and that’s not true. So let’s start with the basics, Michelson is a virtual machine. So a virtual machine is kind of like a computer but it’s a vertical computer right, it has an instruction set. Similar virtual machines are the Ethereum EVM
virtual machine for example or if you use a platform like Solana you have the BPF. Right so you have different types of virtual machine, we have a virtual machine called Mickelson which happens to be high-level enough that you can do it manually if you want to. So if you want to hand code assembly for your smart contract language in Michelson you can actually do that which is nice. It’s nice that you have the option. That’s not what most people choose to do, most people use high-level languages that compile down to Michelson. There’s many of those languages, the most popular I would say is there are three among the most popular, SmartPy which uses the Python programming language to write Tezos smart contracts. We have LIGO which lets you do that in different syntaxes but a popular one is JsLIGO which is similar to Javascript and Typescript so if you know Javascript and Typescript it’s quite easy to write this JsLigo contract and we have Archetype which is its own language and it’s rising one in terms of popularity. So lots of high-level language which I would say most programmers will be comfortable with that let you write smart contracts for Tezos.
Nicholas Garcia (33:31): Got it okay. So Michelson is the virtual machine. So let’s start looking a little forward here. Tezos is moving towards kind of a model that includes EVM and WASM virtual machine support, correct?
Arthur Breitman (33:49): Yeah that’s right, so one of the big areas of improvement that I see for Tezos is having a native support in the protocol for rollups. Rollups allow us to do a lot of things. They basically allow you to run your own blockchain or a completely new blockchain inside of Tezos and have trustless settlements of the assets on the Tezos chain. I think that’s the value of the rollup, so they increase throughput enormously, they increase throughput horizontally because you can run multiple rollups in parallel on the main chain without increasing the computing power required from validators. They also scale vertically because you can have rollups that are powered with expensive computers again without increasing the hardware requirement for validators and the reason is that what the rollup does is that it outsources the computational requirement for validating the rollup. That’s a neat feature but they also increase interoperability because these rollups that we’re building they have a general kernel and that kernel can be any WASM function so anything you can compile to WASM you can run as a kernel as part of a Tezos rollup. That could mean you could type Go Ethereum for example, which is one of the most popular implementations of Ethereum and EVM, compile it to WASM and run that as a roll up. So that gives you a rollup which is compatible with EVM or you can, anything can come out to WASM and there’s a lot of tools, shapes that compile to WASM will let you build a blockchain that can run on Tezos. Of course that includes rollups which are themselves similar to Tezos which themselves run Michelson and all of the other languages which have been popular on the Tezos Layer-1.
Nicholas Garcia (35:49): Got it. Eshita I don’t know if you’ve got any follow-up rollup questions Eshita has been getting deep into EVM rollups lately.
Eshita Nandini (35:56): Yeah so with the Jakarta upgrade, I think it was, those transaction
optimistic rollups were introduced to Tezos and that is the first implementation of rollups on Tezos right and this is meant to be a short-term solution and probably will be a sunset in a
year or so what can we expect around scaling and rollups from Tezos in the future and what have been the lessons from the transaction Optimistic rollups so far?
Arthur Breitman (36:30): Yeah so the Jakarta contains transaction Optimistic rollup. They were built for several reasons, one is to have a scaling solution as soon as possible for transactions which still represent you know the bulk of the operation on the Tezos chain and it was also a way to familiarise the different core dev teams working on the project with rollups and how they would interact with with the Tezos chain. There’s a lot that was built for these rollups which can be reused for other rollups, mostly every interaction between a rollup and the Layer-1 is something that’s reused. They are enshrined rollups so in practice you know you can write a rollup using a Smart Contract but these are built directly in the protocol which carries a few advantages. So they will be subset because they are superseded with a more generic type of rollup that’s being introduced in the Katmandu proposal. So Katmandu is currently being voted on, if successfully adopted it will activate in two months. Katmandu contains an implementation of Smart Contract rollup but it’s not activated, it’s only activated on testnet and this was done to have more time to review the implementation and to allow tool developers to work with those rollups. So if we see these optimistic smart contracts supporting WASM rollups on the Tezos chain on mainnet that would be in about five months if and when the “L” proposal activates.
