Key Insights
Funko’s latest collection themed around “Stranger Things” achieved nearly $1.2 million in total sales from both primary and secondary markets on its launch day. This accomplishment marks the second-highest daily trading volume recorded for any WAX collection over the past year. In addition, there was an 81% quarter-over-quarter increase in average daily new addresses, reaching 2,900. Notably, the August 2023 group of new addresses boasted the highest one-month retention rate at 80%, outperforming all previous cohorts in the last year. WAX Labs has also introduced a significant upgrade to its Cloud Wallet, which empowers users to take control of their admin keys; already, over 17,000 addresses have claimed this control. Furthermore, Wombat has acquired AtomicHub, the most frequented NFT marketplace on WAX by secondary sales, with plans to integrate its wallet and $WOMBAT token into the platform while continuing to develop other features.
Primer on WAX
The Worldwide Asset eXchange (WAX) operates as a Layer-1 (L1) network primarily designed for gaming and NFT applications. Launched in June 2019, following a token generation event (TGE) that garnered approximately $60 million in 2017, WAX is built on the Antelope framework (previously known as EOSIO). This framework employs Delegated Proof-of-Stake (DPoS) consensus and supports smart contract programming in C++. It also incorporates a distinctive resource model that includes bandwidth and state storage components, as well as a smart contract account model akin to account abstraction. WAX Labs has developed additional services on top of this core framework, such as a cloud wallet, NFT creation tools, a marketplace, an on-chain random number generator, and a block explorer, all designed to create a user-friendly Web2 experience on the blockchain. For more comprehensive details on WAX, please refer to our Initiation of Coverage report.
Key Metrics
In the third quarter of 2023, the crypto market exhibited a relatively stagnant trend, with most assets trading sideways. A notable exception was a significant selloff that occurred in mid-August. The $WAX token followed this pattern, experiencing an 8% quarter-over-quarter decline in its circulating market cap, which fell to $141 million, primarily due to losses between August 15 and 17. During this period, WAX’s market cap rank slipped slightly from 158 to 165 among all cryptocurrencies. However, total quarterly revenue in $WAX rose by 22% quarter-over-quarter, amounting to $2.1 million ($97,000).
WAX operates on a unique resource model where users can often reclaim $WAX (known as $WAX on the WAX network and $WAXP on Ethereum) if they no longer need bandwidth or storage resources. As a result, WAX does not generate revenue through gas fees. Instead, the network collects revenue via a 2% tax on NFT secondary sales, supported by a mutual agreement with NFT marketplaces. WAX burns 20% of its revenue and bridges the remaining 80% to Ethereum for distribution to liquidity providers. The WAX protocol mints $WAX at an annual inflation rate of 5%, allocating rewards to validators (2%), delegators (2%), and its treasury (1%). The burn mechanism has not notably affected inflation, which has stabilized around 5%. Given that validator rewards come solely from inflation and the burn rate remains low, WAX’s real staking yield is currently negative at -1%. WAX Labs is set to revamp its tokenomics and staking mechanisms by the end of 2023, maintaining similar reward distributions but implementing a system where fees that cover rewards will prevent additional $WAX from being minted, with a cap on inflation at 4%.
Network Analysis
Overall network activity has shown stability over the past year. In Q3 2023, the average daily transactions dipped by 5% to 17 million, while daily active addresses decreased by 11% to 302,000. By the end of August, daily transactions and active addresses hit their lowest levels in a year, at 14.5 million and 237,000, respectively, but both metrics rebounded shortly after. Throughout Q3, there were 877,000 unique active addresses, representing a 20% decrease quarter-over-quarter. Despite the decline in total active addresses, engagement increased, with half of the active addresses operating for more than 21 days compared to just seven days in Q2. Moreover, only 14% of active addresses in Q3 were engaged for just one day, down from 24% in the previous quarter. A significant 10% of addresses remained active daily during the quarter.
