Developed since 2014, Tezos is an open-source, high-performance blockchain recognized for its self-amending protocol and modular architecture. It is designed to host decentralized applications (dApps) and digital assets while offering enhanced scalability compared to alternatives like Ethereum.
The platform’s native cryptocurrency, known as Tez or Tezzie (ticker: XTZ), is used for transaction fees, staking, and participating in on-chain governance. With a unique inflationary funding model and a liquid proof-of-stake mechanism, Tezos has established itself as a competitive and evolving smart contract platform.
Understanding the XTZ Token
XTZ serves as both the native and governance token for the Tezos network. It supports core operational functions like transaction processing and network security. The maximum circulating supply of XTZ is capped at 900 million tokens.
The platform introduces new tokens at a rate of approximately 80 XTZ per block (each minute), resulting in an annual inflation rate of around 5.51%. This model is designed to fund network development and reward participants without significantly devaluing the currency.
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Key Use Cases of the XTZ Token
Staking (Baking)
Tezos utilizes a liquid proof-of-stake (LPoS) consensus mechanism. Instead of mining, users can participate in block validation by “baking”—staking their XTZ tokens to become network nodes. Bakers earn rewards in the form of transaction fees, which are distributed proportionally to token holders who delegate their stake.
On-Chain Governance
XTZ holders have the right to vote on proposed upgrades to the Tezos protocol, including changes to the governance process itself. This self-amending feature allows the network to evolve without hard forks. The governance process consists of four phases:
- Proposal Phase: Bakers can submit upgrade proposals. The one with the most support moves forward.
- Exploration Vote Phase: The community votes on whether to accept the proposal.
- Testing Phase: Approved upgrades are deployed on a testnet to ensure functionality and security.
- Promotion Vote Phase: A final super-majority vote (over 80%) is required to implement the change on the mainnet.
The Tezos Ecosystem
Tezos supports a diverse and growing dApp ecosystem. Currently, it hosts 42 dApps, including:
- 16 DeFi protocols
- 5 blockchain games
- 3 exchanges
- 3 NFT marketplaces
One of the most prominent dApps on Tezos is QuipuSwap—a decentralized exchange (DEX) with an automated market maker (AMM). Major enterprises like Ubisoft, Red Bull Racing Honda, and Groupe Casino use Tezos for asset tokenization, NFTs, and digital identity solutions.
Use cases supported by the platform include:
- Enterprise baking services
- Central bank digital currency (CBDC) development
- Non-fungible tokens (NFTs)
- Asset tokenization
- Decentralized identity (DID)
- Decentralized autonomous organizations (DAOs)
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Acquiring and Storing XTZ
XTZ is available for trading on major cryptocurrency exchanges. Users can purchase the token and choose to store it in several types of wallets:
- Exchange-based web wallets (offering convenience for staking)
- Software wallets
- Hardware wallets (recommended for enhanced security)
Staking rewards can be earned directly through exchange wallets or by participating in the network via private wallets.
Future Outlook for Tezos
Despite early legal and technical hurdles, Tezos has gained a solid foothold in the blockchain space. Its innovative governance and staking mechanisms continue to attract developers, enterprises, and investors.
Recent institutional adoption includes Swiss financial firms like InCore Bank and Inacta, which are using the Tezos FA2 token standard for asset tokenization. The European Central Bank has also experimented with Tezos for a potential digital euro CBDC project.
While the platform's inflationary model has so far proven sustainable, experts continue to evaluate its long-term economic impact.
Frequently Asked Questions
What is Tezos?
Tezos is a decentralized blockchain platform designed to support smart contracts and dApps. It is best known for its self-amending governance mechanism and liquid proof-of-stake consensus.
How does staking work on Tezos?
Users can “bake” (stake) XTZ to participate in block production and validation. In return, they receive rewards from transaction fees. Token holders can also delegate their coins to bakers without transferring ownership.
What makes Tezos different from Ethereum?
While both support smart contracts, Tezos uses a proof-of-stake system (as opposed to Ethereum’s proof-of-work, now proof-of-stake) and features formal on-chain governance, which allows upgrades without hard forks.
Can I vote on Tezos network upgrades?
Yes. XTZ holders can vote on proposals for protocol upgrades. The process is designed to be inclusive and avoids contentious hard forks.
Is Tezos a good platform for NFTs?
Yes. Tezos has become a popular choice for NFT projects due to its low transaction costs, energy efficiency, and growing ecosystem of marketplaces and artists.
What is the inflation rate of XTZ?
The current annual inflation rate is approximately 5.51%. New tokens are issued every block to reward bakers and delegates.