Q2 2024 Friends of Provenance Blockchain Update

Welcome to our quarterly update on the Provenance Blockchain. In this end of quarter recap, the Foundation will review the network's performance over the past quarter, focusing on the sustainable growth of real-world financial assets and comparing our operational and valuation metrics with leading Layer 1 blockchains. We'll also delve into the utility of Provenance Blockchain’s token, HASH, and discuss its current and future fee structures. Additionally, we will provide an update on Provenance Blockchain Labs, preview our first SaaS dApp, and highlight recent partnerships and media coverage. Finally, we'll explore the significant protocol enhancements delivered in the 1.19 release.

So let’s dive into it. Continuing recent trends, the second quarter of 2024 was the most active in Provenance Blockchain history, with record activity across most operating metric tracked.

1. The second quarter saw more than 1.1 million transactions, up 30% year-over-year as the protocol crossed 9 million transactions since its inception.
2. Total fees paid into the network during the quarter hit an all-time high of $506k, up 59% year-over-year as the higher HASH price helped fuel record performance. On an annualized basis, Provenance Blockchain saw record fees of $1.7 million.
3. The most recent protocol update allows us to report on another industry defining metric. At the end of the second quarter, Provenance Blockchain tracked more than two hundred and eighteen thousand active, individually priced, financial assets on Mainnet. For context RWA.xyz currently tracks just over one thousand nine hundred individual tokenized assets industry wide. When they add this updated data, their tracked tokenized assets will increase by more than 10,000%. Provenance Blockchain clearly has more RWA activity than all other public Layer 1s combined, and the third party reporting integrations Ira and the team have worked on lately will finally help the crypto industry understand the network’s dominance.
4. Wrapping up the review, The Provenance Blockchain’s Mainnet had 64 active validators, 2 more than last quarter, and the amount of bonded tokens rose to 12.4%, up 44% y-o-y as the community continued to play an increasingly active role in the ecosystem’s governance.
5. Finally, Provenance Blockchain Foundation delivered its best earned media quarter ever. Our marketing team is punching well above their weight ensuring Provenance Blockchain is front and center in any RWA blockchain conversation in the TradFi and DeFi media and at industry events.

Our comparison slide benchmarks Provenance Blockchain against a peer group of the world’s most popular Layer 1s. The slide now shows quarter-over-quarter changes and is sorted by Market Cap / TVL (total value locked), clearly positioning Provenance as the leading blockchain network according to this metric.

You can see that every blockchain not named Ethereum or Solana had operating metric decreases from 1Q to 2Q, while Provenance Blockchain continues to grow across the board with materially higher market cap, TVL and annualized fees.

This slide shows us that Provenance Blockchain’s growth isn’t dependent on the latest market fad but on consistent and sustainable financial services adoption of blockchain technology. We firmly believe the global financial markets are going to tokenize several trillions of dollars of assets over the next decade and Provenance Blockchain is perfectly positioned as the only major Layer 1 purpose built for financial services.

We’re working hard to get the broader markets to understand this value proposition and we’ll discuss our roadmap over the next few slides.

The current version of the Provenance Blockchain protocol was released in April 2021 and HASH is the network’s utility token. HASH is used to secure the network, distribute system rewards, participate in governance and facilitate transactions with fees.

On Provenance Blockchain, fees may be quoted in USD in order to simplify financial transactions, but they are ultimately paid and distributed in HASH. Of the network fees collected, 93% are distributed to delegators and 7% goes to a protocol fund that enables the Provenance Blockchain Foundation to improve the core protocol, promote community education and run outreach, primarily the Grant program.

There is a total fixed supply of 100 billion HASH and it's all distributed and vested. HASH cannot be created or destroyed and there is no inflation. There is no HASH locked apart from a de minimis amount supporting the Grant Program.

Like most proof-of-steak blockchains, holders can stake HASH to one of Provenance Blockchain’s 64 validators. Delegators pay a commission to their selected validator. If we use actual fees earned in June and a validator with a 10% commission, HASH has an annual yield of 78 basis points.

Finally, as mentioned, HASH is not listed on centralized exchanges. During the quarter, the decentralized limit order book dlob.io was shut down and Figure Markets began providing access to HASH.

Let’s dive a bit deeper into fees. The protocol is running at more than $1.7 million on an annualized basis. Revenue is collected from a mix of gas, message and third party fees.

On this slide we show a visualization of the blockchain asset servicing lifecycle and we detail which fees can be charged at each step. Although each capability is vital to creating and servicing a digital asset, there are clearly both lower value and higher value operations, and we segmented these into two colors, blue and black.

In blue we detail the steps needed to create a universal good control location by registering and ledgering digital assets. Like TradFi custodian banks and asset servicers, these are often lower value functions. Similarly, on Provenance Blockchain, these operations typically have low gas and messaging fees associated with them in order to encourage asset issuance.

