Key Insights
In the fourth quarter, Hedera’s (HBAR) circulating market capitalization surged by an impressive 375% quarter-over-quarter, reaching $10.3 billion. This growth propelled HBAR’s ranking among all cryptocurrencies, moving up 28 positions from 46 to 18, outperforming many comparable digital assets.
Decentralized exchange (DEX) activity on the Hedera Network soared to record highs in Q4, averaging daily volumes of $10.7 million. This figure marks a staggering 530% increase compared to the previous quarter, indicating a robust uptick in trading on Hedera’s DEX platforms.
Users of Karate Combat are increasingly favoring the Hedera Network over Ethereum, with 81% of all KARATE tokens utilized during Q4 events being processed on Hedera. The introduction of the Hedera Network has also attracted new users, contributing to a rise in the total number of KARATE tokens played.
Bonzo Finance, which launched in late October, finished Q4 with over $25 million in total value locked (TVL). This non-custodial money market, based on Aave V2, is specifically optimized for Hedera’s Ethereum Virtual Machine (EVM) and employs Hedera’s Token Service for its operations.
The stablecoin sector on Hedera experienced a significant growth spurt, with market capitalization increasing by 272% quarter-over-quarter to $37.9 million. This surge was primarily driven by the rising popularity of natively issued USDC. Stablecoins are becoming increasingly integrated into the DeFi landscape on Hedera, evidenced by over $3 million of USDC being utilized within Bonzo Finance alone.
Primer
Hedera (HBAR) stands out as a high-performance and secure public distributed ledger technology (DLT) network. Governed by a council comprising up to 39 leading global institutions, Hedera also welcomes community contributions regarding network features and standards through Hedera Improvement Proposals (HIPs). While anyone can submit transactions and access network history, only authorized entities manage the nodes that confirm transactions and contribute to consensus. The Council members operate these validator nodes, with plans to transition to full permissionless operations in the future. Unlike many public networks, the unique structure of Hedera’s council is designed to prevent collusion through geographical and industry diversification. The Hedera Network provides an enhanced version of the Besu EVM for smart contracts, alongside a native tokenization service and a high-throughput consensus service, all known as Hedera Network Services. Developers can leverage these services in a permissionless manner to create decentralized applications using various programming languages. The network runs on the Hashgraph Consensus Algorithm, which ensures high throughput, equitable transaction ordering, and low-latency consensus.
Key Metrics
Financial Overview
During Q4, HBAR’s circulating market capitalization rebounded dramatically, reversing previous corrections with a 375% increase from $2.2 billion to $10.3 billion. Additionally, HBAR’s market cap climbed 28 positions to rank 18 among all cryptocurrencies, surpassing similarly valued digital assets. The circulating supply of HBAR saw a modest rise of 1.7% this quarter, totaling 38.3 billion HBAR, while its price skyrocketed by 367% from $0.06 to $0.27. Part of this price surge can be linked to the political climate following the election of Donald Trump, which spurred a rally in US-based cryptocurrencies.
However, Hedera Network’s revenue from transaction fees fell to a yearly low of 2.1 million HBAR, marking a 92% decline quarter-over-quarter due to decreased transaction volumes. Revenue measured in dollars also dropped 85% QoQ to $239,800, primarily due to a significant reduction in transactions processed through Hedera’s Consensus Service.
Most of Hedera’s network services experienced revenue declines in Q4. Specifically, revenue from the Consensus Service dropped 99% to just 33,600 HBAR, while the Token Service saw a 51% reduction to 463,400 HBAR. The Crypto Service revenue fell by 38% to 602,600 HBAR. The only exception was the Smart Contract Service, which recorded a 22% increase to 980,900 HBAR. Overall, other HBAR revenue sources decreased by 91% to 16,700 HBAR.
Supply Dynamics
HBAR, the native token of the Hedera Network, plays a crucial role by facilitating transaction fee payments and rewarding Proof-of-Stake validators for securing the network. Users are also able to delegate their HBAR for network validation and earn staking rewards, with plans to introduce staking for permissionless public validators in the future. At the end of Q4, 38.3 billion HBAR was in circulation, representing 76.6% of the total capped supply of 50 billion. The Hedera Treasury Management Report indicated that the circulating supply is expected to rise by nearly 3.9 billion HBAR in the next quarter, with over 3.6 billion of this growth aimed at supporting ecosystem development and open-source projects.
