Watch a summary of this analysis on YouTube
ADA development began in 2015. A token presale raising US$62 million occurred in Asia, mainly Japan, from September 2015 to January 2017, where a total of 26 billion tokens were sold at US$0.0024 each. Public trading of the tokens began on October 1st, 2017. There is a hard cap of 45 billion ADA tokens, 13.88 billion of which will be issued through staking rewards.
Source: IOHK Blog
The team initially included three conglomerates which held 5.18 billion ADA between them; the Cardano Foundation which aimed to standardize, protect, and promote ADA; Emurgo which aimed to develop, support, and incubate commercial ventures; and Input Output Hong Kong (IOHK), founded in 2015 by Charles Hoskinson and Jeremy Wood. IOHK also works on Ethereum Classic development and focuses on research and development in cryptography and distributed systems.
In October 2018, IOHK released a detailed blog post explaining several issues IOHK and Emurgo have had with the Cardano Foundation, including lack of strategic vision or plan, lack of transparency regarding operations, and misrepresentation of the Cardano trademark. Several members of the Cardano Foundation have since been replaced after restructuring in December 2018.
Earlier this year, the Cardano Foundation announced legal proceedings initiated by Z/Yen Group Limited. According to the post, “The proceedings relate to an alleged agreement between the Z/Yen Group Limited and the Cardano Foundation dated July 2017. The Cardano Foundation voided/terminated the agreement for various reasons. The Cardano Foundation fully rejects the claims raised by the Z/Yen Group Limited. Due to the ongoing nature of this judiciary process, no further information will be given while proceedings are in progress.”
In November 2018, Hoskinson announced IOHK would be leaving Hong Kong and incorporating in Wyoming. Then in February 2020, IOHK donated US$500,000 to the University of Wyoming and established a Cardano research lab, which will focus on writing code in ADA’s smart-contract language. The lab is also said to be designing a hardware tool for authentication and anti-counterfeit measures on Cardano. Hoskinson also mentioned future work with BeefChain, a livestock traceability platform, according to CoinDesk.
In September 2019, Hoskinson announced a partnership with the New Balance shoe company to authenticate counterfeit goods. Despite teasing the news before an official announcement, an official press release from New Balance regarding the matter could not be obtained. Other reported partnerships include Polymath, StudEx, ScanTrust, Finkda Advisors, Dust Identity, PriceWaterhouseCoopers, the Priviledge Project, the government of Ethiopia, and the Berkman Klein Center of Harvard University
The ADA development roadmap includes five distinct phases; Byron, Shelley, Goguen, Basho, and Voltaire with three eras; testnet, bootstrap, and reward. Although currently in the bootstrap era, development occurs concurrently between all five phases.
The blockchain will eventually have two layers, the Cardano Settlement Layer (CSL) and Cardano Computation Layer (CCL). The blockchain will also support two scripting languages, Simon and Plutus, as well as sidechains. Currently, all ADA nodes are controlled by IOHK, Emurgo, and the Cardano Foundation, in a centralized manner.
Cardano 1.5.0 Mainnet was released in March 2019. Allowing for support of ADA’s consensus algorithm Ourobouros, which uses Byzantine Fault Tolerant-Proof of Stake (BFT-PoS). PoS allows for social consensus and decentralized governance, as well as secure voting on peer-reviewed protocol proposals with a decentralized treasury to fund those proposals, similar to EOS (EOS), Tezos (XTZ), Dash (DASH), Decred (DCR), and PIVX (PIVX).
A quick comparison between coins using a staking mechanism shows ADA first in market cap, total daily transaction volume, and git commits on all repos over the past year. ADA is towards the middle and rear of the pack in total daily fees, transactions per day, and daily active addresses. EOS was excluded from the on-chain data comparison due to a lack of currently available reliable on-chain data.
A Shelley testnet launched in June 2019 with a Shelley Incentivized Testnet (ITN) launch in December 2019. The ITN allowed users to delegate ADA to various stake pools in the Daedalus or Yoroi wallet. After the implementation of the Shelley, currently live, earned staking rewards will be transferred to the mainnet. The network will also then rely on consensus through PoS rather than nodes controlled by IOHK, Emurgo, and the Cardano Foundation.
Earlier this year, IOHK announced dates moving forward with the Shelley release, which included the hard fork on July 29th. ITN rewards will become available on August 3rd and the first mainnet staking rewards began on August 18th. The plan towards full network decentralization includes a progressive reliance on nodes in the staking pool, not nodes run exclusively by IOHK
Source: IOHK blog
Time on the Cardano blockchain is divided into epochs and slots. A slot has a 20-second duration, while an epoch contains 21,600 slots, or five days in total. Stake pools will earn transaction fees and a share of the 13.88 billion ADA earmarked for staking rewards.
