Is the DeFi Craze Killing Tezos? XTZ’s Main Selling Point “Staking” Is Losing Appeal
The 13th largest cryptocurrency by market cap of $2.8 billion jumped to its all-time high at $4.5 just last week. But this week, bitcoin’s fall had Tezos (XTZ) dropping nearly 25% to now trade at $3.89, a level first hit in late February 2020 only.
Many traders have been expecting XTZ to mimic LINK's growth, which has been hitting new highs every other day and is up 585% YTD.
But trader and economist Alex Kruger feels the craze of yield farming is killing the main selling point of XTZ – staking.
$XTZ is not the slow $LINK cousin. One is a protocol token, the other an oracle token. $XTZ is getting murdered for a good reason: its staking appeal has collapsed with the emergence of yield farming.
— Alex (@classicmacro) August 20, 2020
The yield farming has made DeFi the hot spot of 2020 with APR sometimes as high as 1000% compared to less than 10% reward on XTZ staking. Also, DeFi tokens are seeing much higher gains, ‘astronomical’ percentage of increases actually.
Trader CL has shared similar opinions as he said, “There’s basically nothing to speculate on, and i think it trades at a pretty high speculation premium. If someone wants to be exposed to directional risk and have yields from holding it, theres many other better coins.”
Im so bearish Tezos
6% annual yield on staking? You can get x5 of that in DeFi using stablecoins while getting 0 directional risk.
Everyone is paying 50$ to call a smart contract on ETH, 30$ to take a trade on uniswap, who is using Tezos?
— CL (@CL207) August 4, 2020
Recently, Tezos celebrated its 2nd anniversary shortly after hitting 1,000,000 in blocks. The network has successfully completed its three upgrades governed by on-chain voting during this time. It is now on its way to introduce zk-snarks (sapling), validator, and governance extensions.
Tezos is the first supported and most traded staking blockchain on top exchanges. Crypto exchanges like Coinbase and Binance were the ones that initiated custodial staking services that have resulted in securing 25% of the entire Tezos network.
For a long time now, the percentage of Tezos circulating supply that is being staked is stuck at 80%.
Custodial growth has slowed recently but still spiked 8% month over month with Binance seeing 42% of that growth in July.
Binance’s XTZ bakery is running over capacity, which isn’t anything new but is a chronic problem. Exchange’s capacity is only about 41 million XTZ much lower than Kraken’s more than 300 million XTZ capacity.
Meanwhile, non-custodial staking is seeing interest, which spreads across 120+ public staking services and 250+ private attacking operations. In the past three months, new delegators recorded the strongest growth adding 7,500 delegators with the lowest churn rate of 7%.
“The majority of new users are small investors. In fact, accounts between 1 and 1000 TEZ grew by 10% (+6,200) in July, suggesting that everybody who invested in Tezos also staked,” stated Alexander Eichhorn, founder of Blockwatch Data.
In the meantime, a growing number of entities are working on DeFi, and although Tezos’ learning curve is steeper, “a linear increase” is seen in deployed contracts. Because Tezos smart contracts are hard to upgrade, most developers deploy a new version.
Overall activity on Tezos blockchain is steadily growing, and gas usage has also reached its all-time high, which can be attributed to regular spending transactions and higher delegation activity.