Network Overview
In terms of network usage, Q4 saw a 10% decline in the daily average number of new accounts, dropping from 8,700 to 7,800. Conversely, the number of active accounts on the Hedera Network increased by 24%, from 8,100 to 10,100. Total transactions fell dramatically by 99%, primarily due to a similar decrease in Hedera’s Consensus Service transactions. As a result, the average daily transactions plummeted from 153 million to 563,000 in Q4. The distribution of transaction activity across Hedera’s services became more balanced, with the following average daily transaction shares: Consensus Service (26.3%), Crypto Service (39.1%), Smart Contract Service (21.9%), Token Service (12.4%), and others (0.3%).
The decline in Consensus Service transactions can largely be attributed to the withdrawal of Avery Dennison’s atma.io platform from using it, which previously accounted for a significant volume of transactions. In Q4, the Hedera network reported that 20.6 billion HBAR was staked, representing 54% of the circulating supply and 41% of the total supply. This high staking figure is largely due to entities like Hashgraph, which stake their allocations to help validators meet minimum thresholds for network consensus participation. Notably, a substantial 72% of staked HBAR do not earn rewards.
Development
The number of daily average active contracts grew by 26% in Q4, increasing from 160 to 200 active contracts. This growth marks a yearly high, representing a 116% increase year-over-year. Throughout the quarter, Hedera introduced several enhancements to developer-focused tools and products, including:
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V0.54 Upgrade (October 23): This release introduced significant improvements from HIP-904 and HIP-1010. HIP-904 streamlines token distribution through airdrops, enabling token creators to reach a wider audience efficiently. HIP-1010 allows smart contracts to manage custom fees for both fungible and non-fungible tokens, enhancing flexibility in token management.
- V0.56 Upgrade (December 11): This update included several noteworthy enhancements through HIP-869, HIP-904, HIP-632, and Block Streams preview. HIP-869 implemented a Dynamic Address Book, allowing node operators to update details through Hedera transactions. HIP-904 added support for Hedera Token Service features, facilitating seamless airdrops and token management. HIP-632 improved the Hedera Account Service, enabling smart contracts to verify signatures against Hedera accounts, fostering better compatibility with Ethereum systems. Additionally, a preview for Block Streams was introduced, providing a unified output stream for transaction and state data, enhancing data consumption and verification.
NFT Studio Launch
On October 18, 2024, Hashgraph unveiled NFT Studio, an open-source platform on Hedera that simplifies the creation, management, and distribution of NFTs and token-based projects. This initiative addresses key challenges in the NFT space by providing a comprehensive suite of tools that enhance compliance with metadata standards, conduct risk assessments, facilitate token distribution, and engage communities. Among the tools included are a metadata validator, an NFT rarity inspector, an NFT risk calculator, an airdrop list verifier, a token holders list builder, and a token balance snapshot tool. Collectively, these resources streamline the NFT lifecycle, making it easier for creators and developers to launch and sustain successful NFT projects while leveraging the unique advantages of Hedera, such as protocol-enforced royalties.
Chainlink Integration
The HBAR Foundation participated in Chainlink’s Scale Program to integrate Chainlink’s Data Feeds and Cross-Chain Interoperability Protocol (CCIP) into Hedera. This quarter, Hedera quickly implemented support for Chainlink Data Feeds and Proof of Reserves as part of Chainlink’s SmartData suite. This integration equips developers with reliable, tamper-proof data crucial for secure decentralized finance (DeFi) and tokenized asset applications. By adopting Chainlink standards, Hedera enables access to decentralized oracle services that aggregate financial market data from numerous credible sources, ensuring accurate and manipulation-resistant market prices. Furthermore, Chainlink’s Proof of Reserve enhances transparency by allowing on-chain verification of collateralization, thus mitigating risks like malicious minting. This collaboration aims to empower developers on the Hedera Network with robust data and reserve monitoring capabilities, fostering innovative and scalable on-chain markets.
