Fantom is a new contender in crypto’s smart contract arena that aims to make transactions cheaper and faster than ever. Fantom’s great scalability and security makes it a worthwhile opponent in DeFi because its dApps are more efficient due Fantom’s underlying blockchain technology.
But is Fantom a good investment? Today’s article discusses the pros and cons of investing in Fantom (FTM). You’ll learn more about how the project works and what makes it valuable.
What Is Fantom?
Fantom is a blockchain with smart contract functionality based on Directed Acyclic Graph (DAG) technology. DAG is a method that creates faster transaction propagation by avoiding the traditional method of confirming transaction blocks sequentially. Instead, Fantom utilizes past event blocks (that haven’t been confirmed yet) in order to add even more event blocks.
The model mentioned above also facilitates higher decentralization and improved security by ensuring that no single miner can mine a whole block. Transaction blocks are not controlled by any specific validators. Instead, nodes and their operators work independently without requiring the feedback or awareness of other nodes within the system.
Keep in mind that Fantom works on the basis of Proof of Stake (PoS). PoS is a consensus mechanism in which network participants secure the network by locking up tokens. Staking makes the network more secure because by granting it move power and increasing the threshold needed for malicious actors to launch 51% attacks.
Network participants have an economic incentive to stake. The network grants them additional tokens in In return for staking, network participants earn an amount of cryptocurrency that’s proportional to the amount staked. Additionally, participants gain governance powers which allow them to steer the project’s development.
Another important aspect of Fantom’s PoS network is its custom Lachesis aBFT consensus algorithm. The algorithm has the following traits:
Byzantine Fault-Tolerant (BFT): Network retains functionality even in the presence of one-third of malicious or faulty nodes
Asynchronous: Network participants can process commands and transactions at different times
Leaderless: No network participant plays a special role in the network
Final: Outputs generated by Lachesis can be used immediately; transactions receive confirmation in the span of 1 to 2 seconds.
Reasons to Invest in Fantom
Fantom represents one of the most efficient smart contract networks in crypto. But what’s the reasoning behind investing into Fantom? Read the section below to discover the top 5 reasons to buy FTM.
1. Scalability, Scalability, and More Scalability
Decentralized Finance (DeFi) is a segment of the cryptocurrency market based on the creation of decentralized applications (dApps) offering access to financial instruments. Such instruments include lending, derivatives, yield-generating products, etc. However, the problem is that almost no dApps, nor their underlying networks, scale with demand.
Fantom is one of the rare smart contract powered blockchains to truly solve the scalability problem. That’s why transactions on Fantom are almost near-instant and cost a negligible amount.
You can think of the Fantom blockchain as each individual dApp having its own computer but working in an asynchronous fashion with other dApps. All dApps can interact with each other and benefit from the transaction throughput and security of the DAG and Lachesis aBFT technologies.
2. Attractive Staking Rewards
Fantom is a Proof of Stake network, and as such, allows its users to secure the network in return for token rewards. Staking creates a powerful economic incentive that pushes network participants to secure the network. And on Fantom, the incentives are particularly impressive.
Fantom stakers can earn anywhere from 1.97% to 6.04% in annualized returns depending on their lock-up period. The minimum lock-up period starts at 14 days. You can stake up to a maximum of 365 days. Of course, the higher the lock-up period the higher your APY rate.
The APY rate is dynamic and depends largely on the supply and demand of FTM, as well as the total number of tokens staked on the network. At the peak of its popularity, Fantom offered the highest APY returns for staking of up to 15%.
Another important factor to keep in mind is that Fantom offers liquid staking. Liquid staking means that your staked FTM is tokenized and that you can mint it in the form of a sFTM derivative that has a 1:1 ratio to your staked FTM. You can use sFTM to participate in Fantom’s DeFi ecosystem and create loans, yield farming, or buy other tokens.
3. EVM Compatibility
EVM stands for Ethereum Virtual Machine. Fantom is an EVM-compatible blockchain meaning that it fully supports the Ethereum blockchain and its code. In other words, developers can program dApps in Solidity and deploy them on Fantom.
Normally, developers have to learn an entirely new programming language when entering a new blockchain ecosystem. For example, developers wishing to join Solana have to first learn Rust. They can’t write dApps in Ethereum’s native language – Solidity. But that’s not the case here since Fantom is EVM-compatible.
EVM-compatibility enables fast conversion and deployment of dApps from Ethereum to Fantom. For example, if you find yield farming on Ethereum’s Yearn Finance expensive, you can freely switch to the Yearn Finance deployed on Fantom and reap the fruits of Fantom’s scalability.
