If you would like to view the full recording of the live State of Hedera Q2 call, you can find it on our YouTube channel.
Participants:
- Mance Harmon – Co-Founder of Hedera, Co-CEO of Swirlds Labs
- Shayne Higdon – CEO of The HBAR Foundation
- Brett McDowell – Chair of Hedera Governing Council
- Nicholas Garcia – Messari Research Analyst
Nicholas Garcia (00:00): All right, so we should be live here. Thanks everyone for tuning in today, this is going to be the Hedera Q2 analyst call with Messari. Today we’re going to be talking about all things Hedera with a focus on Hedera’s Q2 performance, before we get going into the Hedera specifics I think it’s important to do some introductions. I’ll start with myself, my name is Nick Garcia, I’m a Research Analyst with Messari and I specialize in layer-1’s, if anyone from the Hedera team wants to kick off go ahead.
Brett McDowell (00:32): Sure I’m Brett McDowell I’m the Chair of the Hedera Hashgraph Governing Council and Board of Directors.
Mance Harmon (00:40): I’m Mance Harmon I’m the Co-Founder of Hedera Hashgraph.
Shayne Higdon (00:46): And I’m Shane Higdon, the CEO of the HBAR Foundation.
Nicholas Garcia (00:50): Shayne, Brett, Mance thanks for being here. All the HBAR Barbarians who are tuning in, thanks for tuning in today. I think we’re gonna have a good one. So let’s just jump in right now if anyone from Hedera would like to give a high level primer on what is Hedera, maybe touch on the history and some of the unique aspects that make it different from L1’s today.
Brett McDowell (01:16): Sure Nick why don’t I start with kind of the history and I’ll hand it off to Mance and he can go from there. So I want to introduce some terminology around how we on the council look at the history and evolution of Hedera in particular through the lens of the governing council and the governance of this network. So really giving you my perspective on that, so we defined this in three different phases. Phase one kicked off when Hedera Hashgraph, what we now know as Hedera Hashgraph LLC, was legally formed. During that period, phase one, the original member, this was a single member LLC was Swirlds Inc. And as the original member the LLC Hedera Hashgraph was a sort of pass-through entity really managed by that same management team of Swirlds Inc. Swirlds of course being the inventor of Hashgraph and Mance can speak more about that. So that’s really phase one getting from the absolute origin of Hedera Hashgraph LLC the legal entity to phase two. Phase two starts when we hold the very first formal council meeting this was February of 2019 and here we are now a multi-stakeholder governing body and we have authority that’s distributed not just with the original member but with all the governing members and the original member and the governing members now have the same vote on most decisions that affect the network and the treasury. During this period of time in phase two the original member also had a lot of special and temporary authorities and responsibilities to bootstrap this network, particularly for the security and stability of the network. So they were appointing the first council members and they had seats on the board and a few other things to bootstrap the network that brings us up to 2022 and where we are today, which is phase three, and what really separates phase two governance from phase three governance is some of the outsourcing and decentralisation represented by Mance, Co-CEO of Swirlds Labs, and Shane, CEO of the HBAR Foundation. So over the past year Hedera Council has decentralised major functions so ecosystem development is now fully decentralised and over at the HBAR Foundation product, engineering, and developer community engagement, which you might call marketing, is in Swirlds Labs and so we’ve now in this phase three. The distinction is Swirlds no longer has any of those original kind of bootstrapping responsibilities to get things going. The governance structure is considered stable and reliable with the 25, 26 now companies that we have on that council, Swirlds being one of many and the only differentiator between Swirlds and all other companies on that council is that they have a permanent council seat. But they no longer have a permanent board seat, they no longer have a lot of those other bootstrapping responsibilities that they had to get things going during phase two. So that’s where we are today. Going from phase one, phase two, phase three and the other thing I would say briefly before handing it off to Mance is around being a public permissioned network so the Hedera Network is, because you asked about you know what might be different. So part of bootstrapping and focusing on the stability and security of this network is to launch always as a public network. Anyone can create accounts, anyone can deploy applications but it is permission only the council members can run mainnet nodes or what some people would call validator nodes on the network and we’re doing that for the stability and reliability of this network. It really is a network that’s enterprise grade and those are some of the requirements that we’ve heard from the enterprise from our own enterprise members on the council and so that is kind of history of being a public permissioned network. But it has always been the case to be permissionless we are on our path to decentralising the Hedera Network into a permissionless network and you can already see from the beginning we have been decentralising it’s just done in phases–hit key milestones. This past year has been a big year for us hitting several of those milestones. We still have a few more to go such as becoming permissionless over time. Now with that I’ll pause and see if Mance wants to add to you what describing Hedera or the history.
