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TABLE OF CONTENTS

What Is Fantom (FTM) and How It Works

4.5
| by
Joel Agbo
-

Key Takeaways

  • Fantom is an EVM-compatible smart contract blockchain. It presents a platform for applications that leverages the blockchain to function.

  • It is reported to be able to process over 10,000 transactions in a second with a block time of 1-2 seconds.

  • Fantom blockchain is powered by the Fantom Virtual Machine (FVM), a state machine that is designed using machine learning and smart contract languages.

  • Nodes on the Fantom Network reach a common agreement through the Lachesis Consensus algorithm; a DAG-based, leaderless, and asynchronous Byzantine Fault Tolerant Algorithm.

  • Other noteworthy feature of the Fantom blockchain includes the gas subsidy system that encourages adoption of the Fantom network.

  • Notable projects in the Fantom ecosystem include Tarot Finance, PaintSwap, Beethoven X, SpookySwap, and Geist Finance


What is Fantom Crypto

Fantom is a Layer 1 blockchain network that is EVM-compatible and supports decentralized applications, smart contracts, and peer-to-peer payment solutions. Fantom boasts a transaction speed of about 10,000 transactions per second and a block time of 1-2 seconds. Gas fee stats derived from the explorer show that the network charges an average of $0.06 for routine transactions.

Founded in 2018, Fantom was created with the goal of developing a secure and efficient platform for building decentralized applications and executing financial transactions between peers. The Fantom network is powered by the Fantom (FTM) coin, which is used for staking, governance, and fees on the network.

Projects building on Fantom include utility dApps, NFT projects, gaming and DeFi projects. According to DefiLlama, DeFi projects on the Fantom ecosystem have over $600 million in total value locked.

How Does Fantom Work?

Fantom is a distributed ledger network, where participants in the network decide on what data gets added to the network through a consensus algorithm. Fantom runs a Proof-of-Stake consensus algorithm. To be a part of the network, a validator creates a node on the network and stakes a certain amount of FTM to their node, and stands a chance of validating new blocks before they are added to the chain.

In addition to the distributed ledger, Fantom blockchain operates a state machine that transforms it into a computing platform. The state machine translates code bits into instructions that the network can understand and execute. The Fantom network, by the virtue of this machine, can be used to build decentralized applications.

The Lachesis Consensus Mechanism

Fantom describes the Lachesis consensus algorithm as a DAG (Directed Acyclic Graph) based leaderless, scalable, and asynchronous version of the practical Byzantine Fault Tolerant consensus algorithm. According to reported statistics, the Lachesis algorithm’s design allows it to reach transaction finality in a period of 1-2 seconds. This is thanks to the modifications that shed off the time-consuming procedures of the Practical Byzantine Fault Tolerant consensus algorithm.

In a nutshell, the practical Byzantine Fault Tolerant (pBFT) consensus algorithm, reaches transaction finality by first selecting a ‘leader’ node that communicates with secondary nodes regarding new blocks set to be mined into the blockchain network. The network reaches a consensus when over two-third of the nodes (including the leader node) send in a uniform response (either approving or rejecting the block) and the transaction is validated. To speed up processing speed, the pBFT consensus algorithm removes malicious acting nodes, and the leader node is also removed if it acts maliciously.

The PBFT consensus algorithm experiences delays in the process of awaiting responses from the secondary nodes, and also gets less secure whenever it removes malicious nodes to improve this speed. Due to a single node’s ability to assume multiple identities in the Practical Byzantine Fault Tolerant consensus algorithm, it is vulnerable to sybil attacks.

As an improvement to this design, Fantom’s Lachesis Consensus algorithm trims off this stage of selecting a leader node, communicating with secondary nodes, awaiting responses from these nodes, and removing malicious nodes. The asynchronous Byzantine Fault Tolerant consensus algorithm also allows an unlimited number of nodes to be added to the network.