LayerZero Integration
In late October 2024, LayerZero expanded to support Hedera, aiming to enhance the network’s interoperability and solidify its position as a robust platform for institutional DeFi. This integration enables Hedera to connect with additional liquidity sources, providing a new destination for EVM-based liquidity and allowing developers to create omnichain applications that span over 70 chains. Key advantages of this integration include asset-level interoperability through LayerZero’s omnichain fungible token standard, enhanced connectivity for decentralized applications with a dedicated Hedera endpoint, and foundational support for Hedera-based assets. Overall, this effort builds upon prior infrastructure investments and advances Hedera’s objective of enabling seamless, permissionless cross-chain interactions.
Ecosystem Overview
In the realm of decentralized finance (DeFi), Hedera’s total value locked (TVL) reached an all-time high in USD during Q4, concluding the quarter at $169.8 million. However, the TVL in HBAR saw a decline of 37% quarter-over-quarter, dropping from 972.3 million to 611.5 million. The discrepancy between the increases in USD TVL and the decreases in HBAR TVL suggests that the rise in USD TVL was primarily driven by HBAR’s price appreciation rather than new capital inflows. At the end of the quarter, Hedera ranked #38 among blockchain networks in terms of TVL, climbing 10 spots from the previous quarter.
Bonzo Finance, a non-custodial lending and borrowing protocol, was launched on Hedera at the end of October. Built on Aave V2 and optimized for Hedera’s EVM, Bonzo Finance initially allowed users to supply assets to reach liquidity thresholds before enabling borrowing, which commenced on December 11, 2024. The protocol’s TVL in USD steadily increased since its launch, closing Q4 at $25.4 million.
SaucerSwap retained its title as the leading DeFi protocol on the Hedera Network, experiencing a 133% increase in USD TVL, closing Q4 at $125 million. Other DeFi TVL on Hedera is distributed among HbarSuite, HeliSwap, DaVinciGraph, and HLiquity. HbarSuite solidified its status as a leading DeFi protocol, ending the quarter with $7.8 million in TVL, marking a 173% increase QoQ. HeliSwap and DaVinciGraph also saw significant TVL growth, rising 355% to $6.6 million and 145% to $2.9 million, respectively.
DeFi Diversity, which assesses the number of protocols constituting the top 90% of DeFi TVL, ended Q4 with a score of 2—up 100% from the previous quarter’s score of 1. This increase is attributed to the launch of Bonzo Finance and its rapid growth in TVL. Notably, liquid staking TVL, while not included in the DeFi TVL figure, remains a significant metric. Stader is currently the only provider of liquid staking on the Hedera network, with its TVL rising 350% from $28.6 million to $128.7 million. This growth was fueled by the 367% increase in HBAR price during Q4 rather than new capital investments. However, liquid staking TVL in HBAR experienced minor capital outflows, decreasing 4% from 498.1 million to 479.6 million HBAR staked by the end of Q4.
The HBAR Foundation’s DeFi growth initiative has prioritized liquid staking, which appears to have contributed to its expansion. Liquid staking as a percentage of HBAR stake receiving rewards rose by 12% QoQ, concluding the quarter at 8.2% of the total HBAR stake receiving rewards on Hedera. USDC is the only natively issued stablecoin on the Hedera Network, and it recorded substantial growth, increasing its market cap from $10.2 million to $37.9 million. Currently, 943,000 USDC, 277,000 USDT, and 100,000 DAI have been bridged to Hedera, representing around 3% of the natively issued USDC market cap. A significant portion of both natively issued USDC and bridged stablecoins is actively utilized in Hedera’s DeFi ecosystem, with approximately 10% of the natively issued USDC allocated to Bonzo Finance alone.
