[Recap] Hedera Q1 2024 State of the Ecosystem

On January 25th, 2024, The Tie's SVP of Strategy & BD Sacha Ghebali hosted a call with David Cramer (COO at The HBAR Foundation) and Viv Diwakar (CIO at The HBAR Foundation) to discuss Hedera's technology, growth, and other ecosystem developments, as well as The HBAR Foundation's 2024 outlook.

We've recapped key talking points from the call in the write-up below.

Watch the full replay here:

Hedera is an open-source, public network built using a distributed ledger technology (DLT) called Hashgraph. Unlike most blockchains, Hashgraph is a leaderless network that reaches consensus on the network’s state using a gossip-about-gossip virtual voting protocol.

Each consensus node in the network relays all messages it receives and the corresponding times to two other randomly selected nodes. Information is broadcast across the network at an exponential rate as each node receives and relays messages. Once the whole network has received the messages and the times, the median time received across nodes is used to order the messages. The relative ordering of messages is tied together using cryptographic hashes, forming a directed acyclic graph - the Hashgraph. 
Nodes gossip about the Hashgraph itself (gossip-about-gossip) to keep it up to date in their memory. Gossip-about-gossip ensures that nodes have all the information needed to order messages without sending additional synchronization messages across the network. This process, called “virtual voting,” provides high throughput and fair message ordering for Hedera while keeping the network leaderless.

David highlighted that Hashgraph’s technical characteristics, including fast and absolute finality, fair transaction ordering, low and predictable costs, and scalable throughput, make Hedera well-suited for use cases that require authenticity and provenance, guaranteed delivery, and verifiable fairness, such as financial applications.

The Hedera Governing Council consists of up to 39 global organizations, including Google, Dell, IBM, and Boeing. Members are responsible for operating network nodes, signing transactions on the network, and implementing Governing Council decisions.

The council functions through committees consisting of representatives from the member organizations, with participation from Hedera staff and guest experts. The committees focus on different aspects of the network, including council membership, corporate utilization and adoption, technical steering and product, treasury management and coin economics, legal and regulatory compliance, and marketing.

David pointed out that Hedera’s governance model doesn’t exist anywhere else in the industry and provides a mature and trustworthy foundation for the project’s ecosystem. Users and builders can rely on the reputations of governing council members but also know that no single member can exert influence on the network.

Despite the industry-wide 2023 bear market, Hedera posted significant year-over-year growth in transaction volume, user accounts, and network revenue. The network totaled over 30 billion transactions, and revenue grew by nearly 1,000%. 

David attributed the network’s growth to the launch of multiple significant projects on the Hedera mainnet, including Avery Dennison’s atma.io platform. He also cited a 124% increase in year-over-year revenue from Hedera Token Services as a notable contributor. The network’s token services offering benefited from substantial growth in fungible token demand, counteracting the industry-wide slowdown in NFT-related services. Other growth drivers included Hedera’s crypto transaction and Smart Contract Service categories, which saw 152% and 45% year-over-year revenue increases, respectively. 

Looking forward to 2024, the HBAR Foundation plans to build on Hedera’s strong 2023 by focusing on grant distributions and support services across a healthy mix of network categories.

Throughout the call, David and Viv shared various Hedera ecosystem developments from the past year spanning both the institutional and retail categories. Notable among those were an asset management firm’s adoption of Hedera’s technology for tokenizing funds, explosive growth from an ecosystem decentralized exchange, the launch of an open-source stablecoin toolkit, and continued adoption of the network’s climate accounting solution.

ABRDN, a UK-based asset management firm, joined the Hedera ecosystem in 2023. The firm launched a tokenized money market fund, providing investors with same-day redemption payments and automatic reinvestments by airdropping tokens into users’ accounts. The product is designed to provide investors with real-time access to their money with fewer administrative costs and hurdles. 

Archax, a regulated digital assets exchange in Europe, offers ABRDN’s tokenized fund, which gained more traction than was expected. ARBDN is also a member of the Hedera Governing Council and plans to continue developing enterprise-grade tokenized products on the network.

As for Hedera’s retail ecosystem, SaucerSwap, a decentralized exchange on the network, achieved a record total value locked (TVL) in 2023. When measured in terms of Hedera’s native token, HBAR, the DeFi project’s TVL doubled. 

