What do Ubisoft, Société Générale, Guerlain and Manchester United have in common?
All these world-renowned brands work with the French-origin protocol. And despite a still relatively small ecosystem (number of applications and users) Tezos continues to attract new names every month. "You have to give them credit for a certain talent," says Stanislas Barthélémi, a blockchain expert and consultant at KPMG.
Launched in 2018 with the participation of researchers from Inria (National Institute for Research in Digital Science and Technology) and the promise of being the most "scalable" blockchain, Tezos is appealing to many customers thanks to two things: first, a very enterprise-oriented pitch. Second, and more importantly, a system of operational teams funded by its foundation to help any business use the protocol.
These "crack teams" are present in different countries, in the United Kingdom, Germany, India and of course in France. The best known of them is surely Nomadic Labs, which has about 75 employees in Paris.
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Nomadic Labs has a well-honed pitch and large companies are at the heart of it. "They are the ones who reach a very large audience," emphasizes Hadrien Zerah, Nomadic's number two. "It's sometimes long to get them to switch to blockchains," he concedes. But the game is worth the candle. Working with a few large groups gives visibility, credibility, and above all allows you to differentiate yourself from the competition. And there is some!
The main challenge for Tezos is to manage the inexorable rise of Ethereum. A task that promises to be particularly complicated. In addition to the fact that the blockchain created by Vitalik Buterin has a capitalization more than 130 times greater than that imagined by Arthur Breitman (158 billion dollars against 1.2 billion dollars), Ethereum is also more used.
Above all, it is not as energy-intensive as it used to be. With the switch to Proof-of-Stake in September, the second largest blockchain on the planet behind Bitcoin ($368 billion) is consuming much less electricity.
Tezos can therefore no longer criticize the environmental impact of its competitor when it was one of its differentiating points. "It was already no longer an argument for some time," moderates Arthur Breitman, the Frenchman who conceptualized Tezos in 2014 and who sits on the foundation's board of directors. "Many blockchains now offer a less energy-intensive consensus. The Tezos ecosystem is making its way independently of Ethereum," he says.
The scalability of Tezos
According to the Frenchman who lives in the United States, it is Tezos' scalability, that is, its ability to scale, that could make the difference. "Ethereum took nearly eight years to implement proof-of-stake while it was operational as early as 2018 at Tezos," he chuckles, adding, "How long will it take them to really scale tenfold?"
Starting with its "Lima" update, scheduled for mid-December, Tezos will offer "rollup" solutions. The advantage of this system, which will be directly integrated into the protocol, is that it allows to drastically increase the number of transactions.
For its part, Ethereum needs to go through more "centralized" solutions (Optimism, Arbitrum, etc.) to increase volumes. "With Tezos, all companies will be able to easily develop their own scalability solutions in line with their needs," says Hadrien Zerah of Nomadic Labs.
However, one might question the priority given to such a development. Tezos has never yet had enough activity to fill all of its transaction blocks... "The network does not currently need these capabilities, but it will come," explains Arthur Breitman. "By developing the highest-performing protocol possible, we are providing an opportunity for extremely greedy projects to imagine blockchain applications on Tezos."
A speech that pleases some people. On the Ubisoft side, they are happy to have opted for this technology. "Everything we wanted to do worked well. Nomadic's teams have helped us to improve our skills," explains Didier Genevois, Tech and Product Director at the video game giant's Lab.
For Fatih Balyeli, the head of Exaion, the blockchain subsidiary of the EDF Group, the choice of Tezos as early as 2020 appeared obvious for reasons related to its energy efficiency and the presence of Nomadic Labs' experts. "It's a very good technology and we will continue to work on it in the future," he assures.
EDF is a strong supporter of Tezos. Perhaps the most important of them. But the public power company does not want to put all its eggs in the same basket and also works with others like ... Ethereum.
According to our information (see our article), out of the 300 nodes managed by Exaion (all protocols combined), more than half are now on Ethereum, whereas Tezos has long been the majority.
