Hufu Research Institute: An in-depth research report on Tezos


Abstract: On March 31, 2022, Tezos will usher in the largest update ever since the platform was established. This update will bring major changes to the underlying smart contracts. Moreover, Tezos is also a blockchain platform with huge financing financing. It can be said that it was born with a golden key, so this issue will introduce Tezos and see what changes will be brought about after this update.

What is Tezos 

Tezos is a blockchain network with Turing-complete smart contracts that is benchmarked against Ethereum. Like Ethereum, Tezos also supports smart contracts and can provide a decentralized platform for developers to build on it. applications (Dapps). It’s just that compared to Ethereum, it is a blockchain that can repair and upgrade itself, and it can upgrade itself over time. The following are the main features of Tezos:


Way of working

Tezos uses a blockchain protocol called the seed protocol to do its work. It stipulates the block equity proof algorithm that needs to be verified by Coin, that is, it can support a variety of blockchain-based algorithms by modifying its seed protocol, realize rapid iterative code and upgrade algorithms, so as to self-correct into a new set of blocks Blockchain protocol. The specific workflow can refer to the following consensus mechanism.

In addition to the introduction of the working method, the seed agreement also stipulates that Tezos will initially have 10 billion coins, and these coins will be reserved to two decimal places. A coin is called 1tez, and the smallest unit is cents. Use ꜩ to represent a tez, also abbreviated as XTZ.

consensus mechanism

Although the consensus mechanism of Tezos is also called PoS, Tezos has its own unique characteristics. This mechanism is called Liquid Proof of Stake (LPoS). In Tezos, the person who produces the block is called the Baker, and the process of producing the block is called Baking, and the process of baking will create a new XTZ. XTZ increases supply at a rate of 5% annually.

First of all, each block is created by the baker, and the holder user can pledge their share to the baker, let the baker be responsible for checking all transactions and add them to the chain, and then the baker will get some Additional XTZ rewards. The reward for block verification is 16XTZ, so for each baked block, the total amount of XTZ will increase by 16XTZ.


Of course, only users who hold more than 8,000 XTZ can bake, and holders can entrust their shares to bakers for unified baking, and the subsequent rewards will be distributed according to the proportion of the shares (note that the Token here The control right of the holder has not been transferred, the control right is still in their own hands, and the roaster has the right of agency).

This sounds very similar to the shareholder proxy mechanism of traditional corporate governance, but in fact, it can be compared in this way. As long as the shareholders are the vast number of users, they can give their XTZ to the developer of a project like equity. The developer is like a professional manager to develop and manage the project, and the income is pledged later and which “Shareholders” make a common share. This pledge mechanism to a large extent encourages users to actively participate in the project. In fact, more than 80% of the coins are currently pledged.


1. Self-Amendment

The Tezos public chain has a self-healing function. Holders can mortgage their own Tokens as nodes, or indirectly participate in governance by entrusting Bakers (bakers), and carry out technical upgrades and iterations to avoid forks to the greatest extent, thereby achieving stable upgrades.

2. Formal Verification

The Tezos team believes that the cost of bugs in blockchain-based programs is too high, and wants to minimize the occurrence of bugs, so formal verification is introduced into the development. It is the method of proving mathematical problems to develop software, which is similar to testing when developing software, the difference is that if the amount of testing is sufficient, then it is formal verification. Formal verification helps developers develop stable programs without bugs, which can greatly prevent disasters from happening

3. Consensus method POS

Tezos also uses POS. However, the POS algorithm of Tezos relies on Baker (bakers) to achieve it, and its threshold is relatively low, and everyone can participate. When a new block reaches a consensus, the system will randomly select candidates from the bakers for rewards. Everyone can participate in consensus and be rewarded.


Tezos completely removes the concept of virtual machines. The Tezos team believes that smart contracts only need to implement some relatively simple logic. All tasks with high computational load can be performed outside Tezos, and then the results are submitted to Tezos, so Tezos created He has his own programming language Michelson, which has the characteristics of low-level languages ​​such as C language, and also has the characteristics of high-level languages ​​such as Javascript and Java.


His greatest strength is Self-Amendment, or self-renewal. We know that traditional platform software updates are centralized in centralized institutions, but due to the decentralized characteristics of blockchain, the platform is not in the hands of a certain individual or institution, so updating is a very difficult thing .

The way to solve this problem in Tezos is Self-Governance. The method is that when Tezos needs to update his protocol, it will initiate a vote on the blockchain, and network participants need to decide whether to implement the protocol update. Some people agree that the protocol will be automatically compiled and deployed to the Tezos test network for test runs. If it can run stably for a period of time, then a confirmation request will be initiated. If most people agree with this request, then this agreement will automatically take effect, and the update of the agreement will be automatically deployed to the main network and force the network Each node on the network is updated to the latest protocol. This method not only solves the problem of decentralized updates but also allows Tezos to avoid forks. Things like bugs that often pop up in Ethereum contracts will rarely happen on Tezos.


The current ecosystem includes 77 tools in 9 dimensions including the following blockchain browsers, block development (baking) tools, communities, decentralized finance, development tools, NFTs, games, digital identity and stablecoins. Among them, NFT accounts for the majority, which is also related to the recent Tezos taking the NFT hot train. If NFTs are excluded, the number of DApps is not dominant. Especially compared to Ethereum which has more than 300 DApps.



