2023: A Year in Review for The HBAR Foundation

They say bear markets are for building. Truer words have never been spoken, and 2023 was the Year of the Build for both the HBAR Foundation and the Hedera ecosystem. 

While still a ways off from the almost $3T market cap peak in November 2021, 2023 saw signs of adoption that suggest a decoupling between industry growth and metrics such as price and volume.  

Institutional interest increased, with digital asset investments reaching an all time high of $1.7B inflows from the end of September to date and blockchain equities reaching an all time high of weekly inflows of $126M, according to CoinShares data. Progress on prospective spot bitcoin ETF applications has also buoyed interest from within and without the immediate crypto ecosystem. Central bank adoption also reached a critical milestone, with the Monetary Authority of Singapore’s (MAS) announcement of tokenization pilots with major financial institutions and services firms such as JPMorgan, BNY Mellon, Fidelity, Citi, Franklin Templeton, and T. Rowe Price. A key development was also the European Central Bank (ECB) moving into the preparation phase of the digital euro. 

Consumer adoption also picked up in new use cases and geographies. Starbucks’ Odyssey, the NFT-driven rewards program, has already demonstrated speculative market signals in addition to early reports of an opportunity to better understand consumer preferences. The rise of geographies other than the United States as growth centers also intensified, with retail adoption in lower middle income (LMI) countries such as India, Nigeria, and Ukraine remaining higher today than in Q3 2020, just before the 2021 bull run. 

This top-down adoption driven by institutions and bottom-up adoption driven by the fastest growing global demographic could create meaningful mainstream adoption. These trends validate our vision of an onchain world, made universally accessible on Hedera. 

To that end, we’ve continued working towards our goals of increasing awareness of, access to, and commerce in the HBAR economy. 

Focusing Internally to Excel Externally

2023 was marked by incredible progress for grantees and the Foundation alike. 

In 2022, one of our most meaningful lessons was that support goes beyond just funding. This year, the importance of post-grant support was paramount. And we met the needs of our grantee community, with an increased focus on business development, strategy, and partnership support. As you’ll see below, the shift in balance from grant giving to project and use case nurturing has had a meaningful impact on live projects and network metrics. 

In addition to spending more time with grantees and ecosystem projects, we turned internally to recommit to data-driven decision-making, specifically when connecting our off-chain work with onchain performance. Thus came “Project Insight.'' 

Project Insight

Project Insight is a major step in the Foundation’s multi-phase strategy towards comprehensive analytics. The first phase is to make transparent the growth and financial impact of the Foundation’s work on the Hedera ecosystem. Our ultimate vision is that Project Insight will contribute to the ecosystem’s data fabric - supporting the entirety of the ecosystem to access, analyze, and act.

Project Insight’s Phase 1 MVP helps us more authoritatively answer the following question - how are we and our grantees performing? Estimated to be rolled out fully in Q1, we’re excited to share with you a sample of the MVP, currently loaded with mock data, to showcase its potential and the art of the possible. 

With Project Insight, we can now attribute a dollar of funding to a dollar of network revenue and understand the impact of our grant portfolio on all components of the network, updating daily in one centralized platform. This visibility helps the Business Development team better identify growth opportunities and provide data-driven insight to our grantees. Project Insight is a clear example of how future business and organizations will integrate onchain data to drive sophisticated business decisions. 

In future phases, we’ll iterate on attribution methodology to ensure we’re able to track intangible and organic growth, architect ways for grantees and ecosystem projects to leverage the platform’s capabilities, and refine the sophistication of data analysis. Ultimately, Project Insight will support the Foundation’s funding and strategy decisions, ensuring that the Hedera ecosystem thrives with quality projects. 

2023-2024 Strategy

This focus on data comes hand in hand with the maturation of our strategy. 

We remain convinced that the four funds - Crypto Economy, Fintech & Payments, Consumer Engagement, and Sustainable Impact - remain the right focus areas for our work. These funds have been the agents of three strategies with real product-market fit: Onchain Finance, Ecosystem-as-a-Service, and Sustainability & Climate Markets. 

Sustainability & Climate Markets

The Sustainable Impact Fund’s (SIF) mission is to bring the balance sheet of the planet to the public ledger. Strategically, the Fund focuses its attention on digital public goods that are open source and enable infrastructure that supports and accelerates a more transparent and efficient climate market. This includes carbon and biodiversity credits with enhanced monitoring, reporting and verification through automation and digitization, democratizing access to climate finance with full traceability to market participants, as well as, improving GHG emissions accounting and disclosure, in addition to ESG Reporting. 

The goals of the Fund include making climate finance auditable, digitizing and open sourcing methodologies, scaling validation and verification, discovering a global carbon price, and making ESG reporting credible. Built on and around the Guardian platform, the Hedera sustainability ecosystem is singularly focused on building the infrastructure and promoting the adoption of verifiable and liquid climate markets.