With a provision for an unlimited number of nodes, instant transaction finality, and the ability to improve these statistics in response to an increased frequency of requests, Fantom claims that the Lachesis consensus algorithm offers speed, agility, and communal authority to the blockchain network while ensuring the blockchain is not penetrated by malicious actors.

The Growth of Fantom

On-chain unique address data shows a spike in usage statistics in November 2022 and sustained metrics along this line. On November 6, 2022, an excess of one million new wallet addresses were created on the Fantom network, which represents the highest daily increase in new wallets. Following this spike, the Fantom network has welcomed an average of over 100,000 new addresses daily. This is quite significant considering the fact the network sat at just over 3 million active addresses before November 2022 but has grown to over 43 million wallet addresses at the time of writing.

With over 40 million new addresses created in four months, the Fantom network has gained steam over this period of time. A number of developments are thought to contribute to this exponential growth. Here we take a look at some of them.

The Fantom Virtual Machine

Many smart contract blockchains use the Ethereum Virtual Machine (EVM) designed by Vitalik Buterin and the Ethereum founding team for the Ethereum blockchain. The EVM is a state machine that decodes changes in variables as instructed by pieces of code known as smart contracts. The EVM turns a blockchain into an electronic machine, a virtual one, that can execute instructions like normal computers. Some blockchains work on the exact prototype of the EVM while others are built to adapt to it.

At the Consensus blockchain convention event in 2022, Fantom’s CEO introduced the Fantom Virtual Machine (FVM) a modification of the EVM aimed at solving challenges faced by the current EVM, while maintaining interoperability with the normal EVM on Ethereum and other blockchains.

According to published details, the FVM is designed to tackle certain shortfalls of the EVM, offering a more efficient decentralized state machine thanks to modifications in the way it handles transactions and stores data.

In contrast to the EVM, the Fantom Virtual Machine adopts a parallel transaction execution system. The EVM executes transactions sequentially (one after the other). By this design, the total time taken to execute a batch of transactions is the sum of time taken to validate each transaction in the batch. A parallel execution system validates two or three transactions at a time without clashing with each other. This speeds up the total execution at a rate relative to the number of transactions executed at a time (in parallel).

In addition, the FVM compiles a series of uninterrupted instructions in a code bit into a super instruction and translates them at once. This, according to Fantom, saves time, in comparison to the EVM that fetches and executes instructions one code line after the other.

Fantom also claims to have modified FVM’s data structure to deliver an overall more efficient and faster results than the Merkel Patricia Trie used by the EVM. The FVM condenses large address spaces by assigning ordinal numbers to contracts and addresses, instead of a long chain of alphanumeric codes.

Fantom’s Gas Monetization and Gas Subsidies

Fantom has announced two new programs through which it hopes to return value to prominent projects in its ecosystem and also simplify the onboarding process for new users and make it easier for existing users to use the blockchain.

One of these programs is the gas monetization program. According to Fantom, the gas monetization program was instituted to help prominent dApps to build sustainable finance by returning a portion of the gas fees generated by these applications to the project’s bursary. 

Fantom achieves this by lowering the burn rate for transactions from these applications by 75% and routing this percentage to the project’s bursary wallet. By design, 20% of the FTM paid as gas fee on the Fantom network is burnt, but the gas monetization program lowers this to 5% for reputable applications on the network and sends the saved gas fees to the project.

Fantom co-founder and architect, Andre Cronje, has also shared the project’s plans to introduce a “gas subsidy” feature to the Fantom blockchain in the second or third quarter of 2023. The gas subsidy will allow new and existing users to interact with decentralized applications without having FTM for gas in their wallets.

Positive Cash Flow 

On November 28, 2022, Andre Cronje’s medium publication gave an insight on the economic condition of the Fantom foundation. His report showcases a net profit and the relative financial stability of the smart contract project. In his publication, he maintained that the project has enough funds to stay in business for the next 30 years.

