Another L1 is catching attention in the market.

The rise of L1s was one of the main stories of the crypto industry in 2021. It is hard to have missed the rise of SoLunAvax which I highlighted in my year-end review of 2021. Fantom (FTM) is a smart contract network that has focused on dealing with the issue of high transaction costs along with network speed. Fantom is a proof-of-stake network, which is what Ethereum will eventually merge into as well. However, Fantom is compatible with Ethereum through their Opera mainnet that uses the EVM (Ethereum Virtual Machine). This is enabled through their consensus mechanism Lachesis, which uses DAG’s(Directed Acyclic Graph). This enables transactions to record on top of one another without using a blockchain.

Also what makes the network special is how it works independently. This means that if the network supposedly gets congested in one place, it is not supposed to affect other parts of the blockchain.

Some quick tokenomics before we dive into the interesting stuff. The token used for the network is called FTM. There are currently 2.55B FTM tokens in circulation whereas the max supply is 3.175B. The FTM tokens that are currently not in circulation can be earned through staking rewards and validator nodes which have a current APR of 14.15%. The FTM token can be used for securing the network which is done through staking and nodes as mentioned previously. It can also be used as a medium of exchange. On-chain governance is a fundamental part of the decentralized ecosystem and the FTM token is used for voting on proposals. Also, it is used for network fees to pay for the network.

I know this is article has been technical so far. Let’s get into the fun stuff. What makes Fantom special and is it worth the hype?

Valuating a crypto ecosystem is not the easiest feat in comparison to standard companies. However, there are metrics worth taking into consideration before taking a plunge into a crypto ecosystem. I mentioned at the beginning of the article, the rise of SoLunAvax. 2021 was the year of L1s but Fantom is among the few that have not had a meteoric run yet. Would this normally matter? Not really, crypto is all about network effects. Nonetheless, with the growth and exciting projects that are taking place. Along with the value accrual that is happening on Fantom, things might be different.

The amount of money that has poured into the ecosystem since last autumn has made a huge difference to its growth. As I am writing this, Fantom has a Total Value Locked of $5.83B. If you also take into consideration that the ecosystem is currently valued at a market cap of 5.76B, it is among the fairest valued smart contract platforms out there. This puts Fantom at a Mcap/TVL ratio of 1.12.

To provide some context, its competitor Solana has a Mcap/TVL ratio of 4.6 while AVAX and LUNA have a ratio of 1.97 and 1.53 respectively. This does not mean that you go full-send and buy FTM immediately. Markets are forward-looking (although not efficient), so people expect growth in the protocols hence their current valuations. However, seeing the rise of L1s, it is definitely worth taking into consideration.

Along with this, the network has been adopted at a steady rate since the inception of its grant incentive program that was released on the 30th of August. This program has successfully incentivized developers to build exciting DeFi protocols on the Fantom blockchain. This is one of the main reasons why we are seeing such hype taking place on the Fantom blockchain as it is a very beginner-friendly DeFi protocol with cheap gas fees.

The fees that get accrued by the network, despite them being cheap, go straight to stakers and node validators.

Despite maximalists claiming that this comes at a price of decentralization. New entrants to this space have a very tough time connecting with this crowd considering they can’t afford the decentralization that is being discussed. Ethereum gas fees have been an issue for a while which has let L1s prosper. This is why DeFi is booming on Fantom right now, which brings us to the next topic.

At this stage, it is fair to say that DeFi is booming on FTM. Arguably one of the most important DeFi protocols which is Curve can be found on FTM as well. Also, SushiSwap as well which is no surprise considering it is the most cross-chain DEX by far. Abracadabra and Yearn Finance have also joined in on the fun. However, that is not what is exciting on the network. It is the Fantom native ecosystems that have been built so far. The most popular one is Spookyswap which is a FTM native DEX that enables you to bridge over assets from other blockchains to Fantom as well.

One of the more eye-catching ones is Tomb Finance. Tomb is an algorithmic stablecoin and the standard procedure so far has been to peg it to the dollar. It also works cross-chain. However, Tomb Finance has taken a different approach and pegged it to the price of FTM. The reason for this has been their strong faith in the FTM ecosystem as it expands. The benefit of this is that it significantly decreases the risk of impermanent loss when you’re yield farming or taking out loans against it. Considering the possibility of high yield farms up to an APY of 318% on the LP Tomb-FTM, it opens up amazing opportunities. Add to the fact that Tomb Finance also has two other tokens which are Tomb shares and Tomb bonds, while these Tomb shares can be farmed for the excess of 1000% APY, it is no surprise that the users are attracted to the ecosystem (further analysis on Tomb and the upcoming protocols will be done on the substack).

Another protocol that is driving adoption in the FTM ecosystem is LiquidDriver. This protocol is a liquidity mining dApp that enables you to hunt for lucrative yields. The native token of the protocol is LQDR. LiquidDriver partners with multiple farms and when people deposit tokens into their pools they are redeposited into their partner’s farms to generate yields. In other words called: liquidity-as-a-service (LaaS). When people deposit their tokens into the pools they can earn the LQDR token as a reward.

However, the other option is to lock up the LQDR token to generate xLQDR. It’s a yield-producing vested version of LQDR that enables you to farm the yields that are generated over time by the protocol. The longer you lock up the LQDR token the more xLQDR you get access to and thus more yield. It can be likened to how Curve Finance works.

The last exciting protocol on the FTM ecosystem that will be discussed in this article is Spiritswap. This protocol is a DEX and AMM (automated market maker) that is based on Uniswap. It simply enables you to swap between tokens and an algorithm makes the market for the token pair. Each swap incurs a fee that gets distributed to the liquidity providers on the protocol. It enables you to swap, provide liquidity, and farm tokens.

However, if you lock up SPIRIT which is the token, you get access to inSPIRIT. This token is the governance token and can be used to vote on farms to boost the yield. In order to get access to higher APY’s.

A lot of information to digest, but the possibilities are huge. So is FTM worth the hype? It’s hard to argue that it isn’t. Taking into consideration its fair value in relation to other protocols along with exciting projects being built on the ecosystem. All of this while being beginner-friendly and easy to use and you can understand while it is gaining traction. Do you consider FTM worth the hype?

I want to clarify that even though I am a finance professional, this is not financial advice, and this article is only meant to bring light to the current market situation. I advise everybody to do their own research, I only want to help you to find what you are looking for.

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