Gaming
Karate Combat, a full-contact karate league, has become a popular entertainment platform, significantly contributing to activity on the Hedera network. Fans engage by voting for match winners through Karate Combat’s mobile or web applications using KARATE tokens. Correct predictions reward fans with additional KARATE tokens, while incorrect predictions do not incur any losses. Although the KARATE token is available on both Hedera and Ethereum, there are distinctions in how users can interact depending on their chosen platform. Fans voting through the mobile application utilize the Hedera network, whereas both Hedera and Ethereum wallets are accessible via the web application. Users with KARATE tokens on Ethereum can vote through Snapshot but must claim their rewards afterward. In contrast, those using the Hedera mobile app receive their rewards directly through an airdrop.
The KARATE token also functions as a governance token for the league. Suggestions for rule changes are discussed in the governance forum, and KARATE holders vote on proposals. The recent rule amendment, KICK-10, allowed for elbow strikes during matches.
Karate Combat events are free to watch and readily available on platforms like YouTube, where they have garnered over 750,000 subscribers and consistently attract around 100,000 views for live streams. In Q4, the average amount of KARATE tokens played during events on Hedera grew by 38% quarter-over-quarter, rising from 4.2 billion HBAR to 5.9 billion HBAR. Moreover, the preference for the Hedera network among Karate Combat users increased, with Hedera capturing 81% of all KARATE played.
Network Services Overview
The Hedera Network Services encompass the primary offerings of the Hedera ecosystem, including the Consensus Service, Smart Contract Service, and Token Service. All these services leverage the Hashgraph algorithm and provide official software development kits (SDKs) for accessing the API in programming languages like JavaScript, Java, Go, and Swift, along with community SDKs for .NET, Python, and Venin SDK for JavaScript. Each service is designed for specific use cases and user profiles, with varying frequencies of usage.
Consensus Service
The Hedera Consensus Service facilitates the verifiable timestamping and ordering of events for both Web2 and Web3 applications. Users submit messages to the Hedera Network, where they are timestamped and ordered using the Hashgraph algorithm, forming a verifiable, auditable history of events. This service is utilized in various applications, including supply chain tracking, asset transfer logging between blockchains, voting in decentralized autonomous organizations (DAOs), and monitoring IoT devices.
In Q4, the daily average transactions through the Hedera Consensus Service dropped 99% quarter-over-quarter to a yearly low of 159,200 transactions, primarily due to the discontinuation of services by Avery Dennison’s atma.io platform. Conversely, the daily average number of active accounts rose by 12%, from 1,100 to 1,200.
Crypto Service
The Hedera Crypto Service plays a critical role in tracking HBAR movement throughout the ecosystem, enhancing liquidity and mobility of the asset. This service allows users to perform essential actions on the Hedera Network, such as account creation and management, transferring HBAR and tokens, rotating account keys, and granting account permissions.
Following a decline in Q3, transactions via Hedera’s Crypto Service rebounded in Q4, with the daily average increasing by 29% quarter-over-quarter from 183,600 to 237,300. Alongside this, the number of active accounts using the Crypto Service surged by 98% QoQ from 2,800 to 5,600.
Smart Contract Service
The Hedera Smart Contract Service enables developers to create and deploy smart contracts on the Hedera Network. This service works in conjunction with the Hedera Token Service, allowing users to develop fungible and non-fungible tokens. It is also EVM-compatible through the HyperLedger Besu EVM client, supporting Solidity-based smart contracts and core Ethereum tools.
Throughout the past year, Hedera has focused on enhancing both developer and user experiences within the Smart Contract Service. In Q4, daily average transactions grew by 237% quarter-over-quarter from 39,400 to 132,800, although daily average active accounts saw an 18% decline from 4,300 to 4,000. Despite this decrease, both metrics experienced impressive year-over-year growth of 170% and 75%, respectively. Ongoing improvements to the Smart Contract service are being implemented, as evidenced by various HIP initiatives, including HIP-904, which supports Hedera Token Service features like efficient airdrops and token management capabilities.
Token Service
The Hedera Token Service allows users to mint and manage custom fungible and non-fungible tokens on the platform. Tokens issued through this service can be customized with parameters such as KYC verification, freezing, and supply management. Each token transfer incurs a transaction fee of $0.0001, payable in HBAR. In Q4, the average daily transactions for the Token Service rose by 85% quarter-over-quarter, from 16,700 to 30,800, while the number of average daily active