This report coincides with the depth of the crypto winter and a period where a couple of similar projects have gone bankrupt or reported negative cash flows. Andre Cronje also reported the fund management strategies which include refuting some ‘extravagant’ spendings and cutting overall management costs.

While the report isn’t a technological development, it, to an extent, restored investors’ belief and generated some positive responses from the community.

Fantom Ecosystem Vault

In an announcement on 19th January 2023, the Fantom team shared plans for the newly instituted Fantom Ecosystem Vault. The ecosystem vault is a bursary controlled by the Fantom community. The Fantom team reports that it is dedicating 10% of the gas fees paid on the Fantom blockchain to the ecosystem vault. The funds in the vault will be used to support projects and finance improvement proposals approved by the community.

To get funding from the ecosystem vault, aspiring projects must draft a proposal for their project and submit them for review by the community. For a proposal to pass the community vote, at least 55% of the voters must vote in favor of the proposal and the total number of voters must be at least 55% of the total Fantom stakers. With the ecosystem vault, Fantom hopes to foster young projects through a decentralized funding program.

FTM Coin’s Utility

Fantom (FTM) is the native token of the Fantom blockchain. It powers the core financial aspects of the Fantom project and to a large extent, the ecosystem as a whole. Thanks to the project’s rise to prominence, the Fantom coin has seen a rise in daily traded volume.

So, what is FTM used for in the Fantom blockchain?

Gas fee for Native Transactions

To have a transaction minted into the Fantom blockchain, users will need to pay a fee in FTM to the validators. This fee applies to transactions made directly on the blockchain or over third-party and decentralized applications that depend on the main network to validate their transactions.

Trading on Exchanges

The FTM coin embodies the technology of the Fantom blockchain and is also a representation of the project’s financial viability. It is therefore a subject of financial speculation and a financially relevant asset. Routine traders and long-term investors can trade the FTM coin on listed exchanges according to their perception of the technological developments around the Fantom ecosystem.

Staking

Fantom blockchain operates the proof-of-stake consensus algorithm, therefore validators on the network are required to stake a certain amount of FTM coins to the network. Staked Fantom coins generate profits according to the specified annual percentage yield. Other investors who also wish to benefit from staking can also stake their FTM tokens to the network.

Some DeFi protocols on the Fantom ecosystem also offer staking incentives for FTM holders. Staking rewards depend on the yield percentage offered by the platform, and rewards are usually paid out in other tokens and not FTM.

DAO Voting

Fantom blockchain doesn’t operate a general DAO yet. However, some aspects of the project require input from the general community in the form of approval votes. The Fantom Ecosystem Vault described earlier is a good example. FTM holders can utilize their coins and contribute to the fate of the project by voting on improvement proposals.

Peer-to-Peer Transactions

With a reported speed of 10,000 transactions per second and a recorded fee of less than $0.05 per transaction, the Fantom blockchain is well-suited for routine commercial transactions and regular transfer of value between peers.

Utility Token

Third-party and completely native applications on the Fantom blockchain will strive to add value to the Fantom Ecosystem by integrating the FTM coin into their core functionality. Integrations like this will allow FTM holders to enjoy some benefits while using the application. This adds value to the Fantom ecosystem as the platform and the utility it offers, creates more demand for the FTM coin and improve the financial structure of the ecosystem.

Three Projects to Watch on the Fantom Ecosystem

Decentralized finance (DeFi) is growing on the Fantom ecosystem. Projects that offer financial services through applications built on the blockchain are utilizing Fantom’s technology and we'll now take a look at some of these projects.

*Note: These projects were selected based on the total value of assets committed to the project.

SpookySwap

SpookySwap is one of the largest decentralized exchanges on the Fantom network. SpookySwap provides a platform where other projects on the Fantom network can easily list their tokens for trading and allows token holders to swap their assets for other assets. SpookySwap’s swap feature uses the Automated Market Maker (AMM) model.

