*Note: a SWOT analysis is an evaluation of the fundamental, operational, technical, social, economic, and even to some degree administrative elements of a project. This is not a model to be used for trading purposes. (NFA, DYOR)
Composed of four elements, Strengths, Weaknesses, Opportunities, and Threats, a SWOT analysis framework provides excellent insight for establishing a high-level understanding of the state of a project’s well-being through the lens of a birds-eye view.
It can help formulate decisions around which areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.
Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.
💪 Strengths (Internal) (Helpful)
1. REFI Positioning
A combination of DEFI and social good, regenerative finance is a movement that taps into ecological benefits to society and/or the environment. No network has remotely as much of the intellectual mindshare around innovations happening in this space as Celo. Affiliating itself with social good from launch, Celo has become the host of today’s leading projects, including Toucan, Kolektivo, Flowcarbon, Gooddollar, Glo Dollar, Impact Market, and others. Considering how underserved and under explored REFI has been as a whole, there is no upper bound to model the potential returns this as a sector can attract during the seasonal capital shuffling.
2. On-Chain Metrics Blossoming
After a painful bear market and drawn-out winter, the seasons have shifted, and the on-chain metrics have thawed. Celo has been showing strong, sustainable growth across the board. DAA (Daily Active Addresses) have been going parabolic since May 2023, rallying from 5k in December 2022 to around 200k exactly 1 year later, a clean 40x. Total addresses jumped from 1.5m to ~4m (a notable 2.67x). TVL has begun ticking up from ~$80m to ~$120m. Total amount of active, verified, smart contracts steadily rising beyond 33,000. Daily transactions have rebounded from their painful lows of around 100k per day earlier this year to around 400k now, and no signs of slowing down.
3. Focus on Stablecoin Payments
Many people underestimate how still nascent and small crypto is relative to the enormous economic markets it is tackling. Remaining one of the largest financial sectors ripe for disruption, payments are tightly correlated with stablecoins, and stablecoins are tightly correlated with real commercial/retail adoption; therefore, the use case and value proposition that Celo is pursuing have universal appeal. Moreover, having a concrete vision and a clear market to innovate around does not receive enough recognition. The vast majority of alternative layer 1’s lack focus and try too hard to become the ultimate generalized solutions that can support every exotic use case under the degen sun. Celo can allocate its resources and efforts more efficiently and not waste time on things such as Memecoins. This is not to say memecoins are bad, just highlighting the nature of the project.
4. Network of Validators
Home to 110 validator nodes, owned by 78 independent entities, including some of the most significant Web2 technology companies on the plant, such as Google Cloud, Deutsche Telekom, Telefonica, et al., as well as some of the most well-known crypto and Web3 entities such as Binance, Polychain Capital, Blockdaemon, and others; Celo has the material support from a set of validators many dream of.
5. One Block Finality
A common area of concern in the context of public blockchain infrastructure, finality has become a definitive factor in the design preferences of financial institutions around the world. As it relates to retail finance, the quicker the finality, the more confidence the users have with their transactions, the more likely they are to return and use the product again. Celo has always had this at the front of mind in their operations. This “immediate” finality structure mitigates reorgs (something infinitely valuable at the enterprise level) and was possibly an important factor in Celo being able to build powerful relationships with legacy Web2 conglomerates.
6. Finite CELO Supply Inflation
Launching with 60% (600m) of the total token supply circulating (depending on how it’s measured), Celo has an extremely smooth emission model to release the remaining 40% (400m) of tokens over the course of 30 years (ending in 2050). At the end of the emissions, the token supply model would, in fact, become slightly deflationary due to the transaction burns. Moreover, the emissions are primarily allocated to community building and validator/staking incentives, which means they would potentially foster economically resilient networks of aligned actors. This is, of course, in addition to the most sensitive benefit of balancing the impacts of dilution on existing/early participants.
7. Transaction fee Payments
While most major blockchains constantly deal with the friction of forcing participants to acquire native tokens in order to interact with the networks, Celo has introduced semi-agnostic network fee payments, allowing transactions to be paid for in any of the approved alternative assets. Opting for such a model seems counterintuitive as it would defeat the existential purpose of the gas token itself; however, it is not unlikely that this friendliness translates to a higher degree of adoption. By having multi-asset fee payments, the network can, in fact, help bolster asset velocity and become economically intertwined with other projects.
😞 Weaknesses (Internal) (Harmful)
1. Gingerbread Identity Crises
Celo used to distinguish itself in the marketplace by playing the role of an independent, EVM-compatible Layer 1 blockchain network focused on mobile clients and payments (aka stablecoins). Recently, however, the project has embarked on a technical restructuring (known as the “Gingerbread” hard fork) to transition into an extension of the Ethereum ecosystem by becoming an OP-stack-based Layer 2. Even though this action was enforced by the community itself through a governance proposal, such a fundamental pivot can result in organizational chaos, which, if untamed, can result in the collapse of interest. If the project built its community on a specific set of fundamental beliefs and those beliefs change, it runs the risk of alienating previous members.