Mance Harmon (06:12): Yeah thanks Brett, so we’ve always thought that there were two main value points for the project one of those being the unique governance model that Brett has spoken about here at some length and the other one of course is the technology we don’t use blockchain we use something called Hashgraph. Hashgraph is of course a consensus algorithm, it solves the same category of problems that blockchain solved and has some fantastic properties relative to blockchain. It was invented by my Co-Founder Dr Leemon Baird, and in just a sentence the advantages of Hashgraph are that it maximises performance and security of the network of the consensus algorithm simultaneously. There’s always been this trade-off between performance and security historically going back decades and Hashgraph resolved that. It’s got this property called Asynchronous Byzantine Fault Tolerance (ABFT) and because of Hashgraph we have both fantastic performance and the limit of what you can achieve in terms of security in a distributed consensus algorithm. The source code has been open for review on GitHub for years and earlier this year as one of these further steps towards decentralization we announced our plans to open source that code base. I’m going to talk more about that in a little bit you can read about this on the Hedera website and as a result of the decision by the council to open source the code base there was an open source task force that was established earlier this year. It’s composed of council members and industry experts to help define and realize the full vision of that open source program for the platform and while there’s still a lot of work to do to sort of fulfill that full vision for growth and industry engagement I am pleased to say I think today is the first time to say it publicly that as of August 5th the code base in the GitHub repository is all now Apache 2.0 and so the code base is now officially all open sourced, that doesn’t mean that we’re done with the the open source program there’s a lot to do there but this is a huge milestone for us. For the project and you’re going to hear more about that in the coming weeks and months as well.
Brett McDowell (08:50): And Nick since you did ask about how Hedera kind of compares to other networks maybe a few words about our tokenomics. So part of how we’re going to secure the network of course when we’re permissionless is through staking. So a couple of brief words there. The HBAR the native token to the Hedera Network has two roles as with other layer-one (L1) protocols, it’s used by network participants to pay the fuel costs required to make use of the shared infrastructure of our ecosystem keeping mainnet node operators appropriately incentivized to continue to provide that infrastructure and the second purpose of the HBAR like other proof-of-stake layer-one (L1) protocols is to be used to secure the integrity of the consensus algorithm calculations by staking HBAR that’s in their custody to mainnet nodes they trust. Resulting in the community driven distribution of consensus weight across mainnet node operators, thus securing the integrity of the Hedera estate and last but not least just a reminder for those or something new for those who may not know the Hedera tokenomics is based on a fixed global supply of 50 billion HBARs and most of those have not yet been released.
Nicholas Garcia (10:27): Yup I think that was a fantastic summary from you both. Right so Hedera permission network, now you know decentralising right and as it decentralises it’s going to scale and it’s going to scale with this novel Hashgraph algorithm it’s a great summary there and then yeah brett you beat me to my next section which was HBAR so I’m showing the visual here, so HBAR has got a maximum total supply of 50 billion which is different from some existing networks, right where they have kind of this inflationary aspect to it some L1’s, Polkadot for example, you’ve got like a five to ten percent yearly inflation varies per network but you’ll kind of see both models here. So what I’m showing is the distribution from the treasury of HBARs right and that tends to happen at the end of each quarter, okay is there is there like a final date in mind I think you said 2025, Brett right when all HBAR should be in circulation is there anything else in terms of HBAR distribution HBAR network effects that’s worth mentioning?
Brett McDowell (11:28): I definitely did not say by the end of 2025 all coins will be in circulation. Sorry, no there is no firm date, a fair amount of that unreleased supply is also unallocated so there’s two things that we report on. So we report to the market around what’s been released what a lot of people refer to as circulating supply and we also proactively report what’s been allocated if we have a fixed purpose for coins not yet released and a lot of that 50 billion supply continues to be unallocated. So no, I think the date by which all those coins are in circulating supply is pretty far off.
Nicholas Garcia (11:44): Got it okay so still TBD on the HBAR, you know when all tokens will be in circulation but they’re being distributed each quarter.
Brett McDowell (12:28): Yeah in alignment with the adoption growth and the need for those coins to do those two purposes to secure the network and to pay for consumption of services on the network so as that grows and as those opportunities to move the needle on network utilization that’s how you’re going to see those coins distributed over time.
Nicholas Garcia (12:54): Which is another unique aspect of Hedera and HBAR, right? A lot of networks you’ll see is they have this base level inflation where Hedera is kind of you know releasing tokens as it pertains to network adoption and growth which makes more sense in a vacuum, Shane your unmuted I don’t know if you’ve got anything you want to add here as well?
Shayne Higdon (13:16): No, nothing, nothing to add so far.
Nicholas Garcia (13:19): Cool, all right so let’s jump down to the next section of the report. So now we’re going to look at Hedera’s network usage and performance over time and the first thing we like to look at is transactions right. So transactions can be different on different networks depending on you know the structure and the architecture of the network but in general what we’re seeing here is a trend down in transactions. Now you’ll see this across a lot of ecosystems because of just general market downturn right is there anything here in terms of transaction activity that is worth highlighting is this just inline with the broader market or is there something in Hedera that may be a cause of this, whether it be an upgrade whether it be something being deprecated?
