Comprehensive Analysis of Fantom: Operating Mechanism, Token Scenarios, and Ecological Status

Original Author: Khor Win Win

Original Title: 《Fantom & FTM Token Explained: Why Is It So Unique?》

Compiled by: Li Zeyi, Chain Catcher

After the cryptocurrency crash in May 2021, we witnessed the rise of various EVM-compatible blockchains, such as Binance Smart Chain and Matic, attracting more users than ever with incredibly fast transactions and lower fees. Fantom is no exception, drawing both veterans and newcomers to its blockchain with a variety of Halloween-themed dApps.

Since announcing their 370 million FTM incentive program last August, valued at approximately $850 million at current prices, builders and innovators have flocked to the Fantom blockchain, with many interesting projects emerging to cater to the existing broad user base. Yearn's founder, Andre Cronje, has also made his preference for Fantom widely known, launching multiple projects there, such as the NFT marketplace Artion and his upcoming collaboration with Abracadabra's Daniele Sestagalli.

Although Cronje is currently part of the Fantom Foundation team, there must be other factors that have helped Fantom become the blockchain giant it is today. So, what exactly is Fantom, what makes it so special, and how does it compare to other decentralized networks?

1. What is Fantom? What makes it special?

Fantom is a scalable, decentralized smart contract platform that uses a PoS model to secure the network. The protocol was founded by the Fantom Foundation in 2018 and utilizes its proprietary Lachesis consensus mechanism, which can support multiple blockchain layers on top of it. The foundation consists of a group of dedicated engineers and researchers aiming to introduce more scalable, secure, and decentralized infrastructure through Fantom and promote its adoption. Experimental data from the foundation indicates that the consensus engine can process up to 10,000 transactions per second, not considering the execution speed of confirming transactions.

The Lachesis protocol allows the network to achieve consensus using asynchronous Byzantine fault tolerance (aBFT). In other words, it is similar to networks that adopt Byzantine fault tolerance, where the network can still be trusted to verify and produce blocks in the correct order and time, even if one-third of the nodes are malicious.

The "asynchronous" part means that nodes can process and relay information at different times. Therefore, aBFT networks allow for some information loss or indefinite delays. Although identifying bad actors becomes more challenging if information can be indefinitely delayed, it demonstrates the network's reliability and practicality in a more realistic environment.

As mentioned earlier, many different networks and execution layers can be built on top of Fantom, which is centered around Lachesis, to provide consensus and security. The first of these layers is called Opera, launched on December 27, 2019, which is a first-layer smart contract platform compatible with the Ethereum Virtual Machine (EVM). It allows developers to create various decentralized applications or port them from Ethereum or other EVM-compatible networks (such as Polygon or Binance Smart Chain). As of February 9, the Opera mainnet has over $8.7 billion in funds and hosts more than 150 different applications.

Image Source: DeFiLlama

Similarly, Opera uses a PoS model, and transactions are typically completed within 1 to 2 seconds. In traditional PoS blockchains, some validators decide which transactions are valid, chosen either randomly or based on total stake, but Opera is not like that. The network is designed to be completely leaderless, so the validity of transactions is not solely controlled by any specific group of validators.

2. What are the uses of the FTM token?

Like most Layer-1 blockchains, Fantom has its own FTM token, which has multiple uses within the ecosystem. For example, every transaction on the Opera mainnet, whether minting an NFT or deploying a smart contract, requires users to pay network fees in FTM. However, these fees are usually very low, with a simple swap transaction costing as little as 0.02 FTM. So, what else can we do with the FTM token?

1. Securing network security

FTM token holders can choose to delegate their tokens to validators or become validators themselves to secure the network. Before delegating your tokens, you need to stake them. To start staking, you need at least 1 FTM, and you can choose to lock your tokens for a fixed period ranging from 2 weeks to 365 days. The longer the lock-up period, the higher the return rate. Then, stakers can choose which validator to delegate their tokens to, but there is a fixed delegation fee of 15% paid to the specific validator.

To become a validator, you need to stake at least 500,000 FTM tokens and have the necessary hardware to run a validator node. Specifically, you need at least 4 virtual CPUs running at 3.1GHz and 3TB of storage space. However, there is an ongoing proposal to reduce the required number of FTM tokens. In addition to earning rewards based on their staked amount, validators also receive an additional 15% return from their delegators.

Even after FTM tokens are staked, users can still fully utilize their assets on the network through Fantom's Liquid Staking solution. FTM stakers can mint an equivalent amount of staked FTM (sFTM), which can be used in other applications that support it on Fantom. Additionally, there are no longer any minting and redemption fees.