Ecosystem-as-a-Service

The Consumer Engagement (CE) Fund’s mission is to enable high-quality Web3 experiences for Brands and Consumers. ‘Brands’ cover both retail and licensed intellectual property (IP) and celebrities; ‘Consumers’ include fans and their communities. The CE strategy is to present the Hedera network as an ‘ecosystems-as-a-service’ (EaaS), allowing for brands to find the infrastructure and partners required to capture the new demographic of digital natives now demanding an “owner economy.” 

EaaS offers a product suite of interoperable dapps that allow brands to acquire, activate, and engage customers in both their digital and physical worlds. The mechanisms that enable loyalty - ticketing, rewards/incentives, entertainment, gamification, collectibles, identity, and marketing technology - can all be reimagined on DLT networks. These modular components built on Hedera will ultimately serve as the building blocks for this new ownership-based relationship between consumer and brand. 

Onchain Finance

The Crypto Economy (CRY) Fund’s mission is to enable the creation and movement of value, both new and old, onchain. The Fintech and Payment (F&P) Fund’s mission is to improve efficient value exchange, taking into consideration the unique needs of financial institutions, through tokenization. Together, the Funds work towards an onchain finance strategy with a priority focus on institutional use cases.

This strategy will modernize economic behavior, working with TradFi institutions to bring their existing business models and infrastructure onchain while identifying opportunities for new value creation. Through modular and composable feature sets - privacy preservation, permissioning, tokenization, identity management, compliance by design etc. - we hope to help institutions build use cases with product-market fit. 

2023 Grant Program Statistics

Data up to date as of December 15, 2023

These three strategies were reflected throughout our grant program. As always, our funding is milestone-driven. This year, 95% of funding was directly tied to the completion or achievement of discrete milestones. 

Applications Received

The Foundation received 575 leads, around half of what we received last year. This drop in applications was expected given the market conditions across Web3 as a whole. 38% of applicants self selected as Crypto Economy, 19% as Consumer Engagement, 17% as Payments and Fintech, and 15% as Sustainable Impact. The remaining 11% self selected as other, Female Founders, and Privacy and Healthcare. These numbers demonstrated that while Hedera is a general purpose ledger, this is a clear fit for purpose in the finance, consumer, and sustainability sectors. 

Grants Given

This year, we committed $16M in additional funding across 68 grants, down from 195 grants last year. This deliberate reduction was a byproduct of the maturing strategy and the need to focus on nurturing existing grants. Naturally the ticket sizes for grants came down as well, in line with the market. 

Between 2022 and 2023, the Crypto Economy and Consumer Engagement Funds saw the biggest decline in grants given, with the Sustainable Impact and Payments and Fintech Funds holding steady. The numbers below track with the operational strategy of each fund. After focusing heavily on filling ecosystem gaps the previous year, the Crypto Economy and Consumer Engagement Funds deployed a more targeted strategy on flagship use cases and remaining gaps. The Sustainable Impact Fund continued its building-block grants strategy while the Fintech and Payments Fund continued to break through the long sales and product cycles common for institutions. 

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The top grant categories, agnostic of funds, were infrastructure, media and entertainment, and accelerator support - 14% and 11% respectively. That infrastructure remains the top area of funding is directly correlated to modularity of each of the Onchain Finance, Sustainability and Climate Markets, and Ecosystem-as-a-Service strategies. For the first time, we also began tracking tokenization-specific use cases, though in reality most grants given by the Foundation utilize tokenization and the Hedera Token Service. 

The number of grants committed each quarter were also fairly equal.

Live Projects

2023 was undoubtedly the Year of the Build for Hedera. In 2023 alone, 106 products, services, and use cases went live. However, it is important to note that a large portion of the Foundation’s funding, namely in areas such as infrastructure and growth initiatives, would fall outside of the definition of live mainnet projects. 

Grants within the Crypto Economy and Consumer Engagement Funds exhibited similar trends as last year - faster time to market with simpler integration paths. More Payments and Fintech use cases launched this year, again a testament to the maturation of both the market and builders in this sector. A key gap in our current tracking (to be addressed in future iterations of Project Insight) is our ability to track open source and organic project growth stemming from grants. Case in point - our current performance platform does not track the hundreds of projects within the Guardian ecosystem, comprising over 80% of the Sustainable Impact Fund’s activity. 

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While infrastructure projects comprised 17% of project launches, the launch of Sports, Media and Entertainment, Enterprise, and CBDC projects is noteworthy. Each of these sectors are key growth areas identified by the Foundation, and we’re excited that they are now coming to market. 

Active Pipeline

In addition to the new grants and projects that have launched, we are actively pursuing 148 opportunities. Of those, 108 potential opportunities are active, with a continued emphasis on infrastructure, sustainability, payments, DeFi, and tokenization. We anticipate project launches next year to follow these trends as well. 

Network and Foundation Performance

Data up to date as of December 14, 2023.

The impressive performance of builders on Hedera naturally led to this year’s stellar performance. 