Shayne Higdon (14:06): Yeah I’ll take that Nick, thanks for the question. You know Q2 2022 was historically a bad quarter for all of Crypto as you just mentioned and we weren’t immune to the broader market decline. It’s evident in the graph though that total transaction dropped this quarter because it just so happened a few of the major use cases that were pushing significant transactions simply slowed down and it led to an outsized impact on our quarter on quarter decline so you know this is unfortunate but this type of volatility can be expected as projects go through a product maturity curve you know as many founders are looking for product market fit so as the use cases evolve market dynamics begin to weigh in and or the needs of the business grow founders learn to pivot where the value is and what they’ve built and this downtime during the transition is what you see reflected in this graph. But the key point that I would like to highlight is the stability though of the transaction fees so if we were to compare the scenario of network congestion on other networks we’d anticipate the fees would have come down this quarter with lower transaction volume but in fact the fees were the same, so it meant the network sustained the same fee structure regardless of whether the network was you know congested though to be clear there really isn’t any concept of congestion on Hedera.
Nicholas Garcia (15:31): Yeah and you’ll see by the visual here right average transaction fees are less than a penny, yeah so everything beneath that is basically nothing. So I think on the flip side of that which is interesting is you actually saw Hedera’s user base increase during the quarter, right so transactions were down but people were actually using and creating wallets and joining the network so that dichotomy is really interesting. Is there any particular reason there, is that there is you know growing in terms of popularity or there’s some more concrete reason we can point to?
Shayne Higdon (16:06): Yeah, you know when you look at network popularity you look at you know active user growth account growth, you look at transaction growth and volume growth, you know this quarter we averaged more than 33,000 users per month which was a 51% increase quarter over quarter so to contextualize this from a year ago the number of accounts has grown, and this is pretty impressive, nine times faster than it did the previous four years, so you have Hedera really becoming a destination and I think it’s a you know several factors playing into it. The fact that it’s becoming open source, the fact that we’ve got EVM compatibility, the fact that we have incredible smart contracts so not only is the number of users growing but we’re simply growing much faster than we ever have as a destination for developers to come to.
Nicholas Garcia (16:54): Absolutely and I think eventually over time you’ll see that transactions will follow the active users right it seems like a natural inclination there, yeah so that’s Q2 and kind of the last year’s network usage for Hedera, let’s move down to another unique offering of Hedera which is a Hedera Network Services. So what we’re going to do here is we’re going to go into each of the individual services and kind of their Q2 and prior year performance but if anyone here would like to set the stage for exactly what the Hedera Network Services are before we go into the specifics I think that kind of helped people understand what we’re looking at.
Mance Harmon (17:29): Yeah why don’t I take that. So there are three what I’ll call primary services, the Hedera Token Service, the Hedera Consensus Service, the Hedera Smart Contract Service and then an additional two support services the Cryptocurrency and the distributed file storage (DFS) services. Both of those are used by dApps for various reasons; it’s the combination of these Hedera Network Services using the underlying Hashgraph algorithm and platform that enables the functionality and scalability that we believe is required for mission critical applications. Those that are going to be serving large consumer bases and consumer use cases and enterprise use cases and and others. So if we take a look at each of the main three that I’ve mentioned in particular the Hedera Token Service that enables anyone to sort of easily and cost-effectively, configure, manage native fungible and non-fungible tokens on the Hedera Network. Tokens of arbitrary type. And then there is the Consensus Service this provides verifiable timestamping and ordering of events for any web2 or web3 application and we’ve seen a lot of sort of web2 applications that they’re already out there entrusted by the market today, because they’ve existed in the marketplace for some time they’re not startups, we’ve seen them take advantage of this Hedera Consensus Service to add what we call Trust Plus to their existing product offerings. And then in addition to that there are native web3 applications architected from the ground up to be web3 that can use this Hedera Consensus Service almost think of it like Hashgraph-as-a-Service in their product offerings and a lot of that traffic that that we were just talking about that TPS was as a result of these dApps using the Consensus Service and then there’s the Smart Contract Service and that is exactly what all of our viewers would expect it is, it is Solidity, it is an EVM that is compatible with you know existing Solidity Smart Contracts out there uh the you know they’re going to be improvements to to these services in the future we have something called the Hedera Improvement Proposals that we can talk about but those three are the primary services. The Cryptocurrency Service is used sort of as a utility service in some ways when using these other services you need to pay for those services you use a smart contract and then also dApps need file storage and we have distributed file storage (DFS) that supports the dApps and these three primaries as well. I think that sort of describes the services and the related API’s and then maybe Shane or Brett you can take the next part of the question.
