State of Fantom Q1 2024

Key Insights

• Fantom had QoQ growth acro1ss many key metrics in Q1, including market cap (+101%), average daily active addresses (+24%), DeFi TVL in USD (+59%), stablecoin market cap (+39%), and average daily DEX volume (+64%).
• Total staked FTM increased 17% QoQ to 1.3 billion. Eligible supply staked also increased 16% QoQ to 44.6%.
• In March, Fantom’s monthly DEX volume eclipsed $1 billion for the first time in the past year. The average daily DEX volume during March was $37.9 million, nearly 7x more than February ($5.7 million) and 6x more than January ($6.6 million).
• On March 25, Fantom Foundation CEO Michael Kong announced the preliminary launch plans for Sonic (Q3’24 launch). Plans include a canonical bridge, simplified staking system, builder grants, reward programs, canonical stablecoin, and more.
• The five winners of the Sonic Labs incubator program were selected in Q1. The projects will each receive 200,000 FTM and development support in the lead-up to Sonic mainnet.

Primer

Fantom (FTM), launched in 2018, is a Layer-1 protocol focused on fast and cost-efficient transaction execution. Fantom became a DeFi hub with development help from Andre Cronje. As a result, Fantom’s network hosts dozens of DeFi protocols, including Equalizer Finance, Beethoven X, and SpookySwap. In addition to DeFi, Fantom also supports NFTs and games, like the new Estfor Kingdom.

Fantom uses a Proof-of-Stake consensus mechanism called “Lachesis,” which was created by the Fantom Foundation. Lachesis provides security to Fantom’s Opera chain, which is an EVM-compatible smart contract chain. Because Fantom nodes reach consensus independently, each node verifies transactions asynchronously and is not required to incorporate other blocks sequentially. This speeds up transaction execution.

FTM, the project's native token, is used for payments and governance. It also enables ongoing block rewards for validators and delegators who stake FTM. Fantom validators must stake a minimum of 50,000 FTM. For a full primer on Fantom, refer to our Initiation of Coverage report.

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Key Metrics

Financial Overview

Market Cap and Revenue

The crypto bull market was in full swing after the approval of the Bitcoin ETF in Q1’24. FTM was one of the major beneficiaries of this uptrend, as its circulating market cap increased 101% QoQ from $1.3 billion to $2.6 billion. FTM has rallied for two straight quarters, up over 4x from the end of Q3’23. By the end of Q1, FTM’s market cap among all tokens rose by 10 spots from 58 to 48.

Revenue, which measures all gas fees collected by the network, had mixed results in Q1. Revenue in FTM decreased 53% QoQ from 3.9 million to 1.8 million, while revenue in USD increased 4% QoQ to $1.2 million. Revenue in FTM decreased partly because of the lack of inscription activity on Fantom in Q1. It’s worth noting that inscription-related activity decreased across all smart contract platforms in Q1 after a peak in Q4’23.

Supply Dynamics

The FTM token underwent a series of supply dynamic changes between Q4’22 and Q1’23. During Q4’23, the Ecosystem Vault and Gas Monetization program were introduced (more details in the Ecosystem section). They reduced the burn rate of transaction fees from 30% to 5% and were reallocated the remaining 25%.

The Ecosystem Vault receives 10% of all gas fees paid on Fantom. By the end of Q1 end, the Ecosystem Vault balance was 1.5 million FTM, up 37% QoQ. Additionally, the Ecosystem Vault eclipsed $1 million for the first time, ending the quarter at $1.4 million.

As for validators, they remained constant in Q1. They last experienced a change in Q1’23, when Proposal 23 reduced inflationary validator rewards from 14% to 6%. As such, inflationary staking rewards are projected to last until 2028. By quarter end, the circulating supply of FTM was 2.8 billion. The annualized inflation rate was 2.4%, up 3.2% QoQ. Furthermore, eligible supply staked increased by 16% QoQ from 38.4% to 44.6%. Lastly, a total of 11.3 million FTM (i.e., 0.3% of its total 3.175 billion supply) was burned by March 31, 2024.

Network Overview

Usage

In Q1’24, Fantom had an average of 247,000 daily transactions, down 54% QoQ. This large QoQ decrease was mainly due to the absence of inscription activity. In Q4, Fantom saw large spikes in transactions due to the emergence of Fantom Inscription FRC-20s. In fact, Fantom reached an all-time high for daily transactions on November 25. This all-time high of 5.11 million transactions eclipsed the previous one by nearly 3 times (1.73 million transactions on September 11, 2021). Of these 5.11 million transactions, 4.99 million were inscriptions. When separating out the inscription-related activity, average daily transactions on Fantom have still been on an uptrend from Q3’s average of 234,900. As for average daily active addresses, Fantom reversed its decline from Q4, up 24% QoQ from 32,700 to 40,500.

