What is Fantom (FTM): The DeFi platform is well and truly alive
In an increasingly busy market, Fantom’s high adoption rates and impressive features stand out
Contents
- Analysis of consensus on Fantom
- How secure is Fantom?
- Governance on Fantom
- Should I become a Fantom validator?
- Should I stake my FTM?
- How fast and how cheap is FTM?
- Some quick tokenomics
- Where is Fantom going next?
- FAQs
Fantom (FTM), released to the public in 2018 by the South Korean computer scientist Dr Ahn Byung Ik, is one of an ever-increasing number of smart contract solutions entering the market for the deployment of digital assets and dApps (decentralised applications).
Through its innovative technology stack, Fantom aims to deliver scalability, security and decentralisation – the infamous ‘blockchain trilemma’.
Despite fierce competition, Fantom has managed to make a reputation for itself in recent years thanks to impressive uptake, with more than 100 dApps already deployed on the Fantom network. The largest of these, SpookySwap, has a total locked value of $128.29m. In total, there is close to $938.35bn in value locked across all of Fantom’s projects.
The strong set of use cases and sophisticated architecture may put Fantom ahead of many of its competitors, but just how secure and efficient is it? Does it deliver on scalability and security? That is what we aim to explore in this article.
What is Fantom (FTM), how does Fantom work and what is the Fantom coin used for? Join us as we answer these questions and more.
Analysis of consensus on Fantom
Fantom designed its own Lachesis consensus protocol based on the asynchronous Byzantine Fault Tolerance (aBFT) algorithm. Coupled with the lightweight directed acyclic graph (DAG) ledger architecture, this stack aims to solve the classic ‘blockchain trilemma’ whereby decentralisation, security and scalability need to be traded off against each other to achieve functionality.
Any blockchain requires consensus to validate transactions: without validation, how could you trust the exchange of value? Many blockchains, including Bitcoin, use a proof-of-work (PoW) method, requiring hugely powerful rigs to calculate these transactions at scale (called mining). This method is famously energy-intensive, while transaction finality is more than 10 minutes.
Enter Lachesis. With Lachesis, validation is performed on each individual node (ie, the user executing a transaction) rather than relaying the processing requirement to a miner. This substantially reduces ledger weight, enabling much faster transaction times. DAG is what makes this possible, since with DAG, there is no shared global ledger. Rather, each user is responsible for their own processing power. The Nano digital currency also uses DAG.
But can nodes be trusted to do this? The answer is that they aren’t, entirely. Even though blocks of transactional data are not sent across the network for validation, the “event” of the transaction is. This packet of information, though, is considerably lighter than, for example, a Bitcoin block.
How secure is Fantom?
Lachesis still requires validators to secure the network, and this is done through the fairly common proof-of-stake (PoS) method. With PoS, token holders “stake” their coins to an available validator. The more tokens staked and the more validators operating, the more secure the network is.
Using FTMScan, we can see 87 validators currently operating, which is actually quite a small amount. To put that into context, Ethereum currently hosts more than 300,000 (though this number does fluctuate significantly) while the more modest Avalanche network hosts 1,324.
At the same time, Lachesis “supports one-third of faulty nodes including malicious behaviour”. This means that the system will fail if more than one-third of nodes fail or are attacked, a fair way below Ethereum’s cited 50% fault tolerance.
In February 2021, Fantom’s mainnet went dark for seven hours when the two largest validators stopped working. These two validators were big enough to represent one-third of all staked tokens, hence the breakdown.
Although no funds were at risk, it shows how Lachesis’s relative centralisation has its risks.
Governance on Fantom
Fantom introduced a governance system in early 2021, allowing all token holders to vote on network proposals.
Two of the earliest community proposals were to reimburse slashed returns for two validators, who had been penalised in 2020 for an undisclosed reason. This puts a question mark over Fantom’s penalty system: if penalties can be reversed through community activism, to what extent can this governance system be abused?
But other proposals show the benefits of governance. In March and September 2021, respectively, minimum staking requirements were slashed from three million FTM to one million FTM, then again to 500,000 FTM.
Lower staking requirements make it easier to become a validator, and more validators make for greater network security. In November 2021, another proposal was put forward to further reduce staking requirements, but failed. It seems that 500,000 FTM (roughly $141,000) is the sweet spot between access and culpability.
Should I become a Fantom validator?