Brett McDowell (20:50): Okay if I can just make an observation kind of connecting the dots with what we’ve covered before around the transaction volatility and these services, some of these services are high transaction services, so the services they have different network costs and they also have different purposes so by analogy it’s like let’s say you’re an internet service provider and you’re offering both email and video streaming to your users well maybe you get a huge increase in email users which is low bandwidth but you get a couple of decreases in video streaming and that would throw off your overall bandwidth measure I think that is a pretty good analogy for what you saw with the transaction volume. A couple of high transaction volume use cases likely leveraging Hedera Consensus Service (HCS) which is designed for that type of use case you know those started using less of the bandwidth but you see all the other users increase with all the other services. So just to connect some of those dots and then turn it over Shane.
Shayne Higdon (21:56): Yeah thanks Brett so you know while each of these I think Mance did a really nice job talking about the discrete services and while they are discrete they’re oftentimes used together they don’t operate in isolation. So the beauty and power of the network is that they can be used together and frequently are. So the split of each of these services though does highlight a peculiar aspect between the Hedera Consensus Service and the Crypto Service along with the number of users. So if you look at the table the consensus service is responsible for a disproportionately small number of users despite the fact that it’s got significant transaction volume, so some of you may look at to say wow that’s odd you know when you look at it remember two things and this might help you make sense. First is the consensus service is like the engine of the network so it is always being used, second the current enterprise use cases tend to really push large consensus services transaction volume but these enterprise use cases are like centralized exchanges and are responsible for large volume with proportionately few on-chain accounts so enterprises are currently mostly B2B organizations that predominantly use the ledger portion of the network if we look at the cryptocurrency service that really relates more closely to the financial or user-focused financial use cases we’ve seen more activity and usersassociated with that service even if the volume looks disproportionately small compared to how large the consensus service volume is, some of that is just simply because we’ve got more native DEXs, more things executing on the crypto service than we had before. I’ll also say we are going to anticipate these characteristics to change in the coming quarters and years as dApps that predominantly use the cryptocurrency service will start to push more transaction volume with enterprise use cases also starting to drive growth of individual on-chain accounts there’s a few other points Nick that I think would be helpful to make regarding the consensus service. Given that the transaction volume declined, user count actually grew 13% compared to last quarter so we’re actually less worried about the drop in transaction volume because we know the user base is growing and is actually part of the overall volume and growth of the network. We’re very excited about the seemingly explosive growth of the contract service I would say because it’s easy to start from zero but what we’re seeing here is the first major dApp using the smart contract service and it came to market in April that was Stader Labs. They have a product liquid staking protocol which went live in April we saw over 400 million HBAR staked in the first month of go live since then they’ve grown on average between 650 and 660 million HBAR in TVL with over 12,000 users so again the transaction volume dropped, which is relatively consistent with the broader drop in transaction volume, but we’re really buoyed by the growth in these types of use cases. The file service it’s performing relatively consistent based on the apps that we’ve seen come to market and the overall shift I think in transaction volume split across these different services and user account growth is in line with what we’re seeing in the market. The fact that Hedera is truly becoming a destination to build, with several enterprise use cases continuing to mature and DeFi/Crypto Native use cases coming to market as well.
Nicholas Garcia (25:40): Yeah I think you guys covered the gauntlet there right. I think that was a great description. I think one thing that I would add right is that the transaction fees for some of these services are fixed and we as we discussed earlier Hedera powered by the Hashgraph algorithm has low transaction fees, so that’s helpful for retail users right both also for enterprises so they have predictable costs and they know what they’re getting themselves into so yeah I think great description there. Of the hedera services if we want to just take a look at each of these services in a little more detail on how they’ve performed over time here we’ve got the Hedera Consensus Service, here we’ve got the Smart Contract Service, Crypto Service and then the File Service before we move on anything else or any one of these particular services, you guys would like to dive into a little more?
Shayne Higdon (26:36): Nothing for me. I tried to cover it in my opening preamble there regarding our network usage.
Mance Harmon (26:45): Yeah the only thing I would add is that at least so far what we’ve seen is that really large use cases, that large enterprise or that caliber of customer seems to have a particular interest in the Consensus Service where the other services are preferred more and used more by the web3 community and I don’t know exactly how that’s going to evolve over time but the big use case the what I should say or categorize as high volume use cases that we have experience with and anticipate coming to market are going to be using that Consensus Service very heavily.
Nicholas Garcia (27:36): I think that’s got a huge product market fit there. Okay cool so those are your Hedera Network Services let’s move onto some more traditional aspects of crypto layer-1 ecosystems, so here we’re looking at Hedera NFTs right, so you’ll see from this visual that hedera NFTs have been trending upwards okay. So I’ve got here that in Q2 Hedera had 258,000 NFT transactions with roughly 8,000 unique users some of the NFT marketplaces on Hedera include Zuse Market, Hash Axis, Turtle Moon and GoMint like all transactions on Hedera the NFTs have low costs anything that anyone here would like to touch on in terms of the NFT activity taking place?