In black, you’ll see the exchange functions that digital assets need to trade and settle. Like TradFi stock exchanges or Defi marketplaces like Uniswap or Aave, these high value functions have materially higher fees, often denominated in basis points of the transaction, relating to the use of smart contracts and modules.

To date, more than $30 billion of assets have been created on Provenance Blockchain and nearly all the fees the protocol has earned have been from registering and ledgering - the “Blue” fees. These assets are the foundation of the network and fees are growing consistently but even at size, the fees are intentionally modest.

The real value accretion comes to the network when all these financial assets are funded in digital currency, transacted and settled directly on chain. The Provenance Blockchain Foundation has been working diligently with asset owners and its build partners, particularly Figure Markets, to jump start these attributes over the next few quarters.

When we get there, and assets are created, serviced and settled digitally, we’ll see the entire asset servicing lifecycle spin. Fees will climb materially and importantly, we will have disintermediated traditional financial servicers, lowered costs for investors and borrowers, and reshaped the financial markets for the modern age.

This may also be a good opportunity to provide an overview on HASH ownership. Using a strict reading of Coinmetrics’ CMBI Free Float methodology, HASH has a free float of just over 9.5%, or $171 million dollars. If we modify the methodology to include accounts that have never transacted, which we believe are the largely institutionally oriented, original allocations, we can add another 20.8%, giving Provenance Blockchain an adjusted free float of 30.3% or $540 million as evidenced here in the combined yellow segments.

In the blue, you’ll see 57.7% of outstanding HASH is controlled by Figure Asset Corp, including a 4.7% bonded position. A further 5.6% is held by the Provenance Blockchain Foundation, with 2.1% bonded. The remaining 6.4% is bonded by the community.

So any discussion of HASH needs to take into account accessibility and liquidity. Without listing on CEXs and DEXs, HASH simply hasn’t been broadly known or broadly accessible, and with the limited free float and lack of sellers, there is low liquidity. We get a lot of questions on how we’re planning to address these issues.

Having fulfilled its mission of becoming the leading public Layer 1 for financial services, the Provenance Blockchain Foundation and HASH are now ready for their next acts and this timeline shows several of the important initiatives we’re working towards

As we discussed, Figure Markets is now trading HASH-USD and HASH-USDC pairs and in the coming weeks and months, they’ll roll out broader availability and proper market making on the platform.

As you’ve heard, we’re currently spinning out ProvLabs to expand the Provenance Blockchain network broadly beyond Figure’s industry defining use cases. We’ll get this completed early in the third quarter and we’ll unpack this more shortly.

We’re actively recruiting my successor to run the next iteration of the Foundation and the job description is now up on the Provenance website, so please encourage any appropriate candidates to apply. We’re looking to have the new Executive Director in place during the fourth quarter and we’ll look to them to actively promote the RWA narrative and focus on broad adoption and utilization within financial services.

Concurrent to all this, the Foundation is actively exploring options for reincorporating into an offshore jurisdiction. The rapidly evolving global regulatory environment keeps us on our toes and ensuring the Foundation has the most appropriate corporate structure is an important component of our strategic plan.

Finally, in the coming quarters, we’ll significantly increase education, visibility and awareness of the protocol’s performance, size, and RWA dominance among the TradFi and DeFi communities.

As mentioned we’re gearing up for the formal launch of ProvLabs. We have recently appointed co-lead investors for the ProvLabs seed round and we are in the process of bringing several new investors onto the cap table and into the Provenance ecosystem.

We’re excited about ProvLabs in part because it's the clearest path to grow the Provenance Blockchain in the broader TradFi and DeFi communities. The team is taking the technology and the lessons learned from Figure Technology Solutions and Figure Markets, and building a unified platform of foundational infrastructure SaaS specifically designed to help financial services firms deploy assets at scale.

On launch, we’re focused on three distinct use cases:

1. Funds. The fund tokenization industry is full of noise right now and relatively large flows are being driven by crypto-oriented firms moving their own treasuries from traditional financial money market funds into tokenized money market funds. The projects are getting a lot of press, which is good for the industry in general, but the flows aren’t sustainable and many of the fund structures are digital twins that don’t offer a clear blockchain value proposition compared to their TradFi peers. ProvLabs will soon announce a differentiated end-to-end tokenization, administration, listing, distribution and lending solution for fund managers seeking to tokenize assets.. The Provenance solution will be unique in that it will be the only known platform to offer the capability to perfect ownership of fund positions and use them as collateral for a loan. Our solution uses the unique power of Provenance Blockchain - namely in wallet escrow and ownership perfection - and will help bring billions of dollars of fund assets on chain in the short to medium term.
2. The next use case is securitization. This platform closely follows the Figure Technology Solutions' (FTS) model where credit assets are individually originated chain, warehoused and securitized. FTS’s Provenance Blockchain based workflow saves over 100 basis points per loan for HELOCs and ProvLabs will help roll it out broadly. We have customers planning to bring aircraft leases, auto loans and other asset classes soon.
3. The third vertical is centered on payments and receivables. We’re working with several platforms that want to replace trust with truth and enable instant bilateral settlement to remake tradFi businesses from travel to health care to entertainment.

