*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. Underdog status
Tezos has excellence written all over its operations. The cleanliness of its social media, the brand image, the content quality, the organization of entities within the ecosystem, and relative silence on their behalf. It is very uncommon (neigh impossible) to find XTZ floating around the echo chambers of Bitcoin and ETH maxis; Tezos hasn’t been savagely targetted by mainstream media as have other L1’s; and XTZ doesn’t seem to have connections to FTX (which is a breath of fresh air). Ranking modestly in terms of developer count (~111 full-time devs), Tezos doesn’t seem to suffer the same type of bloat that tarnishes many other Layer 1’s. All of this said, in accompaniment to its longer history than most projects (ranking as a semi-kinda-OG), creates a feeling of confidence in the project to flourish moving forward.
2. DEFI TVL is Growing
TVL (or Total Value Locked) has become a crucial metric in establishing the economic prominence of a network or protocol. The higher the TVL, the more valuable the network (or protocol) is. Given that the overall crypto market has been pulling back on nearly every measure, from price to volume, to stablecoin reserves, it is astounding to see that in spite of countervailing forces the TVL on Tezos has actually been increasing. As an approximation of the growth, in summer of 2022 the TVL in USD terms was ~$50 million; today it is above ~$85 million. In terms of XTZ locked that number has shifted from ~30 million to now around 110 million for the same timeframe.
3. Mumbai Upgrade
Tezos recently went through a transformative technological upgrade called Mumbai. Most notable was the change of block times being reduced from 30 seconds to 15 seconds, providing higher transaction throughput and faster finality guarantees. Architecturally, something called SCORU’s (Smart Contract Optimistic Rollups) which enhance the scalability of dapps and introduce new execution environments. The Ticket system now has added RPC points for greater visibility and tickets themselves can now be transferred between users (tickets are still strange, but effectively are something between a soul-bound token and an NFT). The programming language (called Michelson) had some opcode updates (new opcode introduces and previous ones extended). ZK/Validity rollups were deployed for playing on Testnet.
4. NFT Market Importance
Interestingly enough, as a byproduct of the NFT boom that took place in 2021, Tezos ended up being one of the destination chains where this activity has taken serious prominence. As a matter of fact, NFTs have been the largest drivers of on-chain activity for the entire network (larger than DEFI, gaming, and other sub-categories). Even when measured today, following the macro market decline of NFT trading, the XTZ marketplaces are down roughly ~40% from their peek (in terms of quarterly sales), which is relative to other markets on ETH and SOL, showing declines of over 60%, not bad at all. Whenever better market circumstances return, Tezos could capture a very decent amount of attention and activity.
5. Hard Fork Resilience
Tezos implemented a self-amending, on-chain governance module that immediately applies all of the updates throughout node operators. Typically, implementing a software upgrade/change requires extreme coordination because the voting takes place off-chain and then gets ported on-chain. Because of everything being baked into Tezos technology itself, whenever an upgrade/change happens, all of the nodes are just pushed the change; no coordination is required. Hard forks are usually contentious, meaning that value is duplicated and then siphoned out of an ecosystem while splitting the community around it; avoiding hard forks is a net positive for an economic technology that needs ultra-high degrees of consistency and security.
6. Staking Ratio
Tezos is an LPOS (Liquid Proof-of-Stake) system. Capital commitment in the form of digital assets dedicated/locked out of circulation is a direct measure of a project’s economic well-being (or the trust in it). With a total supply of just under 1 Billion tokens currently having some odd 700 million of them staked is a very strong sign of token holder alignment with the long-term growth of the network (~70% supply staked). There is something to be said that over the last year, the ratio has actually gone down from over 75%, but the amount of unique addresses on-chain might be an offset. Its also worthwhile mentioning that comparatively against other layer one’s Tezos proudly carries among the highest staking rates of all.