Eshita Nandini (38:02): Got it.
Nicholas Garcia (38:04): All right, so yeah we’re looking at the end of the month, so Kathmandu and then “L”. Real quick since we’re on the topic of proposals my understanding, I know there’s a roughly two month process, governance process from beginning to end Arthur, but how often are these network updates kind of being proposed and rolled out. Is there like a cadence to them because when I’m looking here I’m seeing December to April four months. April to June 3 months. You know I mean it looks like every, I don’t know, three to six months one of these network upgrades are being rolled out, is there kind of a cadence behind that. Are you guys always trying to upgrade the network or what’s the idea there?
Arthur Breitman (38:43): Yes there is. So there’s a minimum time. The minimum time it can take is two months and a half, the governance procedure is slow for a good reason, it’s a sanity check on everything, people need to take the time to review the proposal, people need to put several times. There’s three different votes involved in the proposal. It requires an 80% quorum, so it’s a conservative model and you know even if something terrible happened and if somehow someone managed to sneak in a proposal that was being put upon you still in two months and a half have plenty of time to coordinate options for defending against it. So there is a minimum time that’s required. Of course often time it’s been more than two months and a half between proposals but the cadence has increased as you can see here. It used to be May, October, March and now it’s much closer to only three months between upgrades so right now that’s the cadence that the protocol developers working on these different proposals have been following and I would say it’s a cadence I expect over the coming years. Hopefully at some point it stops slowing down. I do think there’s a point where the protocol gets ossified enough that you start seeing proposals every six months or every year or even less often than that.
Nicholas Garcia (40:02): You start approaching more of an end state like situation with the protocol. Got it. I want to say the names are great also right like alphabetical order and
they’ve got some cool ring to them so I think they’re very catchy. Real quick you mentioned the development teams that are working on this right.
Arthur Breitman (40:19): Yes.
Nicholas Garcia (40:20): Nomadic Labs is one that you tend to see pop up more, one of the larger ones but there’s also a bunch of other development teams taking place there. I don’t know if you want to call out any of these development teams.
Arthur Breitman (40:28): Oh there’s many. I might forget some, so Nomadic Labs obviously is one of the you know the original, like first proposal attendance was made by Nomadic Labs and they’ve been involved in all of these proposals but we also have a core development team at TriliTech which is a hub for Tezos based in London. We’ve also had contributions from, oh well there you go there’s a list, Marigold, Oxhead Alpha, Tarides, Dai Lambda in Japan, Functori in Paris so it’s really all over the place and many teams who collaborate on this. You know when people want to work in core development, what I encourage people is to come and join these groups and participate and join in the development effort together. It’s really the most productive way of advancing Tezos.
Nicholas Garcia (41:26): Very cool. It’s exciting to see different perspectives from different teams and different geographies of the world to get together there. All right so let’s keep moving down the list here so what I’ve got listed here are some of the key events from the second quarter of 2022 we already talked about them. The protocol upgrades on Jakarta, Ithaca. I think we can maybe touch on a little more. I’ve been hinting at it as some of these NFT collaborations and launches also some of the festivals that took place. So you guys can see here this paragraph is just filled to the brim with some of the larger name partnerships and collaborations that Tezos has. Those include…
Arthur Breitman (42:05): I’d like to mention that all of these are partnerships and not collaborations so you know for example when Papa John’s started using the Tezos chain it’s just like Papa John’s uses Tezos chain. At some point you know someone in Block House which is a marketing agency working with the Tezos Foundation got a call from Papa John’s saying hey we’re doing an NFT drop on Tezos, is it okay if we use your logo as part of that. We said of course, we love Papa John’s pizza. It’s not a partnership, it’s just a business deciding to use the Tezos blockchain. Some of these you know like Red Bull Racing and Mclaren Racing are partnerships but a lot of them are just simply users.