Even if we have developed a lot of things on Tezos, the reduction of the energy consumption of Ethereum has reshuffled the cards," says Didier Genevois. Tezos is therefore warned.
The problem: Ethereum has a 4-year head start
More broadly, the problem with Tezos and other blockchains is that Ethereum, in addition to maintaining its lead, keeps increasing it. "The alternatives to Ethereum (Cardano, Solana, editor's note) have far fewer developers, their programming languages are less mastered and the tools used to deploy smart contracts lack maturity," points out Stanislas Barthélémi of KPMG.
When comparing the total value tied up in Tezos' decentralized finance (DeFi) applications, it painfully exceeds... $35 million. Ethereum, on the other hand, leads with $31 billion, yes billion! And when you look at the number of DeFi applications available, the ratio is just as unbalanced (576 against 13).
Tezos prefers to emphasize the vibrancy of its artistic ecosystem, which increasingly uses its NFTs:
- A special exhibition, #CleanNFT Gallery, will take place in February 2023 in Paris
- The Objkt exchange platform multiplies projects
Nevertheless, it is not comparable to OpenSea, its equivalent on Ethereum: while Objkt shows 1.6 million dollars of value exchanged over the last 30 days (average transaction at 11.4 dollars), OpenSea swells to 336 million dollars (200 dollars).
"Ethereum's lead is mainly explained by its anteriority," Hadrien Zerah tries to justify. "We had to develop all the tools, such as the wallets or the smart contract languages. It took at least two years for everything to be fully operational," he concedes.
While Tezos was developing, the other projects, especially the most disruptive ones (MakerDAO, Uniswap and Compound mainly), logically went where the tools were ready. That is to say on Ethereum.
The last chance innovation?
But it will be easier to have games integrating Web3 bricks (tokens usable in the game, NFT, traceability system, etc.). The date is still unknown. According to our information, the end of 2022 is a possible timeframe.
"We will be able to write code without using Web3 languages. This will allow us to reach much larger communities of developers," insists Hadrien Zerah of Nomadic. Still in the field of video games (Ubisoft is an important partner of Tezos), some people are planning to update old games with a Web3 sauce. Imagine a Rayman adventure using tokens and NFT...
"The banks and video game studios we talk to immediately understood the value of Tezos. They will be able to more easily deploy uses with the languages they already master," adds Hadrien Zerah. Will this be enough to reverse the trend? Answer in a few months...
The strong point: the foundation's financial windfall
In the meantime, the Tezos ecosystem is not short of resources and has plenty to look forward to thanks to the subsidies provided by its generous foundation based in Zug (Switzerland). "The big advantage of Tezos is that its organization distributes a lot of funding, which is less the case with the Ethereum foundation," deciphers Stanislas Bathélémi of KPMG.
According to our information, it only takes two to three weeks to know if you are eligible or not. And the sums can be substantial: some projects have received more than 500,000 dollars!
"For the companies which wonder about the interest to launch a project on the blockchain, Tezos still has the advantage of not costing much because they can be subsidized", underlines the consultant. The risk for Tezos is that once the subject is mastered by companies, they pack up and go on Ethereum ...
Tezos is not the only protocol to practice this policy, however. It is common for large funding programs to be put in place to support the activity of a blockchain. "This sometimes amounts to watering the desert," notes Stanislas Barthélémi.
As of June 30, the Tezos Foundation had a reserve of $655 million. But this money is not infinite, especially in bear market. Since the beginning of the year, the reserve of the foundation has melted by 50%!
Its war chest is mostly made up of bitcoins (-67% in the last year) and XTZ, the Tezos cryptocurrency (-81% in the last year). "The foundation's room for maneuver has been considerably reduced with the market conditions," observes Stanislas Barthélémi. Especially since spending is accelerating: the sponsorship of the Manchester United soccer club, signed in February 2022, is not insignificant.
According to the specialized press, Tezos will pay 23 million dollars per year to be on the training jersey of the English stars! "We need Tezos to find its audience and its use cases quickly", concludes Stanislas Barthélémi. Otherwise, it will be much more difficult to continue attracting major brands.