As with most networks, Fantom (FTM) validators are rewarded with a monetary payout to encourage participation. Validators require 500,000 staked FTM as a bare minimum (typically a combination of a validator’s own FTM and delegated FTM from other users), with communities often assembled via Telegram and other social media sites.
But to be profitable requires more than this sum. For instance, the current largest validator, GoFantom (an enterprise reinvesting all rewards back into the Fantom project), has 196,443,814 FTM staked, which is 15.2% of all staked supply.
Fantom cites an APR of 13% for a validator’s own stake and 15% of all delegated rewards, though in reality that figure fluctuates dynamically depending on participation levels: higher participation means fewer rewards to be shared around. Data sourced from Staking Rewards suggest a true APR of 4.04%. That is still a healthy sum, however.
Daily reward payouts are currently FTM534,247 or $150,657 in fiat terms. Looking at the second-largest validator’s address, we can see a held value of $92,000 in fiat. So yes, there is evidently money to be made in being a validator. But remember, centralisation means that a large proportion of rewards go into the hands of a few.
Should I stake my FTM?
Anyone holding FTM can stake their wallet contents to a validator. There is no minimum requirement, and APY is proportional to the lock-up period. The base rate is 4% with no lock-up period required, rising to 13% should you lock up your stake for one year.
This is basically passive income, but do bear in mind that your funds cannot be withdrawn during your chosen lock-up period. Fantom does, however, offer a ‘Liquid Staking’ option whereby staked FTM can be used as collateral in Fantom Finance, Fantom’s own decentralised finance (DeFi) suite. Please note that any collateral must be paid back after a certain period, so be careful.
All of the above options are easily accessible through the Fantom fWallet, which appears extremely user-friendly, with a clean, fast interface.
Fantom’s dizzying array of staking options and user-friendly front-end design seems to be paying off. More than 60% of all held FTM tokens are currently being staked. That means over 60% of tokens are being deployed to help secure the network – an impressive sum.
How fast and how cheap is FTM?
Fantom originally touted a transaction per second (TPS) rate of 400,000, an incredibly high number that, inevitably, could not be achieved. Fantom seems to have removed any TPS data from its website, so the real TPS rate is anyone’s guess, though the lightweight DAG ledger is known to be good in this regard.
Of course, transaction finality is just as important as TPS, and FTM shines in this area. Since finality is linked to block time, we can see from the chart below that it takes less than one second to finalise an FTM transaction. Finality is kept down due to microscopic block sizes. The 4,000-byte block sizes seen in the chart are less than 0.004% the size of Bitcoin’s.
FTM coin also impresses when it comes to transaction fees. For instance, a recent on-chain transfer of FTM2,900 generated $0.06 in translation fees. Transaction fees might increase once staking rewards start being sourced from these fees.
Some quick tokenomics
FTM is currently trading at $0.28 as of 28 June 2022 at 09:50 BST (UTC+1). A circulating supply of 2.55 billion FTM coins makes for a market capitalisation of $736.2m, making the coin the 60th largest cryptocurrency by that metric, according to CoinMarketCap.
A recent 24-hour trading volume of $168.82m was 22.8% of market cap, indicating healthy trading activity.
The maximum supply of the Fantom cryptocurrency is 3.175 billion. In addition to the circulating supply of 2.55 billion, the remainder is reserved for staking rewards. Once full circulation is reached, rewards are set to be sourced from transaction fees.
Where is Fantom going next?
With a strong user uptake and locked value, it seems that Fantom has solid foundations for growth and will probably try to increase dApp development on its platform.
FTM is not tradeable on Coinbase, so the developers may try to increase its presence on the exchanges.
Finally, in terms of governance, there is a continual push to liberalise validator accessibility. Despite Fantom going a long way to reducing its centralisation issues, voter pushback persists. It will be interesting to see how this plays out in the long run.
FAQs
How many Fantom coins are there?
There are currently 2.55 billion FTM coins in circulation, against a maximum supply of 3.175 billion.
Is Fantom secure?
Fantom went dark for seven hours in February, as the two largest validators ceased operating. This put a spotlight on Fantom’s issues of centralisation, since it only supports one-third of faulty nodes operating on the system. Despite that, no staked value was lost.
Is Fantom legit?
Fantom is backed up by extensive peer reviews. Website documentation is extremely thorough and community engagement is high. Staking rewards are transparent.
