Analysis of Tezos – A Self-Amending Cryptographic Ledger - Crush Crypto

Analysis of Tezos – A Self-Amending Cryptographic Ledger


  • Project Name: Tezos
  • Token ticker: XTZ
  • Website
  • Whitepaper:
  • Hard cap: No hard cap
  • Soft Cap: No soft cap
  • Conversion rate: 5,000 XTZ per 1 BTC
  • Maximum market cap at ICO: Unlimited because of the uncapped nature
  • Bonus structure: 20% during the first 400 Bitcoin blocks, then 15%, 10%, 5% for each subsequent 400 Bitcoin blocks
  • ERC20 token: No
  • Timeline: July 1st, 2017 at 6am UTC and lasts 2,000 Bitcoin blocks (almost 2 weeks)
  • Token distribution date: at least 4 months after ICO ends as per FAQ

Note: I don’t have a coding background and it is hard for me to see whether Tezos is a superior blockchain or not. But then again, I think even most people who have coding background can’t really tell at this stage. I am looking at this project from an investment point of view.

Tezos fundraiser video walkthrough (video is 8:35 long):

Project Overview

What does the project do?

Tezos’ goal is to build a better blockchain and solve the problems that the team sees in other platforms.

Tezos is a new decentralized blockchain that facilitates formal verification, a technique which mathematically proves the correctness of the code governing transactions.

The Tezos blockchain will underpin secure, decentralized applications and smart contracts while avoiding some of the political and technological problems which earlier efforts such as Bitcoin and Ethereum have faced.

There are 3 key layers in Tezos – network layer, transaction layer, and consensus layer. The components are modular, which makes it easy to upgrade by swapping modules in and out seamlessly.

It runs a proof-of-stake model where it allows XTZ owners to vote on the direction of the blockchain, so theoretically, there is no need to hard fork the blockchain.

In order to receive staking rewards, XTZ owners needs to stake their coins that lasts one cycle, or roughly 3 calendar months. Staking reward is initially set at 33% a year, and will be gradually lowering to prevailing interest rate. Coin inflation is tentatively set to 5% a year.

Here is an interview of Kathleen Breitman in which she explains the Tezos project (video is 25:26 long):

How advanced is the project?

The Tezos White Paper was released in September 2014. It has an alphanet running now and the mainnet is expected to roll out in the next few months.

The Tezos blockchain is primarily being developed by Dynamic Ledger Solutions, Inc. (“DLS”), a US-based company co-founded by Kathleen and Arthur Breitman.

How can token holders make money?

Just like other blockchain, XTZ goes up in value if there is more usage of the Tezos blockchain. One of the reasons that this project is highly anticipated is because some believe that Tezos has the potential to be the blockchain of the future, eclipsing Bitcoin and Ethereum.

In attempt to put a valuation on the project, I have set out a 5-year scenario analysis. This is a back-of-the-envelope math, so if you believe the probability and outcome of Tezos is different from what I set out, you will come up with a different conclusion.

I assume there will be 3 different scenario for Tezos in 5 years, along with the respective probability:

  • 20% chance to be a smashing success – Tezos becomes even more valuable than Bitcoin or Ethereum ($50 billion).
  • 60% chance to be a fairly successful coin – something like Litecoin – which is the fourth largest coin with a market cap of $2.5 billion.
  • 20% chance to flop – valuation drops to zero.

Tezos is one of the more highly anticipated ICO in recent months and I received lots of request to analyze this ICO. Considering that (1) Bancorp was able to raise $150 million in a 3-hour uncapped ICO and (2) Tezos has a two-week uncapped raise, I believe Tezos can raise as much as $500 million to $1 billion.

As such, we are going to take the middle, or $750 million, as the amount raised from the ICO. Total valuation would be $938 million as 20% of the tokens will go to the Tezos Foundation and be used for the acquisition of DLS.

The weighted average valuation in this scenario is $11.5 billion – that’s a 12x return over 5 years, from a $938 million valuation today. It is obviously great but not astronomical like what we see from some other crypto investments.