The end result of EVM-compatibility is that you have the best of both worlds: new dApps being created instantaneously from scratch and existing ones being deployed with little to no effort. It also has a positive effect on investors as they can join a brand new blockchain ecosystem that isn’t a ghost town for once.
4. Decentralized On-Chain Governance
Fantom fully supports on-chain governance. You gain the ability to vote and propose new governance proposals by holding the network’s native utility token (FTM). Granting governance to the community makes a cryptocurrency more decentralized and allows investors to steer the project’s development.
Governance is available to whoever stakes FTM tokens. 1 FTM equals one vote and the governance itself takes place on the blockchain in a decentralized fashion. Everyone staking can submit a new governance proposal. However, a proposal costs at least 100 FTM to submit. Voting itself only charges gas fees.
What’s new on Fantom is that its governance is not simply a binary system of yes or no votes. Community members have a far more complex way of voting. They can also express their degree of agreement with a proposal. This agreement is quantified and measures from 0 to 4 (disagreement or full agreement). Each proposal can contain multiple options.
Fantom has one of the most active governance communities in crypto. Backed by a highly technical team of developers, governance proposals are implemented swiftly after they’re accepted by the community. Governance grants the community the ability to have a greater input on Fantom’s development.
5. Fastest Growing DeFi Ecosystem in 2021
Fantom has an amazing track record in the cryptocurrency market. Fantom was one of the fastest growing DeFi ecosystems during the great bull run of 2021. The project’s total TVL increased from $300 million in August 2021 to an astounding $8.1 billion in March 2022.
What pushed Fantom’s swift rise was its technology and ability to scale with demand. Investors were suddenly greeted by a blockchain that not only provides fast and cheap transactions, but also accepts existing dApps from the Ethereum ecosystem.
Although Fantom’s presence in DeFi has severely diminished ever since, the explosive bull run it has once seen is a testament to its ability to grow. By creating new incentives and attracting investors with new technologies, Fantom might possibly reclaim its former glory and become an important contender in the DeFi arena again.
Disadvantages of Investing in Fantom
Fantom offers more than enough reasons for investors to secure a stake in the network. However, there are also a few reasons why you might not want to invest in Fantom. These disadvantages can be a deal breaker for some, so I’ll speak more thoroughly about them.
The biggest disadvantage behind Fantom is that it competes with a number of large rivals that are already established entities within the crypto markets. For example, Ethereum is the largest chain in DeFi with more than $30 billion in TVL. On the other hand, Fantom’s current TVL is only worth $496 million in collateralized assets.
Fantom is in fact the 10th largest chain according to TVL. It is preceded by Ethereum, Avalanche, Solana Tron, BSC, and numerous other chains or L2 solutions. And all these chains simultaneously work on establishing the same level of scalability that Fantom does.
For example, the Ethereum Foundation has made huge progress recently by finally migrating to a Proof of Stake network. Next year investors await impactful new solutions such as sharding, which is poised to fundamentally improve the way Ethereum scales with demand.
The question is, what is the point of using Fantom once Ethereum establishes scalability? Apart from its scalability and high staking APY rates, Fantom does not offer many reasons for investors to use Fantom rather than other chains. The project would need to integrate more use cases if it wishes to compete with the likes of Ethereum, Solana or AVAX.
Should You Buy Fantom?
Fantom is one of the first blockchain networks to feature both a functional Proof of Stake network, as well as on-chain governance. The technology behind Fantom allows it to scale with demand and process transactions within the span of seconds, while charging users mere cents.
Fantom was a rising star during the 2021 DeFi bull run and grew from a TVL of $300 million to $8.1 billion in under a year. However, the project’s glory has faded both due to macro bearish pressure as well as the project’s inability to provide different use cases and incentives.
The team might be able to reclaim its former glory, but only with the right incentives. Time is of the essence and the world of L1 faces a countdown to the moment that Ethereum itself, crypto’s largest dApp ecosystem, achieves scalability. Projects like Fantom have to fight hard to keep their position in crypto and thrive – which is only possible through new features and economic incentives.
Whether you should invest in Fantom (FTM) depends on how much you believe in the project’s future. Is the team strong enough to reclaim the hearts of crypto investors? If so, there’s a reason to have a stake in the project. Otherwise, you might be better off with other projects.
If you want to learn more about Fantom, I recommend visiting the following links:
Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.