2. Voting for change

Like most native tokens of decentralized protocols, FTM is an important part of the governance process, allowing FTM holders to propose and vote on changes to the blockchain network. However, unlike other applications, voting is done entirely on-chain, with 1 FTM equating to 1 vote, and it is only open to delegators and validators. Stakers can also submit on-chain proposals, with a fee of 100 FTM, which will be burned upon submission.

Fantom provides voters with a more flexible approach, allowing them to answer with a simple yes or no, or choose the degree of agreement with each solution in the proposal. In other words, voters can choose to agree with all proposed solutions but with varying degrees of agreement, rated from 0 to 4. "0" means completely disagree, while "4" represents complete agreement.

3. DeFi

FTM can be traded on most major centralized and decentralized exchanges, such as Binance and Uniswap. Additionally, FTM can also be used on Ethereum and Binance Chain as ERC-20 and BEP-2 tokens, respectively. Therefore, it has high liquidity and is widely supported by many native applications on the Fantom blockchain as well as other blockchains.

For example, token holders can over-collateralize their FTM tokens on Geist to borrow other assets. Furthermore, FTM is also used as the base asset for different liquidity pools on many native exchanges on Fantom. Holders can provide liquidity in combination with another asset to earn token rewards from these platforms.

3. The Fantom Ecosystem

Although the projects currently launched on Fantom are often related to ghost elements, Fantom is far from being called a "ghost chain." Fantom has a robust ecosystem with over 100 projects launched and a total value locked (TVL) exceeding $10 billion, providing permissionless applications for DeFi, NFT, and GameFi enthusiasts.

While most of these platforms are native to Fantom, characterized by names related to mysticism, such as Spookyswap and Spiritswap, projects from other alternative chains have already bridged their services to attract more liquidity and users. Popular examples include Sushiswap and Curve, both of which first gained prominence on Ethereum. In this section, we will take a closer look at some popular and upcoming projects on the Fantom blockchain.

1. Scream

Scream evokes memories of popular horror movie series; it is a decentralized lending protocol that allows users to lend their tokens for rewards. Depositors can also obtain leverage in the form of other assets by using their deposits as collateral.

Similar to other existing lending protocols, such as Aave or Compound, lenders will receive interest-bearing scTokens, such as scBTC or scUSDC, representing their share of total deposits in that specific asset. Depending on the number and type of scTokens received, users can borrow a specific amount of another asset.

In addition to lending, users can stake the protocol's governance token SCREAM for additional rewards. Staked SCREAM, or xSCREAM, rewards holders with 0.5% of the farming deposit fee and a 10% harvest fee, which are redistributed in the form of more SCREAM. In short, stake some SCREAM to earn more SCREAM.

2. SpookySwap

To align with Fantom's "ghost" atmosphere, SpookySwap is one of the earliest decentralized exchanges (DEX) on the network. Like Sushiswap or Uniswap on Ethereum, it operates using an automated market maker (AMM), allowing users to seamlessly swap their tokens through liquidity pools. For each transaction, users pay a 0.2% transaction fee, of which 0.17% goes to liquidity providers, and the remainder is distributed to stakers of the platform's governance token BOO.

Liquidity providers (LP) receive spLP tokens based on their share of deposits in a specific liquidity pair. While providing liquidity, they can not only earn transaction fees but also stake the spLP tokens received in SpookySwap's own farming yield pools to earn more BOO rewards.

As mentioned earlier, BOO can also be staked and converted into xBOO, which will continue to accumulate more BOO through the use of repurchased transaction fees. But that's not all, as your xBOO can further be staked in other pools to earn various tokens of your choice.

3. Yearn Finance

As one of the original DeFi protocols that gained immense popularity on Ethereum at the end of 2020, Yearn Finance has once again taken the spotlight on Fantom, becoming one of the top three protocols with a total value locked exceeding $1 billion. For those unfamiliar, Yearn primarily serves as a yield aggregator, designed to provide depositors with the highest yields through automated strategies using various tokens. However, the platform also has other products, such as Iron Bank, which allows users to borrow assets.

Yearn's core product is their yVaults, which are designed to automatically generate the highest yields based on current market opportunities. A summary of the strategy for each vault is available and varies by asset. For example, a typical strategy is to fund other lending platforms to earn token rewards. The earned tokens are then sold back in exchange for more of the original asset and added back to the vault.

Typically, these strategies require manually executing many transactions, incurring transaction costs at each step of the process. However, the vault now takes care of all the work, allowing yield farmers to share gas fee costs and shift between more profitable strategies.

