Tezos (XTZ) explained
Tezos is an open-source and energy-efficient blockchain that has been in development since 2014. It supports a self-upgradable protocol and a modular architecture that enables it to adapt to various use cases.
You’ve probably heard about Tezos’ ICO in 2018 when it raised $232 million, the largest ICO recorded at that time.
The platform is designed to host decentralized applications (dApps) and assets and it promises greater scalability than its more popular counterparts, such as Ethereum (ETH) and Hyperledger Fabric.
The blockchain’s native digital token is known as Tez or “Tezzie.” Its main purpose is to interact with dApps and secure the network through staking. The coin can be used to pay for fees and serves as a basic accounting unit on the platform. As of writing, XTZ token has a $1.4 billion market cap and a 24-hour trading volume of $53.6 million.
Tez (XTZ) is the native currency and governance token of Tezos. XTZ tokens have a maximum and circulating supply of 900 million coins. The platform employs an inflation funding model but one that doesn’t dilute the value of newly minted tokens once they are released in circulation.
Tezos would introduce around 80 XTZ tokens per block per minute, which equates to a 5.51% per-annum inflation. The platform also employs other strategies to incentivize stakers and token holders to hold XTZ.
As for the initial token holders, 80% were sold to investors while 20% were distributed among the Tezos Foundation and Dynamic Ledger Solutions (DLS). In terms of price performance, the token has been on an upward trajectory interspersed with regular buy-the-dip opportunities.
The XTZ token is what maintains the operational functions of the Tezos network. The main use cases for the token on the Tezos protocol are staking and governance.
Staking or “baking”
Tezos is known for its unique staking mechanism. The platform employs a liquid proof-of-stake model, which means the XTZ token cannot be mined. Instead, users can stake (or bake) their tokens for them to become nodes. Bakers earn rewards through transaction fees, which are distributed proportionally to stakeholders.
Tezos stakeholders also enjoy voting rights on proposals, in addition to universal participation. They get to decide and govern upgrades for the protocol, including the changes that need to be made to the governing process itself.
The platform’s unique voting mechanism involves the following phases:
- Proposal period – Bakers on the network are free to propose amendments to how the network is run. Proposals that get the most votes move on to the next stage.
- Exploration vote period – Proposals that get a favorable vote will move on to the next stage.
- Testing period – The proposal is deployed on a temporary form of Tezos’ modular network to see if it works and doesn’t cause harm to the primary blockchain.
- Promotion vote period – 80% more positive votes will be needed for the proposal to be implemented in the platform’s source code.
Tezos’ dApp ecosystem presently hosts 42 dApps, 16 of which are DeFi protocols, 5 of which are blockchain games, 3 of which are exchanges, and 3 of which are NFT marketplaces, among others. The platform’s most popular dApp is QuipuSwap, a DEX with an automated market maker (AMM).
Tezos has a unique upgrade mechanism to support continuous innovation. While Ethereum holds the lion’s share of the smart contract market, Tezos is proving to be a real contender. It’s being used by many companies like Ubisoft, Red Bull Racing Honda, and Groupe Casino to tokenize their assets.
The platform’s extensive array of projects includes corporate baking, central bank digital currency (CBDC), non-fungible tokens (NFTs), tokenization, identity (DID), and decentralized autonomous applications (DAOs.)
Where to buy/sell Tezos
If you’re looking to invest in or get started with Tezos, you can purchase XTZ coins across major crypto exchanges like AAX, Binance, FTX, Huobi Global, Kraken, Mandala, and eToro.
The most convenient way to earn staking rewards is by locking in Tezzies in web wallets on big exchanges like Binance or Coinbase. You can also hold XTZ tokens in a hardware wallet, which is the most secure option.
Tezos has established roots in the crypto and DeFi market, despite having encountered many legal and technical obstacles. Investors continue to stake XTZ tokens due to their unique value proposition in terms of staking and governance.
The platform has recently attracted Swiss financial institutions like InCore Bank and Inacta which pledged to use Tezos FA2 token standard to tokenize their assets. The blockchain was also used by European central banks to explore the feasibility of launching a central bank digital currency (CBDC), the digital euro. However, experts are yet to determine whether Tezos’ inflation mechanism will be sustainable in the long run.