Nicholas Garcia (42:54): Use Tezos. Exactly what you want. Then yeah so to that note there were some exhibitions and festivals right. Art Basel Basel, Art Basel Hong Kong, NFT NYC, Proof of People, Sonar Festival, some of the bigger named festivals out there. Eshita I
don’t know if you’ve got anything you want to touch on here NFT festival, NFTs in general.
Eshita Nandini (43:16): Yeah I mean, these are some very like mainstream festivals and Tezos had such a huge presence there. For example, like Art Basel, I was actually at Art Basel and the only NFTs I saw there were Tezos which is like last year and so only seeing the Tezos NFT ecosystem grow has been really exciting. So what has that meant for Tezos, the NFT ecosystem like having all these kind of mainstream events, excluding NFT based events.
Arthur Breitman (43:57): Well it’s great. I think you know sometimes it’s an occasion for different people who collaborate on a platform, you know, it’s like artists meet collectors that they might never have met in person before so there’s that aspect. It’s also I would say if it’s like Art Basel it’s a good way to present to the traditional art world the fact that all of this stuff happening in the NFT space is not just you know it’s not just gambling. There can be a tendency to imagine that somehow it’s all you know PFP wash-trading but it’s not there’s a lot of really amazing artists who are creating NFT for their further digital art. It’s what you present I would say the best of what the NFT world has to offer to these audiences.
Nicholas Garcia (44:48): Got it yeah. I think, I don’t have it included in here but I think fxhash had a nice exhibition at one of the Art Basels or one of those festivals, so cool to see the NFT marketplaces kind of taking the bull by horns and you know getting out there during these festivals and exhibitions and whatnot. So yes you can see a lot went down there
were some developer events, a few hackathons, a pitch day some of the Gitcoins of these clubs had some events. We also had some more kind of ad hoc events in terms of Instagram and marketing and whatnot, so nice to see a comprehensive touch there. Coming down to the final quarter of this call so approaching the end here. So let’s kind of pivot to some of the challenges that the Tezos ecosystem faces right, could list challenges from many different angles but some of the ones that I chose to include in this report were the competition that Tezos faces from some of the leading, there are other NFT ecosystems I should say in Ethereum and Solana, right, those are some of the ones that got attention as well. We touched on the Smart Contract languages so we can touch on that and then yeah the nascency of the DeFi ecosystem still early. So I’m going to hand this one to you Arthur, any of these challenges stand out to you. Any other challenges that you think Tezos is facing now or in the immediate future.
Arthur Breitman (46:08): Well you know, I think competition is in general is the motivation to do better and to provide a better experience for users so you know you can see it as an opportunity. But yeah if you didn’t exist you would be even better, wouldn’t it be. No sure I think you know you mentioned you know like the billions of dollars in marketplaces and I think you have to segment the market a bit there’s been a lot of you know if people are trading hundreds of millions of dollars a day of Big Butts NFT, yes that’s a thing and that’s but think that’s the Singapore markets. I don’t know if that’s going to be a use case 10 years from now, whereas I’m pretty certain that the art market is going to be a thing 10 years from now. So I would say it’s about trying to hit the part where it’s going to be in terms of what applications are meaningful in this platform and not where it is. There’s a lot of short-termism in the market specifically from VCs. I think that’s part of the business model, the business model is about selling tokens as opposed to building businesses in most cases. So these have transformed from being actual tech investors into being investment banks that provide bridge funding until they get a token that they can sell. I think it’s an unfortunate feature of the markets and it’s shaping a lot of the narratives, it’s shaping a lot of the hype. I don’t think this is something that will age well, overall, whereas I’m pretty confident that the use cases that are being built on Tezos have a lot of staying power.
Nicholas Garcia (47:41): The long-term versus short-term mindset, right. I think that the…
Arthur Breitman (47:44): Absolutely.
