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Layer one (L1) blockchain Zetachain (ZETA) is in the spotlight after Coinbase announced the listing of its native token ZETA on the crypto exchange.
Until now, Coinbase had only supported the ERC-20 version of the ZETA tokens on the Ethereum (ETH) mainnet. Now, native ZETA tokens will be listed on Coinbase.
Following the listing news, ZETA’s token price shot up by nearly 25% on August 9, 2024.
However, Techopedia’s research into Zetacoin suggests traders may want to take account of ZETA’s low circulating supply and regular monthly token unlocks, despite a promising interoperability-focused project.
What is Zetachain? Let’s find out.
What is Zetachain?
Zetachain is an L1 blockchain that aims to solve the problem of blockchain fragmentation.
According to its white paper, Zetachain’s goal is to develop a system with “inter-blockchain capability” that does not force external blockchains to adapt to divergent protocols and incompatible token standards.
Zetachain says that its L1 is connected to all other blockchain networks, allowing decentralized applications and users on Zetachain to interact with other blockchains without cross-chain bridges and wrapped tokens.
The L1 achieves “omnichannel interoperability” by using smart contracts to custody assets on external blockchains.
ZetaChain is built using the Cosmos Software Development Kit (SDK) and uses the Tendermint PBFT consensus engine.
Providing a smart contract layer for Bitcoin (BTC) is one of ZetaChain’s interoperability ambitions.
Zetachain’s mainnet launched on January 31, 2024.
Zetachain Team
Zetachain was co-founded by Charlie Pyle and Ankur Nandwani in 2021.
Nandwani is the co-founder of Basic Attention Token (BAT). BAT’s website showed that Nandwani has worked at Coinbase, Lookout, and Qualcomm.
According to PC World, Nandwani worked as a software engineer in San Francisco in 2013 and co-founded a Bitcoin micropayment tool called Bitmonet.
Meanwhile, Pyle’s LinkedIn profile revealed that he co-founded payments platform Altro and crypto startup Hourglass.
In August 2023, ZetaChain raised $27 million from Jane Street Capital, Blockchain.com, GSR, Lingfeng Capital and others.
Zetachain: Key Components
The key components of Zetachain:
- Proof-of-stake (PoS) consensus mechanism – Zetachain is a PoS chain, meaning that the network has validators that validate transactions, propose new blocks, and update the state of Zetachain.
- Observers – Observers are participants on the Zetachain who reach consensus on external chain events and states. Observers deploy full nodes of external chains and observe externally connected chains for relevant transactions, events, and states at particular addresses.
- Signers – Zetachain has keys that are used to authenticate interactions on external blockchains. These keys are distributed among several signers who are economically incentivized to act honestly. A super-majority among signers is needed to reach consensus.
- Zeta Virtual Machine – Zetachain has an EVM-compatible execution layer called the Zeta Virtual Machine (zEVM). zEVM can support all decentralized applications currently hosted on Ethereum. Additionally, smart contracts on zEVM can be called from external chains and can generate outbound transactions on external chains.
- Ominichain smart contracts – Zetachain’s omnichain smart contracts can be called from external chains, and can custody foreign tokens and control them as if they are native tokens. According to its whitepaper, fungible tokens on external chains are represented by ZRC20 tokens (ERC20 equivalent) on Zetachain for record keeping.
What is the ZETA Token?
The ZETA token is the native token of the Zetachain. It is used for:
- Staking
- Gas fee payment
- Governance
- Cross-chain value exchange
Next, let’s study the tokenomics and key market data of ZETA as of August 9, 2024:
| Metric | Statistic |
| Total initial supply | 2.1 billion tokens |
| Circulating supply | 343.07 million |
| Circulating supply percentage of the total initial supply | 16.3% |
| Token price | $2.85 (on February 16, 2024 ) |
| Market cap (MC) | $185 million |
| Fully diluted valuation (FDV) | $1.13 billion |
| MC/FDV | 0.15 |
| Mainnet launch | January 31, 2024 |
| All-time high token price | $0.3448 (on August 5, 2024) |
ZETA tokens were distributed in the following manner:
| Allocation | Percentage of total initial supply | Conditions |
| Protocol Treasury | 24% | 2% released at launch.
After 12 months, 2.77% of the remaining will be released each month. |
| Core Contributors | 22.5% | Will be released 6 months after launch at the rate of 5.5% per month for six months.
Emission rate will decrease to 2.77% per month thereafter. |
| Investors and advisors | 16% | Will be released 6 months after launch at the rate of 5.5% per month for six months.
Emission rate will decrease to 2.77% per month thereafter. |
| Ecosystem Growth Fund | 12% | 1.5% released at launch.
2.38% of the remaining is to be released per month after six months. |
| Validator Incentives | 10% | Distributed through block emissions over 4 years. |
| User growth pool | 10% | 4.5% released at launch.
After the first month, 0.2% will be released per month for 5 months. Thereafter, 2.77% of the remaining tokens will be released per month. |
| Liquidity Incentives | 5.5 % | 3% released at launch.
2.08% of the remaining will be released per month. |
Zetachain Token Price Analysis
The ZETA token launched with the Zetachain mainnet on January 31, 2024.
As capital flowed into Zetachain following the mainnet launch, total locked value (TVL) shot up from $89,000 on February 2, 202, to over $5 million by mid-March 2024, DeFiLlama data showed.
According to Zetachain, 1.8 million unique addresses used its blockchain in its debut month.
In parallel, the ZETA token rose to an all-time high of $2.85 on February 16, 2024.
Since hitting its peak, ZETA coin price has experienced a downtrend. At the time of writing, ZETA was trading at $0.5394, 81% below its all-time high.
Market Outlook of ZETA
Looking forward, token unlocks are expected to play a critical role in ZETA’s near-term price performance.
As we mentioned earlier, ZETA tokens allocated to core contributors (22.5%) and investors (16%) have begun being released at a rate of 5.5% (of allocation) per month from August 2024.
According to Token Unlocks, 53.89 million ZETA tokens, or 15.7% of the current circulating supply, will be released on September 1, 2024.
Several crypto community members have criticized tokens with “low float, high fully diluted valuation” for leaving retail investors with little to no upside on their investments.
Critics argue that low initial circulating supply creates artificial scarcity, which contributes to price surges at launch. As token unlocks begin, selling pressure increases, and the token price falls.
The Bottom Line
The underperformance of the ZETA token price following its initial flurry reminds us of a common theme seen in other VC-backed tokens like Starknet’s STRK and Ethena’s ENA.
To be fair to Zetachain, we have to remember that the project is still in its nascent stage. If Zetachain is successful in solving the problem of blockchain fragmentation, ZETA could go on to be a highly sought-after crypto token.