Mance Harmon (28:29): Well what, I’ll start, I think what’s noteworthy is that the Hedera Token Service which the NFTs of course are based on was actually kicked off in 2021 but it’s really taken off this year since we integrated the new version of the Hedera Smart Contract Service with the Token Service and that happened in February of this year. That combination sort of started the flywheel of ecosystem growth that we’re now seeing for the first time and we believe it’s because that combination gives developers the performance and security and cost benefits of a native token service running on Hashgraph but with the full programmability of smart contracts and that combination is unique in the industry and since then we’ve seen some of the growth that you’ve already mentioned almost a half million NFT transfers from other networks to Hedera over 200,000 NFTs minted on the network and it’s all during this period of time when the NFT market overall has seen a slowdown with June daily transactions dropping to their lowest in a year. So we’re clearly bucking the trend here as the creators and collectors realize that value of that combination building and transferring the collections to Hedera a cost-effective network with a good ecosystem and and we haven’t touched on it yet but also from an efficiency energy efficiency perspective the greenest network in the market, as far as we can tell.
Shayne Higdon (30:18): Yeah Nick you mentioned four of the native marketplaces that where NFTs are reflected, Zuse in particular transacted over 35 million HBAR within the quarter and we attribute that to a few things; an easy to use UI, really great user experience because of their network characteristics and you know they just got some really cool art so we want to continue to you know grant types of projects like this to continue to grow the interest in the NFT community and it’s been fun to watch.
Nicholas Garcia (30:57): Yeah, yeah it’s got to be encouraging right seeing the NFT ecosystem take off on Hedera. You mentioned Mance the Smart Contract Service right so another thing that I think is really encouraging from Hedera perspective is the developer activity okay, obviously we’re in a bear market or you know a downturn market but you want to see developers continue to build and continue to progress on the network and that’s what we’re seeing here right, consistent and somewhat upwards trending developer activity over time. I know that there are some Smart Contract Service kind of development plans for the second half of 2022. So does anyone want to touch on the developer activity and some of the future plans to support further developer activity?
Mance Harmon (31:45): Yeah well I’m happy to kick it off and I think it starts with the EVM, so we’ve introduced the second version of the smart contract service it is an implementation of the Besu EVM which of course is Solidity that’s been optimized for the Hedera network and using Hashgraph consensus. For the developers it has a lot of really compelling features it has no congestion fees for gas, all the transaction fees are fixed so as you’ve already pointed out when a developer or an organization needs to be have some certainty about what their cost of goods are think of it in those terms COGS, cost of goods sold are going to be they they can plan appropriately without being at the whim of the you know the market volatility of a native token that’s normally required to pay for the the network services we don’t have that everything is denominated in USD. In terms of the EVM itself we can process 15 million gas per second, it currently can support 300+ TPS and it’s as I’ve already pointed out it’s integrated with our other services and specifically the Token Service it’s integration with the native token service has support for ERC-20, ERC-721 and ERC-1155 standards and the native token service has capacity for up to 10,000 TPS and again the transaction fees are tiny, it’s a penny of a penny you know per transaction so the the cost model, the pricing model, the performance of these services and the way in which they all work together really provide a compelling value proposition to Web3 developers.
Shayne Higdon (33:56): Yeah, I’ll add that you know the quality of developers that we’re seeing and projects on Hedera is unparalleled. I mean we’re seeing developers focus on really solving a lot of old world problems in new ways across use cases in DeFi extending that to TradFi, the Metaverse, supply chain sustainability is a big area of investment, IT service levels, real estate, fractional real estate contracts so we continue to invest in the developer ecosystem doing an average of 6,000 developer events a month where we’re either sponsoring developer events, we’re providing bounties for hackathons, we’re judging a competition or in some cases we’re doing all three. So we believe though that it continues to accelerate because of what Mance just talked about the evolution of the technology, the connectedness between the Smart Contract Service, Token Service, the fact that it’s open source you couple that with the grant giving of the HBAR Foundation and you really have a recipe for significant growth and adoption. So you know it’s become a destination for developers of all kinds both enterprise and crypto native alike.
Nicholas Garcia (35:11): Yeah the developer activity is encouraging, developer activity unlike most metrics you’ll see is actually a leading indicator, right, of things to come so one of the more important metrics I think we like to track here at Messari.
Shayne Higdon (35:20): Great point.
Nicholas Garcia (35:22): So moving down here on the list, so we touched on it earlier, right, I think it’s one of the core components of Hedera, the Governing Council, we’ve got 26 entities some of the bigger name ones that I think people are familiar with include; Google, IBM and Boeing each runs their own node, but what we did not talk about was these Hedera Improvement Proposals and how those are a way for the community to have their voice heard, the largest of those being the HIP-406 the Staking Proposal. I believe we touched on Staking a little bit earlier. So does anyone want to talk about these HIP Proposals and then briefly mention how Staking, that proposal in particular, took place earlier this year?