According to adapools.org, there are currently 1,188 active pools with 16 billion ADA being staked, representing 52.7% of the circulating supply. At US$1.69 billion notional, total value being staked on ADA ranks 2nd, only behind Polkadot (DOT) with a reported US$2.64 billion staked. Tezos (XTZ), EOS (EOS), and Algorand (ALGO), and Cosmos (ATOM) also all have an over US$1 billion staked.
Subsequent protocol updates have also recently included a complete redesign of Byron, in preparation for the Shelley mainnet release. On February 12th, the CSL completed an architecture redesign of the Cardano Node and the Cardano Explorer Backend and Web API. Ourobouros was also updated on February 20th, allowing for core node migration.
Source: IOHK Blog
Turning to developer activity, the ADA project on GitHub has 303 repos, over 15 of which have been highly active in the past 90 days. Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.
Source: GitHub – input-output-hk/cardano-ledger-specs
Source: GitHub – input-output-hk/cardano-node
On the network, the total number of transactions per week (red line, chart below) had ranged between 1,000 and 4,000 since April 2018. Transactions per week nearly quadrupled from January to February this year and reached 9,100 on August 4th. On July 30th, transactions per day reached a new all-time high of 18,500. Since August, this on-chain activity has declined substantially, returning to the previous range of 1,000 to 4,000.
Since 2018, average transaction values per day (green fill, chart below) decreased dramatically to below US$10,000. In May, average transaction values per day began to rise and recently hit a multi-month high of US$550,000. The causes for a spike in average transaction values in March and July 2018 are unclear, but likely related to large holders splitting coins between wallets and not necessarily economic value transfer.
The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has decreased to 5 representing a new all-time low. This decrease coincides with the mass chain migration to PoS and does not necessarily represent organic on-chain day-to-day activity.
Inflection points in NVT can be leading indicators of a reversal in an asset’s value. An NVT held below 30 should signify bullish market conditions. A clear uptrend in NVT suggests a coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator, whereas a downtrend in NVT suggests the opposite.
Monthly active addresses (fill, chart below) have increased substantially since the beginning of the year, recently hitting a new monthly all-time high just under 20,000. Daily active addresses hit an all-time high of 70,000 in July, likely related to the hard fork and chain migration. Since late July, active addresses have decreased to under 10,000, returning to the previous range.
Active and unique addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law. The data for total unique addresses could not be obtained. The top 100 addresses on the network currently hold 35% of the circulating supply.
With the full release of the PoS network and rise in ADA token price, Google Trends data for the term "Cardano" increased to two year highs over the past few months. However, since August, this surge in searches has decreased substantially, back to the previous range. The increase in 2017 likely signaled a large swath of new market participants at that time. A 2015 study found a strong correlation between the Google Trends data and Bitcoin price, while a 2017 study concluded that when the U.S. Google "bitcoin" searches increase dramatically, Bitcoin price drops.
Potential roadmaps for upcoming price movements can be found on high timeframes using Exponential Moving Averages, volume profiles, Pivot Points, and Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.
On the ADA/USD daily chart, the 50-day Exponential Moving Averages (EMA) and 200-day EMA bullishly crossed on May 16th. The key EMA cross is typically a strong indication of continued bullish momentum to follow, with the 200-day EMA and yearly pivot at US$0.091. Significant volume support (horizontal bars, chart below) also sits at the US$0.078 – US$0.090 zone, with upside resistance at US$0.146 and US$0.177 based on yearly pivots. Price began the correction shortly after staking rewards were released on August 18th.
Turning to the Ichimoku Cloud, four metrics are used to indicate if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30), for more accurate signals, are bearish; the spot price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and above the current spot price. The trend will remain bearish so long as price remains below Cloud.
For the ADA/BTC pair, the daily chart shows bearish trend metrics with price sitting near the 200-day EMA and below the daily Cloud. A long entry will not be prudent until price returns above the daily Cloud. Upside VPVR resistance sits at 1,100 with downside support at 600 sats. Additionally, there are no bullish divergences on volume and RSI to suggest weakening bearish momentum.
After years in development, Cardano has recently enabled a staking testnet and mainnet, Shelley. If a mainnet launch with staking is successful, exchange listings and exchange staking pools will continue to follow. Multiple additional phases of future protocol upgrades are also being released concurrently over time, with a very active development team relative to other blockchains. On-chain fundamentals and Google Trends have increased and decreased dramatically over the past few months, along with the rise and fall in token price.
Technicals for both the ADA/USD and ADA/BTC pairs are bearish. Trend metrics show both pairs near the 200-day EMA but below the daily Cloud. A long trade is not prudent for either trade until the spot price sits above both key metrics. Strong upside resistance sits at US$0.16 and 1,100 sats for ADA/USD and ADA/BTC respectively.
Over the next few months, ADA will also be competing with ETH 2.0 phase 0, Bitcoin’s 1.8% inflation rate, and a myriad of new generation PoS coins. The over 31 billion ADA circulating supply and continued staking rewards will likely hamper any sustained bullish rallies in the near term.