After depositing, users will receive yVault tokens, depending on the pool they entered. For example, depositors in the USDC vault will receive yvUSDC tokens. These tokens represent the user's share in the yVault, and as long as the fund pool remains profitable, they can be used to claim an increasing share of the related assets over time. In other words, depositors do nothing, and their assets will continue to grow over time.

4. Solidly

In the eyes of Yearn's founder Andre Cronje, Solidly is a newly launched DEX on Fantom aimed at facilitating low-slippage trading of stablecoins and other tokens. The platform plans to introduce various new features designed to align incentives with those offered by other existing DeFi protocols.

Solidly introduces the concept of ve(3,3) lockers, where lockers are responsible for voting to determine which liquidity pools receive more incentives. The fees earned by selected pools are transferred to the ve(3,3) lockers but are only distributed to participants who voted for those specific pools. In short, the rewards of liquidity pools are entirely allocated to actual supporters, without being diluted by non-aligned participants.

Although the exchange's token SOLID has not yet been launched, Andre has planned to snapshot the top 20 protocols on Fantom, with the protocols having the highest TVL being the main recipients. Following the announcement, users from other chains rushed back to Fantom; multiple projects from various aspects of DeFi rallied their communities to ensure they became one of the few selected.

Amid all the chaos, protocols like veDAO and 0xDAO were even established solely for the purpose of selection. When the dust settled, 25 protocols were ultimately chosen, each receiving a veNFT representing their share of the locked SOLID token allocation to users. According to Andre's latest news, the token issuance will begin on February 17.

While these are just a portion of the many protocols on Fantom, there are still numerous compelling projects on the network, each catering to specific user groups, even just for casual cryptocurrency enthusiasts. Here are some of them.

4.1 PaintSwap

PaintSwap is a DEX and NFT marketplace where users can create and sell their works for FTM or the platform's native token BRUSH. The sales fees on the platform are used to buy back and burn BRUSH.

4.2 Ancestral Umans

Ancestral Umans, with a spiritual and somewhat ethereal aesthetic, is a collection of 3,000 NFTs on the Fantom blockchain featuring members of various species. According to the legends established by the creators, they are considered the ancestors of the Umans currently on Ethereum.

4.3 Fantums

Fantums, featuring 10,860 ghostly image symbols, is an NFT collection on Fantom where owners can duel with their Fantums to earn the project's FOO token. Each player pays 100 FOO before the battle, and the loot goes to the victor. But be careful, as most Fantums killed in battle will be lost forever!

4. Fantom vs. Solana vs. Ethereum

Now that we have delved into the inner workings of the Fantom blockchain, it is clear that the Opera mainnet seems to be more than just a typical EVM implementation. With its unique features and explosive growth during the multi-chain hype of 2021, it has attracted quite a number of minimalists. But how does it actually compare to other smart contract platforms like Ethereum and Solana?

Table Source: CoinGecko Research

While Solana and Fantom are comparable in terms of speed and TVL, Fantom's EVM approach through its Opera mainnet makes it easier for users to bridge and use native applications. Additionally, existing projects with good reputations and followings can easily port their applications to Fantom, providing users with an experience similar to Ethereum but at much lower transaction costs. This offers more opportunities for yield farmers with limited funds.

While the number of validators securing the Fantom blockchain is noteworthy, having too many validators, especially those with inadequate equipment, will only degrade the network's performance. Although Solana has over 1,400 validators, the network has suffered multiple outages, some lasting up to 48 hours.

5. Conclusion

Fantom has quickly risen from humble beginnings to become one of the most popular blockchains in the field. Supported by its proprietary Lachesis consensus mechanism and generous incentive programs, their Opera mainnet now hosts a large number of dApps spanning multiple disciplines within an ever-expanding ecosystem. However, Fantom's consensus algorithm can also adapt to the Cosmos SDK, meaning its long-term goal still exists—becoming a network of multiple networks.

With lightning-fast transaction times and extremely low fees, it is easy to see why Fantom and other alternative chains are rapidly becoming the preferred networks for many newcomers. Imagine being able to try different Ethereum-based applications like Sushiswap or Yearn without any high gas fees! That’s great.

However, the recent rise of Layer-2 rollups, such as Optimism, Arbitrum, and even zkSync, may cast some doubt on the longevity of alternative Layer-1 blockchains. With the emergence of these new scaling solutions, will Fantom gradually fade from view? Well, if more interoperable networks are built on top of Fantom, it could solidify Fantom as a hub for many different projects, each with its own blockchain to meet the demands of the masses.