Mance Harmon (36:07): Sure why don’t I take HIP or HIPs and Brett I’ll let you handle the Staking?
Mance Harmon (36:15): So the Hedera Improvement Proposals (HIP) is the mechanism by which the community at large decides what it wants to be developed on the platform and so we have community members that come together and will write up these proposals and then there’s debate and the debate goes into the design, I mean the proposals themselves can become quite detailed in terms of the implementation of the various features. There is a committee, the TETCOM, is what we call it the Technical Steering Committee within Hedera as part of the governance model, the Technical Steering Committee is composed of various council members and those council members take the HIPs as an input and help to prioritize the development of those HIPs. Now, you know the HIP plan I think we rolled it out maybe a year ago, I forget exactly when but as you pointed out the HIP, the HIP on staking, I think is the one that has been most debated and discussed and and we’re of course now deep into the development and rollout of that whole staking program but that’s what the HIPs are for, they’re there to help guide the direction of the platform from a feature perspective.
Brett McDowell (37:56): Yeah, I’ll just add that the HIP process was put in place in support of the Services Layer which has been open source for quite some time, also licensed under Apache 2.0. In 2022, what we’ve added is open sourcing the Hashgraph, the underlying Hashgraph platform, but we’ve been building this culture around open source contributions from the community from the developers building on the Hedera Network for quite some time, we’re just taking it to the next level in 2022, and so it’s great to see that level of engagement from the community. You do not have to be affiliated with a council member company, you do not have to be a member of the Hedera council to fully engage in expressing what you believe the requirements are that should drive the road map and evolution of this technology.
Nicholas Garcia (38:48): Yeah, I think undoubtedly HIP-406 staking has been the most discussed and the most popular HIP proposal, so good to see that right, nice to see the community engagement there. So that is a lot of what is Hedera and some of the more quantitative analysis of all things Hedera. Let’s move over to the more qualitative section of the report okay. Despite the bear market right there’s a ton happening in the Hedera ecosystem I think one of the more encouraging things, okay, is the amount of funding that’s going into the ecosystem, we have $555 million dollars in funding in early March, $100 million dollar Sustainable Impact Fund was announced there was a $155 million DeFI focused fund and there was also a Metaverse and a FinTech focused fund. A lot of money going into the ecosystem to build this thing out. Anyone here care to elaborate on any of these funds, the higher level picture of what these funds are trying to accomplish feel free.
Shayne Higdon (39:52): Yeah, I’ll certainly take that start off and Mance and Brett can chime in. The easiest way to think about the HBAR Foundation is that we operate like a Venture Capital firm but in a Foundation’s body. We’re most often investing in early stage projects which simply are going to take time to bring a product to market but like a venture firm during and after the product is built we continue to support the builders, creators, founders with financial technical and marketing support and that’s in partnership with Swirlds Labs and I think it would be helpful to kind of unpack these funds besides just the dollar value of what we’ve allocated each fund. Let me tell you what they’re focused on and a couple of the grants that we’ve given in these areas. So first is the Crypto Economy Fund, you see it’s a $155 million dollar fund but we’re really focusing on supporting opportunities that support the adoption of HBAR, on-ramps, off-ramps, exchanges, wallets and the broader DeFi ecosystem. So to give you some examples, Stader I mentioned earlier liquid staking averages around 650 million HBAR in TVL give or take. SaucerSwap which is a recent native DEX on Hedera that’s really taking advantage of all the developments that came before it. They launched an NFT collection to raise funds for their own development and then they have several pools around HBAR.X and the liquid token from Stader staking app, that is growing significantly. I think within the first 24 hours there was $11 million dollars staked, if my number I think is accurate. The second is the Metaverse fund and while it says Metaverse let me just say it’s really focusing on consumer brands ranging from gaming, sports, music, etc anyone looking for tokenization of tickets as an example of tokenization within a game or maybe tokenizing you know a specific luxury brand. Some examples there and the focus of that is to engage their fans to create more loyal engaged customerbases and facilitate community growth. I’ve mentioned Zuse Market and Hash Axis which are native NFT marketplaces that we’re seeing. Sayl, which is a Hedera native CRM and commerce platform, it’s launching NFTs with Hendricks Gin as another example. These are some of the biggest that we haven’t publicized everything that we’ve invested in here but some really exciting ones that you’ll see coming to market soon. Sustainable Impact Fund, this was a $100 million dollar fund so we’re kind of launching off the greenness of the network itself and how we’re carbon negative and really focusing on addressing the need for greater transparency in environmental and nature-based markets. So the funds tackling issues around how organizations governments and the broader environment interact right by working with and investing in applications, exchanges and providers trying to really audit all of these carbon credits, carbon offsets, renewable energy certificates, etc. You’ll be surprised at the amount of negative things that are happening that need to be validated. So we have the Guardian which is an open source digital measurement reporting and verification tool which continues to see increased adoption and is powering the Regenerative Finance or ReFi ecosystem. This quarter we’ve also seen the first carbon emissions tracking use case go live with the Guardian with the Queensland government tracking carbon emissions using a grant fee that we’ve called TYMLEZ and their platform. Then finally our payments and FinTech fund, you know Hedera’s core competency to date as you guys know have been to work with large financial institutions to adopt tokenized solutions for cross-border payments, stablecoins CBDC’s and the like. This fund is focusing on supporting the platforms and institutions seeking to accelerate the use of cryptocurrency in traditional finance and applications, so you know we’re seeing more and more of this. One example of this in the crypto economy, partnering with the Crypto Economy Fund is institutions adopt these decentralized solutions to their core business like ANZ Bank as an example. So we wanted to structure our fund deployments align to key markets, so that we could simply measure the success of our grants, it also gives us the flexibility to create new funds as new markets or focus areas emerge. We did this recently with a Female Founders Fund and the Decentralised Identity Fund which are two important elements in today’s Web3 world.