The growth of average daily new addresses surged by 81% quarter-over-quarter to 2,900, showing consistent upward momentum throughout the quarter after a significant decline in Q2. The August 2023 cohort achieved the highest one-month retention rates among all cohorts in the previous year, with 80% of the 86,000 new addresses remaining active in September.
Security and Decentralization
At the quarter’s conclusion, there were 69 validators with voting power on WAX, yet only the top 21 validators can participate in consensus for any given round. There was a marked increase in staked $WAX last quarter due to WAX Labs staking previously accumulated tokens. However, this figure dropped by 4% this quarter to 1.9 billion $WAX ($79 million). It is important to note that not all staked tokens are necessarily delegated to validators; some may simply be staked within WAX’s resource model without being used for validator voting.
In WAX’s Delegated Proof-of-Stake (DPoS) system, token holders stake their tokens but can vote for up to 30 validators, with each validator receiving the total voting power from the token holder. This means that if a holder has 1 million voting power and votes for 30 validators, each will receive 1 million voting power. Consequently, it is challenging to ascertain the precise amount of stake delegated to all validators versus the top 21 who actively participate in consensus. A malicious actor would require control over 15 validators to execute a two-thirds attack, necessitating enough stake to dominate the seventh-highest validator. At the quarter’s end, this threshold stood at 778 million $WAX ($33 million). Geographic diversity is crucial for the resilience of the validator network, and at the end of the quarter, the majority of validators were hosted in Europe.
Upgrades and Roadmap
WAX Labs has rolled out several enhancements to the Cloud Wallet this quarter. The Cloud Wallet streamlines the onboarding process, allowing users to create accounts using Web2 credentials (such as email, Google, and Facebook) and includes two-factor authentication. It also manages admin keys through a two-of-four multisig, involving WAX’s president, COO, CTO, and blockchain lead, thereby abstracting seed phrases. Although this upgrade enhances user experience, it does trade off some trustlessness. In late July, new features were added to the Cloud Wallet, allowing users to claim ownership of their accounts while still utilizing other features of the wallet. So far, more than 17,000 addresses have claimed admin rights.
The Antelope protocol, which powers WAX along with networks like EOS, UX Network, and Telos, is set for a significant upgrade in Q4. Funded by the Antelope Coalition, core development team 0rigin is developing a new consensus mechanism based on a modified version of HotStuff, a Byzantine Fault Tolerant protocol created by Facebook’s Libra team. This upgrade aims to enhance the network by increasing the number of validators beyond 21 and achieving near-instant transaction finality. It will also distribute responsibilities within the consensus mechanism among three distinct roles: Block Proposer, Block Finalizers, and Consensus Leader. Initially, active block producers will perform all roles, but future iterations may allow different parties to take on these tasks, improving both security and decentralization without compromising performance.
Ecosystem Analysis
Active address engagement on WAX is largely led by Play-to-Earn (P2E) games such as Alien Worlds and Farmers World. By late August, Alien Worlds saw a decline in active addresses, resulting in a 26% quarter-over-quarter drop to an average of 178,000 daily active addresses. Conversely, Farmers World experienced a 57% quarter-over-quarter increase in its average daily active addresses, reaching 85,000. As a result of this shift, Farmers World captured 70% of the market share of active addresses among various WAX contract groups.
This increase in Farmers World’s activity is puzzling, especially considering that the development team sold off its entire treasury (valued at approximately $50 million) and halted all communication and development efforts. The WAX System contract averaged 16,000 daily active addresses this quarter, up from 13,000 last quarter, and it manages critical functions such as staking, delegation, and resource management. Multiple NFT marketplaces and projects that conduct primary drops utilize a common set of contracts in their backend, categorized into the “NFT Marketplaces” group, which averaged nearly 14,000 daily active addresses this quarter, marking a 41% quarter-over-quarter increase.
Other notable dapps by active address engagement include the NFT-based games Dungeon Master and Taco, both of which recorded around a 10% quarter-over-quarter decrease in average daily active addresses. This analysis focuses solely on contract calls from newly created addresses, illustrating user interactions upon joining the network, revealing distinct trends from the previous analysis that accounted for all addresses.