David highlighted Hedera’s speed, low fees, and front-running resistance as key technical characteristics that make the network well-suited for DeFi. Looking forward to 2024, the Hedera community plans to continue focusing on the fundamentals that enable a seamless DeFi experience on the network while taking opportunities to grow its lending and borrowing ecosystem.

Hedera announced an open-source stablecoin issuance and management toolkit, Stablecoin Studio, at the Token 2049 conference in September 2023. The Stablecoin Studio service simplifies issuing stablecoins on Hedera. It equips issuers with a comprehensive management toolkit, allowing for streamlined access control and permissions management, KYC and AML reporting, and auditing capabilities.

As an open-source toolkit with an out-of-the-box software development kit and management command line interface, users can programmatically define, build, and manage the stablecoin lifecycle without needing smart contract or DLT expertise. The service is a hybrid architecture between Hedera’s token and smart contract services, enabling ERC-20 compliant tokens with low fees and fast finality while preserving programmability. 

Viv highlighted that Stablecoin Studio’s functionalities make it attractive to various user types. To date, users of the service include banks and infrastructure providers such as Cafe Bank, Jewel Bank, SCBTechX, and Riviera Finance.

The Hedera Guardian is a flagship project for the ecosystem sponsored by the HBAR Foundation. The Guardian is a decentralized workflow engine that enables climate accounting measurement, reporting, and verification. Organizations can define rules for digitizing climate assets, such as a metric tonne of carbon, and the Guardian provably links all of the relevant data to a tokenized unit.

Organizations can leverage the Hedera Guardian to credibly track emissions and leverage climate assets in ESG reporting or do the same with purchased carbon credits to ensure a complete audit trail. David noted that the foundation views climate accounting as a significant market opportunity for the ecosystem because Hedera’s technical features enable it to provide value in ways other networks can’t.

The HBAR Foundation committed $16 million across 68 grants in 2023, with a strategic focus on nurturing existing grants and supporting specific network sectors, including infrastructure, media, and entertainment. 

The Foundation’s grant distribution strategy uses a multi-fund approach to facilitate ecosystem growth across different sectors and use cases:

Viv described the foundation’s grant selection process as a rigorous four-step process consisting of an application review, due diligence and grant formulation, two rounds of committee approvals, and a legal agreement. After a grant is approved using this process, the foundation continues to aid grantees with everything from technical expertise to marketing advisory. The entire grant program is designed to be targeted and strategic in how the foundation deploys its capital to have a clear, measurable, and time-bound impact.

The HBAR Foundation launched Project Insight last year to better understand how its grants are performing. The project is a real-time analytics platform that combines network data with internal grantee data to give the foundation insights into the grant’s impact. Moving forward, Project Insight will continue to inform the grant program’s direction, helping the foundation focus on areas that drive network growth.

Looking ahead to 2024, the HBAR Foundation sees user experience as the key to scaling Hedera and increasing its adoption. On the retail side, on and off-ramps for converting between fiat and crypto and wallet infrastructure are the focus. 

David noted that user experience also includes the experience that developers and enterprises have when interacting in the Hedera ecosystem. Multiple initiatives from Hedera Governing Council members are aimed at porting the tools and infrastructure that these users are already familiar with to Hedera, enabling a more seamless building experience.

Another priority for 2024 is expanding liquidity in the Hedera ecosystem, with an emphasis on growing the amount of USDC on the network. David highlighted that new incentive models, enhanced EVM compatibility, and additional bridging options are potential strategies to make USDC more prevalent on the network.

In closing, Viv and David shared the Foundation’s long-term vision for the ecosystem as one that includes an on-chain world, made universally accessible on Hedera. They identified that having a great user experience for users and developers and supporting real-world use cases are the keys to realizing their vision.

Watch the full replay here:

This report is for informational purposes only and is not investment or trading advice. The views and opinions expressed in this report are exclusively those of the author, and do not necessarily reflect the views or positions of The TIE Inc. The Author may be holding the cryptocurrencies or using the strategies mentioned in this report. You are fully responsible for any decisions you make; the TIE Inc. is not liable for any loss or damage caused by reliance on information provided. For investment advice, please consult a registered investment advisor.