Transactions

The Hedera network processed just over 30 billion transactions, pushing an average of 980 TPS. This is 1090% greater than the cumulative network transactions of all previous years and 51x greater than last year’s TPS. The Hedera Consensus Service (HCS) comprised 99.7% of network transactions, with the Cryptocurrency Service comprising 0.17% of transaction volume. 

Accounts

The network also grew to over 4M accounts. Just this year, 2.7M accounts were created on mainnet. This is a 195% increase compared to last year’s account growth and comprises 66% of the 4M cumulative accounts created since network launch. 

‍Revenue

The ability to track and analyze revenue is one of our most important data strategy. This year, the network generated over $3.5M in revenue, achieving 986% year over year growth. In fact, 2023 revenue is 5x that of all previous years combined.

A deeper dive into network revenue demonstrates the power of the Hedera Token Service (HTS), Smart Contract Service (HSCS), and Cryptocurrency transaction set. While HCS generated 99.7% of transaction volume, it only accounted for 86.4% of network revenue. 

At just less than 14% of network revenue, HTS, HSCS, and Crypto transactions contributed more revenue this year than the network’s entire 2022 revenue. This shift in the revenue mix is exciting, especially as more and more use cases built on Hedera use the Token and Smart Contract Services. The growth in the Cryptocurrency Service also denotes an increase in value movement within the ecosystem.

‍THF Performance

In addition to the explosive growth in transaction volume, account growth and network revenue, we also exceeded our goal key performance indicators (KPIs). 

This is the first time sharing the KPIs used during the request for proposal process that established the Foundation. Thanks to Project Insight, we can now confidently track and share our progress against the KPIs outlined then. 

In August 2021, we set the goals outlined in column 1 as 18 month targets. Approximately 24 months later, the Foundation has exceeded all KPIs save account creation. Additionally, we’ve set new KPIs to be tracked - smart contract creation and network revenue. 

More incredibly, the builder and project ecosystem on Hedera has a direct role in the network’s growth. Projects and products supported by the Foundation account for 93.6% of network revenue, 91.1% of account creation, and 99.7% of total transaction volume.

We’re blown away by the caliber and growth of our grantee ecosystem. Our key achievement truly has been this vibrant builder ecosystem. Thank you to each and every one of you.  

Meeting Our Goals

The Foundation’s broad goals remain to raise awareness, accelerate access, and increase commerce in the HBAR economy. Across all Funds, the Foundation has achieved key milestones for each of these goals. 

Awareness

The HBAR Foundation continued its efforts in raising awareness of the Hedera ecosystem. The launch of the ezine is one example of our fun and digestible way of communicating all of the network’s happenings. Staking Rewards’ integration of Hedera data for its 300k+ monthly users and CEO Shayne Higdon’s presentation on tokenization at The Tie’s NYSE event were two other examples. The second edition of Lumos’ Labs Hatch Web3 Accelerator and the HBAR Foundation’s participation in the Google Cloud Web3 Startup Program both accelerated the ability for developers and builders in the ecosystem. Grantees began to see awareness and adoption of their own, with teams such as Dropp being added to the list of FedNow providers and Envision gaining recognition for their work with the United Nations Climate Change Global Innovation Hub (GIH).   

Access

Access to the HBAR ecosystem also grew across many facets - development, onramps, interoperability, and regional focus, to name a few. The ecosystem got closer to its goal of EVM equivalence with the integration of Validation Cloud’s mirror node-as-a-service and RPF relay service. The Stablecoin Studio and Shinhan Bank’s second pilot of stablecoin issuance and multi-currency onchain swaps with multiple international banks lowered the barriers to adoption of stablecoins as a viable asset class and payment vehicle. This is of course, in addition to EMTECH’s API-driven CBDC Innovation Kit and the launch of Straits SXGD stablecoin on Hedera. Geographically, the Hedera ecosystem’s footprint expanded in the Middle East, Latin America, Korea, and Africa. 

‍Commerce

Despite the bear market, infrastructure enabling commerce also grew. The launch of SaucerSwap V2 that brought increased capital efficiency precipitated an all time high in trading volume and TVL. The launch of Tuum’s decentralized identity Snap on Metamask also laid the groundwork for self-sovereign identity in the future where onchain is the new online. We also saw key milestones in the payments use case.  XeniTravel became the foundation for a number of travel and experience booking products. Fresh Supply Co completed its integration of the Hedera network into its Continuity API, opening the door to banks and Mastercard payment networks. Finally, Allcot onboarded 500 million metric tonnes of carbon credits to the Hedera Guardian ecosystem, as the first step in moving sustainability value onchain.

In our sophomore year, we have fully matured from a network into an ecosystem, with use cases spanning the spectrum of retail and institutions, supported by startups and enterprises alike. We’re proud to be a part of this journey, moving the world onchain, on Hedera. 

On behalf of the entire HBAR Foundation team, I’d like to congratulate you all on an incredible 2023. Happy Holidays! 

Looking forward,

Elaine