😞 Weaknesses (Internal) (Harmful)
1. Stablecoin Reserves
Stablecoins have emerged as one of the leading applications in cryptocurrency. The measure of Stablecoins on a network are a vote of confidence in its security and userbase. Networks including Ethereum, Solana, and Tron all boast on-chain stablecoin accounts in the billions of dollars. Considering that Tezos is a native layer one, with a multi-year history, and adequate technology, it is interesting that Tezos has a very modest ~54 million USD in total on-chain stablecoins. This indicates a few unfavorable things such as; distrust from stablecoin companies/issuers, close government relationships that hinder free thinking, and a lack of support from key players in the industry.
2. Perpetual Inflation
Inflation is the thief of savings. Tezos has an uncapped max supply and a token emission model that would inject roughly 42 million XTZ into circulation per year. At the current ~1 Billion token level, that is a 4.4% inflation rate. This is not terrible. Given that as the total supply grows but the emission remains constant, the impact of inflationary pressures should lighten over the course of a few years. This does slightly impact the dynamics in terms of XTZ as a store of value and will create a drag on prices during cycle peaks of market euphoria.
🧐 Opportunities (External) (Helpful)
1. EVM Compatibility
The EVM has proven to be one of the most important innovations in distributed computing, decentralization, and the overall digital economic sector. Slowly but surely, every smart contract capable network is implementing EVM compatibility as a means by which to provide higher degrees of interoperability between different environments for crypto. Tezos has pledged that it will be integrating EVM compatibility into its systems, which would, in turn translate to improvements in usability by developers, stronger multi-chain application solutions, and connectivity to other networks (which unlocks much more potential liquidity).
2. Stablecoin Reserves
Given how low the total amount of stablecoins that have been minted on-chain currently is (~54 million USD), in the event that this sector blossoms, the room for growth (even to just the $1 billion USD mark) is 20x; which assuming that the stablecoin demand is organic, would translate to on-chain network growth in terms of TVL, transactions, fees, and smart contract calls; all of which constitute healthier, more profitable network states.
😳 Threats (External) (Harmful)
1. War of L1's
There are so many layer-one projects with superior advancements across every vector, economic incentives, technology, community, development teams, relationships, etc. Tezos is just another contender on that stage. In the nature of network structures, leaders usually absorb upwards of 80% market share (we can argue if this will be ETH or something else), but Tezos just does not carry the industry in any way. Almost any newer generation layer one (such as Near, Mantle, Aptos, Sui, and the such) are much better placed to dominate, let alone layer zero projects (Avalanche, Polkadot, Comsos) are much stronger brands.
Tezos is a darling.
While I am always hounding down projects that have perpetual inflation, Tezos has seemingly done a good job balancing all of the intertwined economic forces; emissions at 4.4%, staking at 6.4% yield, burning adding roughly 1% reductions from circulation. Creating a real yield environment (denominated in XTZ) of roughly ~1.5–2.5%.
Something that was not brought up in this evaluation was the history of Tezos. Through a series of legal shenanigans and internal debacles, XTZ has been rung through so much politicking that the simple fact of it thriving today is worthy of accolades.
There has been serious effort put forth to realize this project, and novel technical angles found (namely, the synthesis of on-chain governance and liquid staking) that give Tezos a strong foundation to contend for a position in the leadership circle of smart contract platforms.
For those who appreciate good stories behind the projects they get involved with, Tezos certainly has one of the most entertaining ones.
I tried to be as harsh as possible while maintaining a bullish bias.
I am a fan of Tezos and want them to win; at least to achieve some kind of permanence in the industry.
Would I invest in XTZ?
Tezos has the qualitative potential to become a dominating force in crypto. Not quite suited for retail degenerates, Tezos has a more sophisticated presence.
Something about XTZ makes me feel as though becoming a network validator (called a Baker, which requires >6,000 XTZ tokens) will ultimately be looked back on as a truly marvelous 80 or 180 IQ play.
If you know something that I don’t or feel as though I might have missed anything worth noting, please do share, I would tremendously appreciate some feedback.
Thank you so much for reading,
I hope this serves you well on your journey.
Live long and prosper 🥂