Average daily new addresses increased by 7% QoQ, from 8,800 to 9,500. February averaged 13,800 daily new addresses, which was the most for a singular month since September 2023 (33,400 average daily new addresses).

Security and Decentralization

Fantom uses a Delegated Proof-of-Stake (DPoS) consensus mechanism called “Lachesis.” Under Lachesis, Fantom validators run a local Directed Acyclic Graph (DAG) composed of “event blocks.” Each event block contains transactions on Fantom. As each validator independently orders transactions and event blocks, each validator calculates an exact order of event blocks. Validators further divide event blocks into “confirmed event blocks” and “unconfirmed event blocks.”

As validators create event blocks, they also share them with other validators across the network. As an event block spreads across the network, more validators incorporate it within the validator’s local DAG. Once 2/3 of all validators, by stake, agree on a batch of confirmed event blocks, the batch is organized as a block and added to the blockchain.

In January, the staking requirement to operate a Fantom validator was reduced from 500,000 FTM to 50,000 FTM after a governance proposal was passed. The change aims to make operating a validator on Fantom more accessible. Despite this change, active validators remained flat QoQ at 55.

There was a notable inflow of FTM staked in Q1’24, increasing 17% QoQ from 1.1 billion to 1.3 billion. The combination of FTM price appreciation and an increase in FTM staking resulted in the total dollar amount of FTM staked increasing by 135% QoQ, from $505.7 million to $1.2 billion. Compared to other PoS networks, Fantom had the 22nd most dollar value of funds staked by the end of Q1’24.

The Nakamoto coefficient represents the number of node operators that collectively control more than 33% of the network. The higher the coefficient, the more resilient a network is to attacks and bugs. Alongside active validators, the Nakamoto coefficient remained flat QoQ at 4. In order to take over the network through a two-thirds attack, a malicious actor would need to control 866.7 million FTM ($793.2 million) as of the quarter end.

Opera Chain Upgrade

One of Fantom’s biggest initiatives for 2024 is to upgrade its Opera chain using the company’s latest Sonic technology. This upgrade aims to improve the scalability of the network through two new implementations. The first is the Fantom Virtual Machine (FVM). The FVM is similar to Fantom’s current EVM-compatible engine, as both are compatible with Solidity and Vyper. However, the FVM also offers improvements that should increase Fantom’s execution speed. The second change is a new storage system for Fantom’s Opera chain. The new storage system seeks to decrease access times through a file-based StateDB. For validator nodes, it has the potential to reduce storage requirements by over 90%. Additionally, the upgrade includes optimization and fine-tuning improvements to the Lachesis consensus mechanism.

Ultimately, this upgrade aims to make Fantom one of the highest-performing monolithic blockchains. To test Fantom’s new capabilities, both a closed and open testnet have been made available. The closed testnet launched in Q4 with the following parameters:

• 21 validators with 10 million FTM staked each (210 million in total).
• Required quorum of 15 validators (>140 million FTM).

In Q1, the closed testnet was modified to handle exclusively ERC-20 transactions. Under this environment, the closed testnet was able to achieve a TPS of 10,000 and a TTF at ~1.6 seconds. Fantom also launched an open testnet on October 24, 2023, that allowed any user to make token swaps. The open testnet was later replaced by the builders testnet on December 15, 2023, which enables developers to deploy contracts on Sonic technology. Several statistics for the builders testnet as of March 31, 2024, have been highlighted below:

• 888.1 million transactions
• Average TPS of 95
• 12,600 contracts deployed
• 33,600 FTM in cumulative transaction fees
• Average block time of 0.3 seconds

On March 25, Fantom Foundation CEO Michael Kong announced plans to launch a second chain using the Sonic technology. The new chain will serve as the foundation to relaunch Fantom as an entirely new community-centric brand. This initiative is expected to occur in Q3’24 and will include the following:

• Canonical Bridge - A fully decentralized bridge connecting Fantom to Ethereum, allowing Fantom to inherit Ethereum’s economic security.
• Simplified Staking System - The removal of lock-ups associated with staking (replaced with a 14-day unbonding period) to help nurture the development of a liquid staking ecosystem on Fantom.
• Grants - Sonic Labs will fund grants for developers and builders leveraging the new network.
• Rewards - Various reward campaigns to incentivize usage and reward past users of Fantom’s Opera chain.
• Canonical Stablecoin - A stablecoin will be chosen to serve as the canonical stablecoin on Fantom.
  • Of note, after Q1 ended, Fantom announced on April 4 that USDC bridged through Wormhole will serve as the canonical stablecoin on Fantom.