SpookySwap also runs a token-bridging facility to allow users to port their tokens from the Fantom blockchain to other supported networks and also in the reverse direction. The SpookySwap bridge currently supports over seven blockchains (apart from Fantom) and over 20 crypto assets. Supported chains include BNB Smart Chain, Polygon, Avalanche, and Cronos networks. Supported assets include ETH, FTM, AVAX, MATIC, CRV, USDT, and several other crypto assets.

SpookySwap also rewards liquidity providers and long-term holders through a staking reward program. Through this program, liquidity providers earn rewards in selected tokens for committing their funds to the liquidity pool. Single-side staking is also available for selected assets.

BOO is SpookySwap’s native coin. BOO is used to fund the project’s reward programs and also doubles as a governance and utility token. BOO holders can vote on improvement proposals through the SpookySwap DAO.

At the time of writing, over $100 million worth of assets are currently locked on SpookySwap.

Beethoven X

Beethoven X Fantom

Beethoven X claims to be a next-generation decentralized investment platform built for the future of finance. It offers asset pools with varying stability and a basket of facilities that helps developers, investors and traders explore the full capabilities of decentralized finance. Beethoven X is a fork of Balancer, and uses the Balancer smart contract for some of its core functionalities.

Beethoven X flaunts a low-slippage exchange platform, customizable liquidity pools, and a gas-efficient decentralized exchange. It uses a vault system to manage liquidity across supported crypto assets. The vault system removes the need for segmented liquidity pools on the decentralized exchange. Supported assets use a generalized liquidity pool with every committed asset held in a single contract and swap requests served from this collective fund pool. According to Beethoven X, this design ensures that every asset has sufficient liquidity.

Beethoven also offers incentives through liquidity farming and single-side staking programs. It is powered by the BEETS token, its native token. The BEETS token is used in the Beethoven DAO to vote on improvement proposals and also powers the platform’s incentive programs. BEETS can be traded on Beethoven X DEX, SpookySwap, SpiritSwap, BKEX, and several other exchanges.

At the time of writing, over $85 worth of crypto assets are currently locked on Beethoven X.

Geist Finance

Geist Finance Fantom

Geist is a decentralized lending protocol on the Fantom network. Geist provides a platform for asset owners to commit their dormant assets to a lending contract and allow borrowers to assume custody of these assets for a specified period. To borrow an asset, the borrower locks collateral to the contract and claims custody of the asset for the stated period. Lenders are rewarded through interest paid by the borrowers. Borrowers are rewarded in FTM and Geist tokens.  

Geist finance also rewards stakers through the staking and locking incentive program. GEIST token holders who simply commit their assets to the staking contract or lock their assets for a period of time (usually three months) will receive rewards in GEIST according to the prevailing APR.

At the time of writing, about $45 million worth of assets are locked on the Geist finance contract.

Other Protocols on Fantom

As the DeFi concept and the Fantom ecosystem both continue to grow, it becomes increasingly harder to list all the projects that offer services like this. We have mentioned a few, other notable DeFi projects on the Fantom ecosystem includes: 

  • Tarot Finance – a lending protocol built on the Fantom blockchain

  • PaintSwap – Fantom’s biggest NFT marketplace

  • SpiritSwap – another decentralized exchange built on the Fantom blockchain. 

Final Thoughts

While the TVL of Fantom has significantly decreased since its highs in 2022, we are currently in a bear market. Looking at DefiLlama, Fantom is in the top five chains by the number of protocols, suggesting that there is interest in the community to build on the chain. Moreover, features like the ones listed above, such as gas monetization and gas subsidies, along with the ecosystem vault and the FVM, will further entice projects to build on Fantom.

Please note that the contents of this article are for educational purposes and should not be taken as financial advice. 

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Joel Agbo
Joel Agbo
Joel is deeply interested in the technologies behind cryptocurrencies and blockchain networks. In his over 7 years of involvement in the space, he helps startups build a stronger internet presence through written content. Follow the author on Twitter @agboifesinachi

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