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Tezos (XTZ)
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11 May 2020

Recent study says most network traffic on EOS, XRP, and XTZ is not for value transfer purposes

A relatively new research report that examines the on-chain traffic of the EOS, Tezos, and XRPL networks has gained some attention due to a recently released article from Decrypt. While the study states each chain is capable of supporting a high transaction throughput, it determined that only a small percentage of transactions resulted in the transfer of actual value (based on a three-month timeline from Oct. 2019 to Jan. 2020).

Upon closer examination, the authors determined ~50% of EOS transactions before Nov. were small bets placed via on-chain gambling apps. The chain’s zero-fee model also allows wash-trading to run rampant on decentralized exchanges (DEXes) and makes EOS transactions “exhibit characteristics resembling DoS attacks.” This susceptibility to spam was on full display when the EIDOS token airdrop launched on EOS in early Nov. This “valueless” token took up 95% of network activity for the remainder of the year and caused EOS to enter congestion mode.

As for the XRP, 96% of unchain activity comes from two transaction types, OfferCreate and Payment. ~89% of these submissions are successful, but only 2.2% carry economic value as determined by the authors (at statement Ripple CTO David Schwartz has taken issue with). Most of the other transactions are IOUs for non-native currencies, such as BTC, originated by “random” accounts, which the study says “are most likely to be deemed worthless.” The study observed that some accounts would exploit these zero-value transactions and the XRPL’s low fees to relentlessly spam the network for days at a time.

Tezos had a slightly different dynamic as 82% of its transactions were “endorsements,” which refers to block producers actively verifying a new block. Each Tezos block requires 32 endorsements to be confirmed, and since network activity is still low, endorsements outpace the number of token transfers or contract calls. While endorsements don’t involve the direct transfer of value, they are not useless. Instead, they are essential to maintaining network consensus. But the limited number of submitted transactions and contract calls indicates Tezos still lacks an application ecosystem or widespread use case beyond staking.

Why it matters: - As we’ve covered before, VCs shoveled billions of dollars into scalable alternatives to Bitcoin and Ethereum. While some early investors have seen substantial returns token prices, the data suggests there’s not much use or demand for them aside from speculation or (if possible) staking. - Of course, designing for scalability can be desirable for a platform seeking mainstream adoption, depending on the network’s intended use case. But focusing on a high-throughput platform first might be putting the cart in front of the horse. As Aliaksandr Hudzilin, NEAR Protocol’s head of business development points out, “It’s so early [in crypto]. Nobody needs scalability.” In other words, making the platform developer-friendly (by way of developer tools and composability standards) and building a community of participants can outweigh technical capabilities in terms of importance.

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