Once Sonic is live, there will be additional development on shared sequencer sets, FVM parallelization, and zero-knowledge (ZK) execution scaling.

Ecosystem Overview

DeFi

Fantom TVL denominated in USD increased from $81.8 million in Q4 to $128.4 million, a 59% QoQ increase. By the end of the quarter, Fantom ranked as the 37th-highest chain by TVL denominated in USD. Additionally, TVL denominated in FTM decreased by 21% QoQ, from 173.2 million FTM to 136.7 million. This dynamic indicates that the TVL increase in USD was driven in part by FTM price appreciation.

Fantom remained one of the most diverse DeFi ecosystems amongst all smart contract platforms in Q1. Fantom’s DeFi Diversity Score, which measures the number of protocols that make up the top 90% of TVL, increased 31% QoQ from 13 to 17.

Notable protocols by TVL on Fantom include the following:

• SpookySwap (up 30% QoQ to $376.9 million)
• Beethoven X (up 84% QoQ to $154.9 million)
• Equalizer (up 106% QoQ to $154.6 million)
• WigoSwap (up 58% QoQ to $10.4 million)
• Guru Network DAO (up 27,293% QoQ to over $6.3 million)
• SpiritSwap (up 29% QoQ to $5 million).

Collectively, these six protocols accounted for over $88.1 million (69%) of Fantom’s DeFi TVL. Furthermore, they collectively gained $343.9 million in TVL in Q1, which was 71% of Fantom’s total TVL increase in Q1.

The protocol with the largest gains in TVL share for Q1 was Guru Network DAO. In Q4, Guru Network DAO’s TVL was $22,900, a fraction of the $6.3 million seen in Q1. Much of Guru’s recent success can be attributed to one of its most popular product offerings, Thick. Thick is a protocol-agnostic concentrated liquidity layer for DeFi protocols to tap into. It began increasing in usage and TVL in early February and ended the quarter as the fifth highest protocol by TVL on Fantom.

The average daily DEX volume on Fantom increased by 64% QoQ from $10.2 million to nearly $17.6.8 million. Onchain activity was elevated across most networks due to a “Memecoin Mania” in Q1, and Fantom was no exception. In March, Fantom’s monthly DEX volume eclipsed $1 billion for the first time since March 2023. Furthermore, the average daily DEX volume during March was $37.9 million, nearly 7x more than February ($5.7 million) and 6x more than January ($6.6 million).

By the end of Q1, there were 31 different DEXs on Fantom. Over the past year, DEXs in the Fantom ecosystem have become more competitive. In a market once dominated by SpookSwap, no DEX captured more than 30% market share in Q1. For Q1, the top five DEXs by average daily trading volume were:

1. WigoSwap - up 194% QoQ to $5.1 million (29% of Fantom DEX volume)
2. SpookySwap - up 88% QoQ to $2.7 million (15% of Fantom DEX volume)
3. Solidly Labs - $2.4 million (14% of Fantom DEX volume)
4. Guru Network DAO - up 14,215% QoQ to $1.8 million (10% of Fantom DEX volume)
5. Equalizer - up 23% QoQ to $1.7 million (10% of Fantom DEX volume)

In sum, the top five DEXs accounted for 78% of Fantom DEX volume in Q1.

In Q3’23, Fantom was affected by the exploit of the Multichain: Fantom Bridge (more info can be found in last quarter’s report). Prior to the exploit, the vast majority of stablecoins on Fantom were bridged through Multichain. As such, once the exploit occurred, all stablecoins bridged through Multichain lost their backing.

Prior to the exploit, the Fantom Foundation had taken steps to increase the liquidity of stablecoins on Fantom. As of Q1’24, there are primarily two independent third-party bridging solutions: Axelar (axlUSDC and axlUSDT) and LayerZero (lzUSDC and lzUSDT). It is important to note that as independent third parties deployed on Fantom, these two bridges are not actually managed by the Fantom Foundation.

USDC is the stablecoin of choice on Fantom, accounting for 98% of the stablecoin market cap. USDC increased by 38% QoQ from $13.7 million to $18.9 million. Between the two bridged USDC solutions, lzUSDC was at $12.6 million (66% of USDC), and axlUSDC was at $6.3 million (33% of USDC). As for USDT, it increased 86% QoQ from $207,200 to $385,800.

After Q1 ended, Fantom announced on April 4, 2024, that USDC bridged through Wormhole will serve as the canonical stablecoin on Fantom.

Gaming

Fantom is an ideal blockchain for building gaming applications on it due to its transaction speeds, costs, and ease of use. One of the most popular games on Fantom is Estfor Kingdom.