Nicholas Garcia (44:49): I think it’s an exciting time to be a prospective company for the Hedera ecosystem. Brett, Mance anything else, there’s a lot going on here with these ecosystem funds you guys would like to touch on?
Brett McDowell (44:59): I’ll just say that I think there’s a theme emerging when you kind of as Messari has done you kind of take an objective view and measure of what’s happening in the Hedera ecosystem. I think there’s a theme that weaves through all this and that we’re doing the things that need to be done to support really large-scale deployments on this network so the fact that all of the services are priced in USD that’s how businesses budget and plan to go to market with a solution, so that’s helping them a lot. Also with innovation programs, innovation programs often kind of subject to scrutiny when market macroeconomic conditions tighten, innovation programs taking the heat off of them making it easier for them to move forward through the the activities that the HBAR Foundation is leading with all of these funds. Everything we’re doing is just helping companies take the best of web3 and start integrating it into their enterprise.
Nicholas Garcia (46:05): Yeah long-term mindset right. I mean this is you know this is a long-term game here and I think Hedera is taking that approach, which is the approach you want to take. Okay, so those are your ecosystem funds. Yeah go ahead.
Brett McDowell (46:17): I’m just going to say and it’s no surprise if you look at those stakeholders right if you look at the council members, their sun doesn’t rise and fall with the price of crypto. They’re there because they believe this technology solves real problems in their core business. They’re robust I think even though we wouldn’t have invited it upon ourselves the macroeconomic challenges that have hit 2022 have really kind of separated projects that are really dependent on speculative investment from those that are really built on a long-term foundation. So we’re really happy with where we are and where we’re going and who we’re working with.
Nicholas Garcia (47:02): Completely agree and it’s again reassuring that you have the development activity to back all of that up, right. So that’s very nice there. All right so let’s move down the list here so I’ve got some challenges here. I mean we can briefly touch on this. Some of the things that I mentioned right and we’ve talked about them on this call is the decentralization of the network, some of the inconsistent network activity and then the tougher competition amongst these layer-1s. I don’t think it’s a stretch to say that there are some larger ecosystems out there; ones that come to mind are Ethereum, Solana Avalanche. There’s a whole bunch of them these days. Some of the challenges I laid out here right, we don’t have to go into any of these but is there anything that comes to mind for you guys that are challenges either now or in the future that you think Hedera has to deal with, I know there’s a million but anything specific that is worth noting here.
Mance Harmon (48:14): You know it’s interesting being one of the founders, being one of the founders we knew when we started this that what we were doing was very different than what anyone else was doing in the marketplace. Everything about the project is different, the governance model, the technology, the go to market, it all is different in its conception and its execution than what the other layer ones are doing. When we started this Leemon and I and you can go back four or five years to look at the videos. We started by saying we’re building a company that we want to be around for a hundred years, a hundred year company that’s it. And so what does that mean? That means that you have to, you have to be aware about what your competition is doing but you don’t always have to be influenced by it and by and large we aren’t. I mean we we are independent, we view ourselves as being independent and outside of the fads and have focused on the fundamentals and that shows in the quality of the platform and the quality of the technology and the API’s and how they are designed for the long-term use cases for the enterprise grade and mission critical use cases. It shows in how we are trying to solve the problems that both the Web3 community has in their cost and performance issues that our competitors have, the L1’s have but also recognition that ultimately enterprises are going to come around. Enterprises are going to deploy and that’s going to fundamentally change the game in the face of the industry when that happens and I think that Hedera is uniquely positioned in the market for that enterprise and large consumer play, large consumer use case play and we’ve kept our heads down and we’ve built as opposed to try and pump. We don’t pump you’ll never see us pump but what you will see is steady progress and steady building. We’ve demonstrated that over the years. And you know I think that will play out very well when the final analysis is made and what the L1’s are going to be that are here for a hundred years.