2. Low Network Earning vs MCAP
Validator earnings is a theme that plagues all low-fee, high-throughput layer 1 networks. Earnings are established based on how much validators accrue from transaction fees. Considering that most transactions on Celo are below <$0.001 and only a small portion of them are paid to validators, it comes as no surprise that the CELO network posted annual earnings around sub <$50,000 USD. When weighed against its floating capitalization of $324,577,949, we arrive at a ratio of 6,500:1. To be totally fair, as an individual metric to gauge a cryptocurrency’s “fair value,” this is incomplete, but can certainly be used as a component in building a more complete picture.
🧐 Opportunities (External) (Helpful)
1. Low DEFI Diversity
Currently sitting at just three (3) with Mento, Curve, and Uniswap controlling over 90% of Celo’s total DEFI TVL, the decentralized financial scene on Celo is craving development. Of natively built Celo solutions, only Mento has any material relevance with its some odd 60 million collateralized stablecoins minted; otherwise, the leading DEX is non-native, lending markets are effectively non-existent, and no derivatives/perps built on it. Young projects looking to gain center stage in an ecosystem and old-timers looking to expand to new horizons would find Celo a pleasant opportunity due to its lack of competition and EVM compatibility. It is almost certain that over the course of the next 12–24 months, this balance will change; the projects that rise to capture market share will bring abundance to the Celo social sphere.
2. Gingerbread Hard Fork
Activated at the End of Q3 as the initiation of Celo’s techno-economic restructuring, Gingerbread is a 2-phase process that will transform the network from an independent EVM-compatible Layer 1 to an ETH-aligned Layer 2. Introducing a multitude of changes, including the principle of “Ultragreen Money,” which will adjust the transaction mechanism to burn 80% of fees and funnel 20% towards a Carbon offset Fund. Supercharging finality guarantees with a second layer of security derived from the Ethereum epochs (so finality within Celo itself and the finality of its Data on Ethereum). Leveraging the OP-stack for its execution and EigenDA for posting its activity engenders Celo to both of those ecosystems, which could translate into powerful network effects. The existing validators will have their roles shift into sequencers, which would make Celo the first L2 to have a truly decentralized sequencer set.
3. Support from Ethereum Ecosystem
By aligning itself with Ethereum, it seems more likely than not that many reputable protocols will extend operations over to Celo, especially when considering the extremely high level of compatibility that will be present. Already getting public praise from prominent members Vitalik and Joseph Lubin for their innovations, lending protocol AAVE has announced that it will be coming to Celo, bringing with it the mature infrastructure and stakeholder set already prevalent across many EVM-compatible networks.
😳 Threats (External) (Harmful)
1. DEFI Centralization
With just 3 protocols controlling over 90% of the TVL on Celo, the ecosystem is at risk of over-concentrated protocols that disincentivize new competitors. Liquidity is highly reflexive; where there is liquidity, more shall flow; where there is little, it shall dry over time. Certainly, the argument can be made that centralization counteracts fragmentation and increases market efficiencies, but having a high degree of reliance on a small group of actors introduces unwanted risks for Celo itself. Without stimulating competition, new ideas will not make their way to Celo and instead be attracted to more conducive environments.
2. Weak Social Presence
CELO does not have the ravaging maniacal die-hard community members or social presence common to most L1s. Even though this quaintness might seem understandable from the perspective of enterprise participants, those raw savage human emotions that drive market hype cycles through peek euphoria and keep it alive in the depths of winter are the foundation of markets. By not cultivating this kind of culture, it is only a matter of time until the projects that do capture all the creative imaginations and attract more users. Meme’s matter.
Laying closer to the centralized side of Web3, Celo is a polished environment that emphasizes cooperation, coordination, and goodwill without degen tribalism.
Carbon neutrality, prosperity, cooperation, and a smorgasbord of other ESG-conscious, purpose-driven material is woven throughout all of its branding and content.
While generally tucked away from the average retail participant, Celo has received a lot of support and recognition from renowned industry insiders, including Vitalik Buterin, Sreeram Kannan, Joseph Lubin, et al., for its technical decisions, as well as operational integrations with global megacorps such as Kickstarter and Google Cloud.
Fostering environmental well-being, supercharging capitalism with the narrative to become a tool for social good, and delicately balancing financial innovation, Celo is an intellectually stimulating project that has put considerable effort into distinguishing itself from others and defining its product market fit.
In the unique position of abandoning its original architecture in hopes of reinvigorating market interest with technology, Celo has become an interesting project to watch, if not for price, then as a case study on the merits of such fundamental structural changes.
One simply cannot fade the long-term potential of Celo.
Thank you so much for reading,
I hope this serves you well on your journey.
Live long and prosper 🥂
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