Estfor Kingdom is a multiplayer online role-playing game (MMORPG) launched by the PaintSwap development team during Q3’23. It is browser-based and utilizes the Fantom blockchain for some of its in-game mechanics (more info can be found in last quarter’s report).

On January 30, Estfor Kingdom released its biggest update yet, Clan Wars. As a part of this update, users can join clans and battle other clans over control of 25 different territories. Control over a territory entitles a clan to BRUSH token emissions, which are used as an in-game currency. This update helped drive new interest in Estfor Kingdom. During the months of February and March, Estfor Kingdom averaged 6,500 daily transactions and 3,900 daily active addresses.

Additionally, some in-game actions, such as purchases in the Shop, work by burning 25% of the BRUSH tokens associated with the transaction. Since launch, these burning mechanisms have burned over 300,000 BRUSH.

Ecosystem Growth

In preparation for Sonic’s Q3’24 release, Fantom is focusing on supporting developers looking to build on the new technology stack. Last quarter on December 4, the Fantom Foundation announced the launch of Sonic Labs. Sonic Labs is an incubator program for developers building on Sonic. On February 19, Fantom announced the initial five projects incubated by Sonic Labs:

• Lynx Finance - Perpetuals DEX that offers up to 100x leverage trading on crypto, forex, and commodities. Traders will be able to use any token as collateral and access zero-gas fees while trading on the platform.
• Thunder Dome - SocialFi platform designed to offer creators an all-encompassing solution. Users will be able to trade Keys related to specific creators, join groups, and interact with one another through hashtags. In the future, Thunder Dome will enhance its points system and introduce a variety of mini-games.
• Debita Finance - P2P Lending platform offering users customizable loan parameters, such as collateral type, interest rate, and fixed terms. Debita Finance does not utilize oracles, making it less reliant on off-chain dependencies. Users can borrow or lend with any ERC-20 or ERC-721 token on Fantom.
• Kiri - Green-tech startup that aims to incentivize eco-friendly behavior through a live points system. Kiri integrates with various APIs to track consumer behaviors on client platforms. Users are rewarded with points based on sustainable actions, and points can be redeemed for rewards from marketplace partners.
• Froqorion - Party-based role-playing game (RPG) that takes place in an ancient frog civilization. Froqorion offers various gameplay experiences for its players, including collectible NFTs, PvP battles, seasonal content, evolving gameplay, and more.

Each of these projects will receive funding of 200,000 FTM. In addition to funding, the projects will also receive:

• Mentorship from Andre Cronje.
• Guidance from Pyth Network’s Marc Tillement.
• Compliance, payroll, and legal support.
• Included in the mainnet launch of Sonic.

One of Fantom’s main growth initiatives for its ecosystem is the Gas Monetization program. This program aims to reward high-quality applications and offer a sustainable income for developers with a portion of the transaction fees they generate.

In Q3’23, the Fantom Foundation announced the introduction of a quarterly bonus for its Gas Monetization program. To qualify for the program, dApps need to have completed at least 125,000 transactions on Fantom and to have been live on Fantom for at least three months. Since not all dApps on Fantom qualify for the Gas Monetization program, a portion of FTM from transaction fees accumulates to the program with no clear recipient. The Fantom Foundation distributes these FTM tokens to the top 12 earning projects. The total quarterly bonus for Q1 was 86,250 FTM and distributed according to the following split:

• Ranks #1-3: 40% (each received 11,000 FTM)
• Ranks #4-6: 30% (each received 8,900 FTM)
• Ranks #7-9: 20% (each received 5,900 FTM)
• Ranks #10-12: 10% (each received 2,950 FTM)

Projects that received a gas bonus for the first time were XEX and Velocimeter. XEX is a cross-chain GameFi platform, and Velocimeter is a ve(3,3) DEX.

Closing Summary

With the impending upgrade to Opera and the launch of a new chain, 2024 is shaping up to be the most important year for Fantom yet. Despite some hardships during the bear market, Fantom ended Q1 with a strong foundation for success. Namely, the establishment of a canonical stablecoin (Wormhole USDC) and the plan for a canonical bridge to Ethereum will help prevent Fantom from repeating past mistakes.

QoQ increases in key metrics such as market cap (+101%), average daily active addresses (+24%), DeFi TVL in USD (+59%), stablecoin market cap (+39%), and average daily DEX volume (+64%) are a testament to the work that the Fantom Foundation and its ecosystem have accomplished over the past year. Furthermore, the projects launching with support from Sonic Labs will help bolster Fantom’s already diverse ecosystem.

Finally, Fantom has established a crucial support system for its developers and builders. Initiatives like the Ecosystem Vault, Gas Monetization program, and Sonic Labs grants will continue to attract top-tier talent to the ecosystem.

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This report was commissioned by Fantom Foundation. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

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