This is because the initial market cap is so large. Generally, the larger the market cap, the less upside the investment has.

Obviously, if you disagree with the scenario that I put out, your conclusion is going to be very different from mine.

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Arthur Breitman was born in France and educated at École Polytechnique in math, physics, and computer science. He then went on to a career in quantitative finance, including positions at Goldman Sachs and Morgan Stanley.

Kathleen Breitman holds a BA from Cornell University and worked at The Wall Street Journal, Bridgewater Associates, Accenture, and R3 prior to Tezos.

There are currently ten core developers. The development team is primarily located in Paris, France and has been working on the Tezos ledger through a partnership with OCamlPro, a software company with OCaml expertise founded by one of the core developers.

Most of the developers have Ph.Ds in Computer Science and expertise in programming language theory.

Tezos has some prominent backers including Tim Draper, a billionaire venture capitalist, and Polychain Capital, a cryptocurrency-focused hedge fund run by Olaf Carlson-Wee, the first employee of Coinbase.


  • Tezos generated a lot of publicity, partly because of its prominent backers. This may help bring developers to work on this platform.
  • The idea that Tezos doesn’t ever need to hard fork is appealing.
  • The technology can be disruptive to the current environment and if successful, it will change the blockchain landscape dramatically.


- I believe there is a governance issue in the way the ICO is structured:

  • DLS, the company co-founded by Kathleen and Arthur Breitman, will be acquired by the Tezos Foundation for 10% of the amount raised as part of the ICO. On top of that, DLS’ shareholders will receive 8.5% of the contributions made during the fundraiser. The more money the ICO attracts, the bigger payout the Breitmans will have.
  • In most of the other ICOs, there is also an allocation to founders and developers, but there is a hard cap on how much money to be raised, which limits the founders’ payout.
  • Some would argue that Ethereum also had an uncapped ICO, but the cryptocurrency climate was vastly different then – it only raised $18 million over 42 days and was considered a success.

- Tim Draper is a renowned investor, but it doesn’t mean that everything he touches will be a success. Investors should not contribute just because a billionaire also did. Tim Draper has had his share of bad calls before. Moreover, Tim Draper invested in DLS, which as mentioned above, will receive a fixed percentage of the amount raised. Hence, his interest is different from the ordinary ICO contributors.

- XTZ won’t be tradable for at least four months. Four months is a long time in the crypto world – Ethereum was trading at $12 four months ago.

- Even if Tezos is superior to other blockchain like Bitcoin and Ethereum, it doesn’t necessary mean that it will achieve mass adoption. Right now, Ethereum has a strong momentum and it is unclear whether developers will switch to work on a new blockchain.

  • For example, even though it is technologically superior, Betamax lost to VHS because it didn’t receive the support of enough hardware companies to reach economy of scale.


Overall, I am neutral about this ICO. Tezos’ goal is ambitious and its solution is interesting, but I dislike the uncapped nature and the fact that the founders are incentivized to attract as much funding as possible, diluting the return on investment.

If you are on the fence about whether to contribute or not, I would suggest waiting for the first bonus period (+20%) to end and see how much money has been raised because a lot of people want to take advantage of the maximum bonus. This way, you do lose a little bit of bonus (15% vs. 20%) but you can have a much better picture of what the valuation of the project is before committing your money.

Our thoughts of the tokens for short term and long term are as follows:

For short-term holding

Not good because (1) the ICO is uncapped for two weeks, meaning everyone who wants to participate can do so, leaving no unmet demand, and (2) XTZ won’t be tradable for at least 4 months.

For long-term holding

I am neutral about Tezos’ long-term prospect. It comes down to whether you believe Tezos will become the blockchain of the future.

For more information about the ICO, please visit the following links:



Tezos fundraiser FAQ:

Tezos blog:

Bitcoin Talk page:

Vitalik’s comment on voting system similar to Tezos and Tezos’ response:

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