Unlike most public chain projects, which are mostly technicians, Tezos is a pair of Wall Street star couples-husband Arthur Breitman and wife Kathleen Breitman co-founded. Kathleen worked as a senior strategy associate for a distributed ledger startup after 2 years with professional consulting firm Accenture. Breitman was a vice president at Morgan Stanley from 2013 to 2016. They have very unique insights into economics and finance.

Investment and Financing

Tezos’ crowdfunding began on July 1, 2017, and grossed a total of $232 million, making it one of the largest cryptocurrency crowdfunding ever. At that time, Tezos’ crowdfunding amount was second only to Filecoin.

However, after the crowdfunding, the Breitmans suddenly issued a document accusing the chairman of the Tezos Foundation, Johann Gevers, of self-issued XTZ worth $1.5 million, triggering a series of lawsuits since then. In March 2020, the Tezos Foundation settled the class action lawsuit with investors, and the team is back on track.

At present, Tezos mainly has the following investors.


problems and deficiencies

The biggest problem at present is that the ecosystem of Tezos is not perfect. As a challenger of Ethereum, although the difference with Ethereum is not significant, it is still far from being able to compare with Ethereum in terms of ecology.


On March 31, 2022, Tezos will receive its most significant update to date: the Ithaca2 protocol. Mainly include the following aspects:

1. The first is the update of the consensus mechanism Tenderbake:

It is the most significant update to the Tezos consensus algorithm. Although the Tezos network has undergone many major upgrades over the past 3 years, this update will introduce a new consensus mechanism – Tenderbake.

The near-instant finality unlocked by Tenderbake will allow users to ensure that their transactions are completed as soon as a block is created (which is not the case in Nakamoto-style blockchains like Bitcoin, Ethereum, and current versions of Tezos).

Tenderbake replaced the original Emmy+ consensus algorithm with the classic-style BFT (Byzantine Fault Tolerance Technology) consensus algorithm. Replacing the consensus algorithm represents a major change to the network. Its advantages are also very obvious:

The Emmy+ consensus algorithm allows multiple versions (forks) of the network to run in parallel during a major network split. This model is similar to Ethereum in that when connections between different forks are re-established, the version with the greatest stake (or For proof-of-work networks, the maximum hashrate) will define the state of the ledger. Smaller forks are discarded.

After switching to the BFT consensus algorithm, as long as two additional blocks appear on it, a block that has just been attached to a node chain is considered final, and there will be no parallel block production. It is equivalent to saving the calculation amount of the previous parallel block when forking, which can have a shorter block time than the Emmy+ algorithm and can determine the final block faster, which also makes Tezos more efficient and energy-saving in the future. and environmental protection.

Due to the update of the basic protocol, the baking and staking reward mechanism that originally relied on the Emmy+ consensus algorithm has also been redesigned. In fact, all the following updates are due to major changes in the consensus mechanism, so some of the original reward mechanisms must be adjusted accordingly to the new consensus mechanism.

① The first is that the baking reward will be changed. Baking rewards will be credited immediately instead of being frozen for 5 cycles as in the original Emmy+ algorithm. In addition, endorsement rewards will no longer be differentiated. As long as delegates have at least 2/3 of their staking slots included in the block, the sum of the staking rewards for a baking cycle will all be distributed at the end of the same cycle.

② The minimum amount required to be elected as a validator will be reduced: from 8,000 tez to 6,000 tez. This 6,000 tez minimum stake is still necessary for performance reasons.

③ A new margin mechanism has been introduced. It turned out that the representatives were chosen at random. Now, at least 10% of the shares must be frozen in advance to obtain the right to bake. A new operation Set_deposit_limit has also been introduced to manage this limit manually.

④ The number of staking slots per block has also been increased from 256 to 7,000: this means that delegates with the smallest number will participate on average every 10 blocks. The node’s storage layer and pre-validator are optimized for processing fees, and pre-checks also help improve performance. The number of endorsement operations will continue to endorse multiple slots and will be proportional to the number of validators in the network, which is approximately 500.

⑤ Since Tenderbake is modeled after the classic BFT consensus algorithm, it focuses more on security than liveness, and requires the active participation of validators holding 2/3 stake in order for the chain to continue to develop.

⑥ This consensus algorithm also offers the possibility to easily reduce the minimum time between blocks, which may be proposed in a future revision of the Tezos protocol.

2. Precheck of operations:

The new version of the protocol will enable the operation preflight mechanism. The main purpose of this feature is to increase the number of Tezos network spread transactions. This mechanism is in preparation for further optimizations, which are also expected to increase transaction throughput (TPS) on the Tezos network.

3. Liquidity Baking

The experiment of liquid baking was originally set to be 6 months in the experiment period, and then it will be phased out. In this update, it is planned to add another 10 months or so in order to continue the experiment. This large increase is mainly to avoid that this experiment will be affected in the next few protocol amendments. Additionally, to balance this increase, the threshold for activation of escape hatches (a mechanism by which bakers can raise a flag to stop experiments as quickly as possible) will be lowered from 50% to 33%.

Written by: Hoo Research


Tezos white paper.

Tezos update log

risk warning:

All articles of Hoo Research do not constitute investment recommendations. Investment is risky, and personal risk tolerance must be considered. It is recommended to conduct in-depth research on the project and make your own investment decisions carefully.

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