Shayne Higdon (50:58): Yeah and I would just add Nick that you know when you look at all that the team, starting with Mance and Leemon had built and is here now. I mean when you look on a timeline, you know the Foundation which was the first entity really focused on incentivising and building this ecosystem with them in partnership, you know. We announced that in September of last year and in earnest, because we’re like a startup, we were getting operations set up etc in earnest. We began giving grants in February of this year so from February until now we’ve deployed over $300 million dollars across 120+ grants so that to me is impressive and I think that’s why you’re seeing the combination of our three organizations, the evolution of the technology, the governance model and now the incentive structure really starting to take shape and why you’re seeing growth in in many of these numbers and you will continue to do so as we continue to invest and enable many of these enterprises, DeFi ecosystems etc to build.
Brett McDowell (52:04): Yeah and Nick the only thing I’d add. So I think we are going to talk about what’s coming next. You got a roadmap up there for us to speak to you. But just to be fair to the challenges I would say from the perspective of the Hedera Governing Council and the network operators we’re going to go as far and as fast as our stakeholders carry us and so the challenges are like it’s not just a crypto winter, just tough economic challenges that hit all sectors in 2022 so to keep everyone focused and everyone continuing to pull in this direction. This is obviously Web3 is an innovation investment not every company is ready to dive in and go big on innovation under those macroeconomic conditions and that’s why I mentioned earlier part of the things we put in place is to ease that and keep that momentum going throughout such downturns and when we talk about the future I’m going to say more about, well what’s going really well but that is the challenge and our our approach to that challenge is going well.
Nicholas Garcia (53:08): Fantastic. Yeah I think you know per those responses right another theme of the Hedera Network is this long term we’re in a marathon, this is not a sprint mindset. So there’s no need to compare yourself now, it’s about where we’re going to be, not where we are today. So Brett yeah to your last point there the roadmap right, we’re coming up on the final five minutes of this call here, so let’s look forward. What can the community and some of the Hedera customers expect from Hedera for the second half, I guess for you know the last third of 2022 at this point and 2023. What do people have to look forward to when it comes to Hedera?
Brett McDowell (54:52): I’ll get it started and I’ll come back to what I talked about with that phased approach to what we’re doing at Hedera and the rollout and the growth and decentralization of this network. So as I said we’re in phase three and phase three is really about the companies that use this network really leaning in running and delivering and taking this network to the next level and so I’ve got some great examples of that. That’s the real payoff of phase three right, so phase three has sort of this well it’s it’s better decentralization, that’s nice, it has kind of these foundational elements I talked about before, but the excitement and the icing on the cake at phase three is our council members getting more involved in network use. So one example is what we’ve done so far this year is formed something called the Corporate Utilization Committee this is a group formed by council members led by council members and they’ve created a program called the Enterprise Accelerator for themselves, their customers, their partners and their peers in the industry to really help ease that onboarding. Go from concept to design to deployment of these Web3 use cases taking advantage of some of the unique capabilities of Hedera, so that Hedera Enterprise Accelerator is one of the the bright spots of phase three. The way the council members have engaged in the use cases they’ve been sharing one another and they’re collaborating with one another. And the partners that we have in the industry Swirlds Labs being technical subject matter experts that can help them we’ve got other you know SI’s lined up to engage in that program and help onboard those enterprises to get from proof of concept to deployment and the the work of the HBAR foundation who are often invited as experts to Hedera council meetings and council committee meetings and I anticipate they’ll play an increasing role in the corporate utilization committee and that Enterprise Accelerator Program going forward.
Nicholas Garcia (55:58): Shane, Mance as we wrap up here anything roadmap related or just high level you guys would like to touch on?
Shayne Higdon (56:04): Yeah nothing really specific, other than we’re just going to continue to build on the strategic investments we made in the first half of the year focused on facilitating the growth of the modular DeFi ecosystem, the support of other NFT marketplaces and creators unique business models and then focusing on the enterprise and consumer use cases across all of our funds.
Mance Harmon (56:28): Yeah and just to comment very briefly on the tech, obviously the roadmap well if you’re not familiar the roadmap is published on the website. It’s just hedera.com/roadmap but for the rest of the year it’s a continued focus on rolling out the staking program, working, continuous working on the community nodes and then we have additional smart contract improvements in mind along with further integration with the existing toolset that works with ethereum. If it works on ethereum EVM, it should work on Hedera EVM and we continue to make progress in all those areas.
Nicholas Garcia (57:10): All right great we’re at the top of the hour here. Shane, Mance, Brett, all the Hedera community members who tuned in, I want to thank everyone. I think this was a great call. I think we touched on all aspects of Hedera and has me excited about what’s to come for Herdera. So I think this was really nice. Before we go last thing I’d be remiss if I didn’t say. Mainnet is coming up, right, that’s at the end of September, I haven’t looked at the list recently but I believe Hedera is like a top-level sponsor for Mainnet so that’s exciting nonetheless to keep this partnership going thanks again for everyone for tuning in.