The rise in active addresses for Farmers World was partly fueled by new account creations, with the average daily number of newly created addresses soaring by 974% to 904, surpassing the WAX system for the top position. On September 10, nearly 22,000 new addresses were created and interacted with Farmers World that same day. Alien Worlds also saw a significant uptick, with an average daily newly created address count rising by 51% quarter-over-quarter to 561.
WAX accounts feature two primary roles: an admin key and an active key. While both roles share the same default permissions, active keys cannot add or remove other active keys. Admin keys can be configured with custom permissions. When users create accounts via the Cloud Wallet, their admin key is automatically managed by a managed.wax account. The Cloud Wallet update in late July made it easier for users to regain control of their admin key. Following this update on July 24, the managed.wax contract averaged 68 daily newly created addresses, with over 17,000 unique wallets engaging with the managed.wax address after the update to gain full control.
This analysis also examines all addresses but only considers their first interaction with a contract group. This approach reveals the daily influx of new addresses for each contract group. Similar to the trends observed in newly created addresses, both Farmers World and the managed.wax contract experienced significant gains in daily new addresses. Alien Worlds also exhibited growth, with average daily new addresses increasing by 41% quarter-over-quarter to 1,700.
NFTs and Gaming
During the past quarter, WAX recorded an average daily NFT sales volume of $78,000, which reflects a 12% quarter-over-quarter decline, while average daily sales fell by 9% to 20,000. The fluctuations in NFT sales volume and transaction numbers were primarily influenced by Funko’s drops, which are detailed further below.
According to CryptoSlam!, WAX ranked 14th among blockchains in total NFT volume for Q3 2023, dropping from 12th the previous quarter, while it held the 7th position in terms of the number of sales, down from 5th last quarter. It is important to note that CryptoSlam! only includes secondary sales data, while the data above encompasses both primary and secondary sales.
Average daily NFT buyers decreased by 68% quarter-over-quarter to 1,400, and average daily NFT sellers fell by 51% to 3,000. Both figures had seen substantial growth in the previous quarter, reaching yearly peaks. Funko collections contributed significantly, averaging $53,000 in daily sales volume, accounting for 68% of total WAX NFT volume. Funko, a toy company renowned for its licensed pop culture collectibles, partnered with WAX in Q3 2021 to launch digital collectibles, some of which can be redeemed for physical toys. Funko’s digital collectibles are sold through pack drops, which explains the pronounced spikes in WAX NFT sales volume. In Q3 2023, Funko conducted four drops featuring licensed collectibles from various franchises, including “Stranger Things,” “Power Rangers,” “Steven Universe,” and “Jurassic Park.”
On July 13, the primary drop for the “Stranger Things” collection, along with its secondary trading volume, totaled nearly $1.2 million. This figure represents the second-highest daily trading volume for any WAX collection in the past year, surpassed only by Funko’s “Game of Thrones” drop in Q4 2022. Farmers World’s growth in activity wasn’t limited to active address figures; its average daily sales volume surged by 2,200% quarter-over-quarter to $863.
The Experimental Bananas, launched by WAX’s Ape Rave Club (WARC), emerged as a new addition to the top six collections this quarter, averaging $981 in daily sales volume. Following the launch of the WAX Ape Rave Club NFT collection in Q2 2023, which generated over $10,000 in trading volume on its launch day, the team subsequently introduced a game where users compete for the top-ranked Ape Gold Coin, offering rewards of up to 90,000 $WAX ($3,800). Users can enhance their Ape Gold Coins by crafting them with other NFTs from the WAX Ape Rave Club projects. By the quarter’s end, all 10,000 Ape Gold Coins had been minted at a price of 100 $WAX ($4.20) each.
Average daily sales volumes for both Alien Worlds and Dungeon Master decreased by over 30% quarter-over-quarter, yet they remain in the top three collections, with daily sales averaging $4,800 and $3,500, respectively. Dungeon Master is an NFT staking game developed by the Wombat gaming platform, which also offers an in-house wallet.