Nicholas Garcia (47:45): … crypto industry tends to suffer from.
Arthur Breitman (47:47): I also think that people who want to build stuff of substance see this and don’t necessarily want to be next to fluff.
Nicholas Garcia (47:57): Agreed. And then on the other side of that is the other competition right, it’s competition, you know pressure makes diamonds. That if you’re not in it, what’s the point? Yeah we touched briefly on the Smart Contract languages, we touched on the DeFi ecosystem. Let’s kind of approach the road map here. I think we touched on all this a little bit but anything else in terms of future road maps, we talked on the scaling, we talked on the EVM and WASM implementation. I got here a note on data availability, anything else people should be looking at?
Arthur Breitman (48:30): Sure I mean one thing I want to mention though is that people sometimes ask me. what is the Tezos roadmap, you know who’s roadmap, there’s no
Tezos roadmap right, there’s a TriliTech roadmap, there’s a Nomadic Labs roadmap, there’s a Marigold roadmap. There’s different people who have different road maps about what they intend to develop, but at the end of the day what determines upgrades on the Tezos blockchain is not something that’s decided by anyone. It’s something that’s decided by the community that votes on the upgrades themselves. Anyone can build an upgrade for the Tezos network, anyone can anyone can come in. When you see other blockchains which talk about their future roadmap as a fait accompli they’re essentially betraying the fact that their entire governance is centralised. So yeah there’s not a single roadmap. Now in terms of what Nomadic Labs, TriliTech, Marigold, all these good people are building, it’s very much focused on throughput scaling at the moment. Specifically the optimistic rollup and data availability sampling.
Nicholas Garcia (49:28): I think a great point, right like the decentralisation of the network as opposed to some of these more centralised ones you’ll see in the other community input there. Eshita, gonna hand it to you again. I don’t know if you’ve got anything, feel free to bounce in if you do.
Eshita Nandini (49:44): I don’t think so, we already covered some of the scaling solutions and plans. No I think we can wrap up and and I don’t know if you had anything else to add Arthur.
Nicholas Garcia (50:05): So look we’re at the end here right so i just want to put everything
underneath one blanket, right so Tezos because we did a lot here, Tezos self-amending blockchain, 10 protocol upgrades, two over the last quarter, we’ve seen an uptick in network usage right primarily through transactions and Smart Contract Calls, low fees, consistently high staking despite the liquidity component to that and a booming NFT marketplace some of the future plans right are rollup centric, fixing that data availability layer. Scaling the network essentially is the high level plan of what we’re looking at here in Q2. Decentralised ecosystem with some leading developer components to it anything else, Arthur? Did I do a good job there, anything you want to add to that.
Arthur Breitman (50:54): Yeah, I think so. So many things, so I don’t know in 10 minutes but i would say overall you know 2021 and early 2022 has been the year of adoption of the Tezos protocol it’s where we’ve seen a very large uptick in number applications, number of users coming on the network and I think it’s what’s preceded the importance of working on throughput and scaling. I think it’s a better approach to start waiting for users and seeing what your users need, what are their actual requirements in the blockchain, rather than trying to build a very large bridge to nowhere. So it’s very exciting that we have to,
you know, we’re not just building scaling because it’s a cool engineering project but because we actually have to. Because now there’s a lot of other demand for the chain and growing demand.
Nicholas Garcia (51:42): Comes down to that long-term versus short-term mindset here. I think Tezos is definitely in it for the long game here, so should be good, looking forward to seeing what Tezos puts out. Yeah I think that’s it from this call, I don’t know if either of you have anything else, if not we can wrap it up here until we reconvene for the next quarter but I want to thank everyone for tuning in and for hopping on here and Arthur for the kind, you know gracing us with your presence.
Arthur Breitman (52:08): Thanks Nick and thanks Eshita.
Eshita Nandini (52:09): Thank you so much.
Nicholas Garcia (52:13): Have a good one!
