Covalent Expands Network, Launches CQT Buyback Program

In Q1 2024, Covalent's network growth remained strong, with staked CQT increasing from 22% to 29% despite a 20% supply increase. The CQT market cap reached $275 million multiple times, ending the quarter at $199 million. Covalent announced revenue-sharing plans, implementing a CQT buyback program in January, repurchased 219,000 CQT by Q1 end. Additionally, the Ethereum Wayback Machine (EWM) was launched, supporting data availability for Ethereum history, and the network operator set expanded by decentralizing the Block Results Producer (BRP) and adding more validators to the Block Specimen Producer (BSP).

Covalent: A Comprehensive Network Enhancing Blockchain Data Accessibility

Key Insights

• The percentage of staked CQT surged from 22% in Q1 2023 to 29% in Q1 2024, despite a 20% increase in circulating supply.
• CQT market capitalization surged 28% quarter-over-quarter, reaching $275 million multiple times before settling at $199 million in Q1.
• Covalent announced plans for a future revenue-sharing model and implemented a buyback program, repurchasing 219,000 CQT by the end of Q1.
• In Q4, Covalent launched the Ethereum Wayback Machine (EWM), a solution for preserving historical Ethereum data.
• Covalent expanded its network operator set by decentralizing the Block Results Producer (BRP) role and adding validators to the Block Specimen Producer (BSP) set in Q3 2023.

Key Metrics

Performance Analysis

Network

Covalent's robust infrastructure caters to hundreds of enterprise and thousands of crypto industry clients, providing access to structured blockchain data. Its user base includes traditional finance and consulting firms, AI applications, DeFi platforms, and investment tools. Notable clients include Fidelity, EY, Consensys, Matcha, Rainbow Wallet, and CoinLedger. To deliver this data, Covalent extracts, transforms, and enriches raw blockchain data.

Staked CQT

Covalent's "Stake-for-Access" model allows network operators (BSPs and BRPs) to stake CQT to participate in network operations. Staking parameters, including minimum and maximum values, ensure CQT distribution among operators. BSPs have a minimum stake of 175,000 CQT and a maximum of 350,000 CQT, while BRPs have a minimum stake of 35,000 CQT and a maximum of 70,000 CQT without delegation. Covalent has migrated its staking contract from Moonbeam to Ethereum.

Despite a 20% increase in circulating supply, the percentage of staked CQT grew from 22% in Q1 2023 to 29% in Q1 2024. The addition of the BRP role in mid-August 2023 enabled more operators to stake CQT. However, BRP nodes account for less than 0.3% of staked CQT. The growth in staked CQT can be attributed to a 9% year-over-year increase in active delegators and the addition of two BSPs in Q3 2023, increasing stake capacity by 19.6 million CQT.

Financial

Market Cap

CQT market capitalization increased 28% quarter-over-quarter, reaching $275 million several times before settling at $199 million in Q1. Since the introduction of the BRP role and the addition of two operators in mid-August 2023, CQT price has risen 232%, compared to a 132% increase in the broader market. While the BRP role had a minimal impact on staked CQT, the addition of two BSPs increased stake capacity by 19.6 million CQT, reducing tradable CQT and driving upward pressure on the asset price.

In late January, Covalent launched a CQT buyback program. Although only 219,000 CQT were repurchased by the end of Q1, this program establishes a foundation for linking network demand to increased CQT buying pressure. As API query demand increases, Covalent's revenue will grow, enabling further buybacks with additional revenue.

Qualitative Analysis

Ethereum Wayback Machine

In Q4, Covalent introduced the Ethereum Wayback Machine (EWM), a long-term data availability solution for historical Ethereum data. It addresses Ethereum's state expiry issue, which could lead to performance degradation, high storage costs, and prolonged synchronization times for nodes.

Covalent's EWM permanently stores blob data, providing a verifiable layer for archiving rollup history. Beyond archival purposes, the EWM supports applications ranging from compliance to AI model training.

AI Use Cases

Covalent's structured data powers a wide range of applications, including taxation tools (CoinLedger), investor dashboards (Consensys), and user wallets (Rainbow). Artificial intelligence (AI) is an emerging data consumer well-suited for Covalent's data infrastructure products. To attract AI talent, Covalent has provided grants to AI projects that utilize its data in their applications.

SmartWhales: An on-chain copy-trading platform enabling investors to follow DEX traders and automate trades.

BotFi: A protocol facilitating automated DeFi tasks such as copy trading, dollar cost averaging, and limit order scheduling. It also offers an AI token screener and other tools to enhance DEX trading.

Laika AI: A browser extension providing on-chain analytics, token contract analysis, wallet tracking, and AI alerts for on-chain activity.

Entendre Finance: An AI accounting tool for aggregating on-chain activity across platforms, automating transaction tracking, analysis, and record-keeping.

Closing Summary

Covalent has made significant strides since Messari's last report in Q4 2022. It has expanded support to over 225 blockchains, decentralized another layer in its supply-side operations, launched the GoldRush developer kit, implemented a CQT buyback program, and announced the Ethereum Wayback Machine. As we approach the remainder of 2024 and beyond, Covalent is well-positioned to increase its API usage while continuously enhancing its protocol in the next market cycle.