ProvLabs has a bright future and this community has been remarkable in the sheer number of asset issuers and builders they have introduced to us. Please keep them coming!

ProvLabs products are structured around AssetManager, an intuitive and comprehensive SaaS platform for tokenizing and managing the complete lifecycle of a financial asset on Provenance Blockchain.

The Foundation continues its focus on ensuring that a wide variety of institutional-grade services and tools are available to asset issuers. We help integrate several each quarter, and I think Provenance Blockchain currently has the most robust and comprehensive rail of financial service providers for RWAs of any blockchain network. Among others this past quarter, we collaborated with Cordial Systems, Sonarverse, Range, and RWA.xyz to help ensure Provenance Blockchain is supported. Additionally, we collaborated with infineo to announce their use of Provenance Blockchain to tokenize and transact life insurance policies. A first ever. A big welcome to all of those new to the ecosystem!

Next, transitioning to our efforts to drive awareness for Provenance Blockchain. This past quarter, we saw a 51% quarter over quarter increase in media coverage and mentions, which resulted in a reach of over 1.2 billion viewers.

This activity kept the team very busy.

1. On the publication and broadcast front, Anthony Moro appeared three times on broadcast, and we continued to see ongoing written coverage from journalists. I’ve included a few logos on the slide, but the list stretches on.
2. Ira Miller, Collin Sellers, and Anthony each participated in podcasts and X Space events, including some sponsored by ecosystem participants, such as IBC’s RWA series, Inveniam’s Capital Markets series, and an RWA World Spaces event with Wolf Financial. To those ecosystem participants, we very much appreciate the inclusion of Provenance Blockchain.
3. Lastly, we kept Anthony busy at several events, such as joining GBBC’s CEO, Sandra Ro, for the closing keynote at Woman’s Digital Asset Forum, and joining the Security Token Markets’ team at Tokenize This 2024. Our Advisor, Clare Francis also made a couple of appearances in Europe, including a panel discussion at the Financial Times Crypto & Digital Asset Summit in London.

We would like to thank the ecosystem participants who liked and shared our social media content. Your support is very important to helping spread the news about what’s happening on Provenance Blockchain.

For Q2 the engineering team has been focused on improving the performance, stability, and transparency of the protocol. These efforts have been focused in three different areas.

1. First the protocol has received numerous updates to incorporate the latest versions of many upstream dependencies. We anticipate these updates will allow the protocol to remain stable for the next year.
2. Second, the protocol has been enhanced with expanded asset valuation data. Including this data directly within the blockchain is an important step for data aggregators that syndicate valuation data for various media outlets and websites.
3. Third, the engineering team has focused on improving our infrastructure with measurement and monitoring metrics. These metrics will be used to quantify our efforts to enhance protocol reliability and performance.

One of the best examples of how asset valuation data within the protocol is changing the narrative around Provenance Blockchain is with the launch of the Private Credit reporting within RWA.xyz mentioned earlier. Overnight the Provenance Blockchain assets materially changed the story when they were aggregated alongside the rest of the industry.

Based on feedback from several data aggregators such as Allium, Sonarverse, and more, the engineering team has worked to make additional data accessible and offer a more complete RWA dataset. This allows the aggregators to tell our story through results written into the blockchain.

When comparing the current version 1.19 performance to our network from a year ago there are a couple of noticeable differences.

1. Last year the validator set frequently reported missed blocks, often with the same block being missed across many different validators.
2. Block times were slowly trending upward to over 5.2-5.5 seconds
3. Despite several attempts by the community to adjust validator configuration or setup there was limited success in addressing overall performance.
4. Post 1.19 we have seen a significant reduction in missed blocks from all validators. This is despite blocktimes being cut by 20% (from 5s to 4s). A blocktime reduction is a direct increase in the capacity of the network with more blocks and more gas available for use.

In order to continue to improve the network a comprehensive set of monitoring and metric collection has been implemented, both within nodes run by the Foundation and participating third party validators. These metrics are published on a public dashboard for the community's benefit.

These metrics will baseline future changes to ensure we can continue to deliver a high performance and reliable network as the use cases grow over time.

In closing, we hope this Q2 2024 quarterly update provided a strong understanding of where the Foundation has had their focus, and what the roadmap looks like for the months ahead.

Connect with us on email, Telegram, X or LinkedIn with your feedback, your ideas, and most importantly your introductions to potential asset issuers, validators and partners. We’re building the new operating system for financial services and we have real momentum. It’s incredibly exciting for us, and we hope it is for you too.