In early September, Wombat completed the acquisition of AtomicHub, the leading NFT marketplace on WAX by secondary sales volume, which was previously operated by Pink.gg. Wombat announced its intention to advance AtomicHub’s development while integrating its services, including the wallet login feature and the $WOMBAT token.
Rounding out the top six collections was Taco, whose average daily sales volume saw a 50% quarter-over-quarter increase to $1,200. At the end of September, Taco released packs for its new Play-to-Earn idle game, Combz, which launched shortly thereafter. This drop sold out, raising over $23,000, of which half will contribute to the prize pool for the inaugural season of Combz. Combz joins other games in the Taco Universe, including Brigade and Acryptia.
Additional developments in the NFT and gaming sectors include:
BC Brawlers Updates: By the end of July, BC Brawlers became accessible on MacOS. This PVP card game, developed by WAX Labs and launched in late 2021, is set to debut on the Epic Games Store. Despite these upgrades, the volume of BC Brawlers NFTs has continued to decline quarterly, averaging $86 in daily sales volume for Q3.
NFT World Cup: IntraVerse hosted an NFT World Cup sponsored by WAX, Polygon, Sandbox, DappRadar, and others. The tournament featured gameplay akin to “Street Fighter”, allowing players to select avatars based on 32 participating NFT projects, including Taco and Aphelium from WAX. The event attracted over 4,500 players and distributed around 8 ETH in total prizes.
Aphelium Tournament: Aphelium, a planet-based game played through Discord chats, organized a tournament with up to $5,000 in prizes to celebrate its mainnet launch in early Q3. The game’s associated NFT collection recorded an average daily trading volume of $240 in Q3.
DeFi
In the DeFi sector, total value locked (TVL) in USD experienced an 8% quarter-over-quarter decline to $192,000, ranking WAX 160th among all chains. When assessed in $WAX, DeFi TVL saw a slight increase of 1% quarter-over-quarter. The notable drop in TVL earlier in the year coincided with the launch of AMM V2 by DEX Alcor Exchange, which introduced concentrated liquidity. While this innovation can enhance capital efficiency, it has also posed challenges for profitability for liquidity providers, as observed with Uniswap V3. Following the upgrade, Alcor’s TVL nearly halved.
At the start of Q3, Alcor introduced a front end for Antelope IBC, an inter-blockchain protocol developed by the UX Network core development team 0rigin, funded by the Antelope Coalition. In Q2, WAX integrated Antelope IBC, connecting it with other Antelope networks. Throughout Q3, Alcor updated the feature multiple times, including enhancements for tracking transfer status and history, as well as supporting $WOMBAT transfers.
Currently, WAX lacks any natively minted stablecoins. However, WAX Labs has facilitated the transfer of several Ethereum-native stablecoins, including USDC, USDT, and DAI, via a two-of-four multisig bridge involving WAX’s top executives. The aggregate market caps of these stablecoins fell by 6% quarter-over-quarter, amounting to $26,000.
As previously mentioned, 80% of WAX’s revenue is bridged to Ethereum and allocated to liquidity providers in a WAX-ETH Uniswap V2 pool, which had a TVL of $4.8 million at the end of the quarter. However, plans are in place to migrate this system back to WAX by the end of 2023.
Development and Growth
While the overall number of unique active contracts has remained stable over the past year, the introduction of new contracts has continued to decline. The total active contracts decreased by 4% quarter-over-quarter, now just under 1,240, while the number of new contracts saw a 5% drop, totaling 115. The network intends to utilize its treasury, which currently stands at $3.6 million and is projected to grow at a rate of $1.4 million annually, to incentivize new builders on WAX.
Additionally, WAX Labs has introduced several tools and resources aimed at expanding the use cases available for ecosystem builders:
Cloud Wallet Emails: The Cloud Wallet allows users to create accounts and log in using email addresses. In mid-September, WAX Labs enhanced this feature, enabling developers to request permission to access a user’s email address via OAuth.
Cloud Wallet NFT Bridge: Early in Q2, WAX Labs introduced
