Fantom Review: DAG Based DeFi Powerhouse
Fantom (FTM) is quite an ambitious project that is trying to create a smart contract platform that will be the "nervous system for smart cities".
Using advanced Directed Acyclic Graph (DAG) technology, this project aims to provide near infinite scalability and instant transactions at nearly zero cost. They are also working on a high-performance virtual machine with safe, secure smart contract execution.
However, can they really execute on such ambitious goals?
In this Fantom review, I will give you everything that you need to know about the project. I will also analyse the long term use cases and adoption potential of the FTM tokens.
What is Fantom?
Fantom is distributed ledger technology stack that is building a DAG based platform that could be used to power smart cities and all the services that constitute it.
As an ultra-high speed and high-performance platform, Fantom believes it can become the IT infrastructure backbone for the emerging smart cities. With a goal of executing 300,000 transactions per second, and the ability to communicate across multiple service providers, Fantom believes it is the solution to storing vast amounts of data securely.
It hopes to achieve this by being accessible to stakeholders for smart city data-driven smart contracts and dApp adoption. The Fantom team envisions the platform being used across a wide variety of sectors, including public utilities, smart home systems, healthcare, education, traffic management, resource management, and environmental sustainability projects.
As proof of the flexibility of Fantom the team was able to quickly pivot and make Fantom DeFi capable. Fantom promises to be the all-in-one DeFi suite for all users. Fantom's EVM-compatible blockchain gives users the ability to mint, trade, lend and borrow digital assets directly from their wallets. And all of this comes with near zero fees and instant transactions. This is DeFi for everyone.
Fantom's Opera mainnet was created using the DAG-based Lachesis consensus protocol and supports EVM-compatible smart contracts. That allows Fantom users to execute smart contracts on the network, and makes DeFi ideal on Fantom.
Indeed, the Fantom mainnet has characteristics that make it ideal for a wide range of applications.
In terms of DeFi applications Fantom currently supports the following:
Liquid staking - Use staked FTM tokens as collateral for DeFi applications. All FTM delegations are liquid within the Fantom ecosystem.
fMint - You can mint dozens of synthetic assets on Fantom, including cryptocurrencies, national currencies, and commodities.
fLend - Lend and borrow digital assets to trade and to earn interests without losing exposure to held FTM.
fTrade - Trade Fantom-based digital assets without leaving the wallet. This makes for a fully non-custodial and decentralized AMM exchange.
Fantom has worked hard to deliver a superior solution for DeFi and trading. Thanks to the DAG-technology used in Fantom it is superior to many other DeFi platforms. Fantom benefits from its short confirmation time that provides finality in under 2 seconds, and from its low fees.
As you can see from the figure above, FTM tokens and sFTM tokens can be used as collateral to mint fUSD, which can then be used to trade and swap for synthetic tokens and fiat, and much more. All of this is accomplished through the progressive web app Fantom fWallet, where you can store, send, receive, and stake your FTM tokens.
Fantom’s architecture has the protocol divided into three layers, with each layer handling different responsibilities. These are the Opera Core Layer, the Opera Ware Layer and the Application layer.
Let's take a deeper look into each of these layers and what they do for the Fantom protocol at large.
The OPERA Core Layer
This is the bottom layer and it has the responsibility for maintaining consensus across the nodes in the Lachesis Protocol. It is also responsible for creating events. It uses a DAG to confirm transactions, and nodes are able to process them asynchronously thanks to the use of DAG technology.
Each transaction processed is saved on every node in the network, similar to the way a blockchain saves transactions. The difference is that with DAG technology the data isn’t required to be saved on every single node.
Instead, the network uses a second type of node called a witness node to validate transactions. These witness nodes are responsible for checking the validity of the data held by nodes across the network. The witness nodes are reliant on a Delegated Proof of Stake consensus method to elect validating nodes.
The OPERA Ware Layer
The OPERA Ware layer sits in the middle of the protocol and is designed to execute functions on the platform such as issuing rewards and payments and writing “Story Data.”
The OPERA Application Layer
At the top is the OPERA Application layer, which holds the publicly available APIs that developers will use to allow their dApps to interface with the OPERA Ware layer. One particularly interesting interaction will be with what Fantom refers to as “Story Data.”
Story Data is Fantom’s method for allowing all past transactions to be tracked, unlike Ethereum where tracking past transactions is limited. In Fantom each transaction and smart contract execution stores a small piece of data, the Story Data, that is used in functions for tracking transactions.
This is an incredibly valuable function in certain sectors where indefinite records of data are essential, such as in supply-chain management or the healthcare field.
Lachesis consensus is a DAG-based asynchronous Byzantine Fault Tolerant (aBFT) consensus algorithm. It offers many improvements over Classical, Nakamoto, and even practical Byzantine Fault Tolerance. It is Byzantine Fault Tolerant, while also being leaderless and asynchronous.
With Lachesis consensus can be delivered to any application, regardless of the programming language used to create the application. This leaves developers free to focus on the creation of the application logic, while integrating Lachesis to handle state machine replication.
Lachesis is capable of connecting to other Lachesis nodes and guarantees that everyone processes the same commands in the same order. This is accomplished through the use of the DAG aBFT consensus and peer-to-peer networking.
Asynchronous Byzantine Fault Tolerance (aBFT)
Asynchronous Byzantine Fault Tolerance (aBFT) is the highest standard we currently have in consensus algorithms. It has effectively solved the Scalability Trilemma which specified that only two of the following three conditions could ever be included in a consensus algorithm at the same time:
Indeed, the aBFT consensus protocol as implemented in Fantom allows for maximum decentralization, high scalability, and bank-grade security.
In an aBFT network, nodes can reach consensus independently, and they don’t need to exchange finalized blocks. This makes aBFT consensus mechanisms completely leaderless, increasing security since there is no round-robin and no Proof-of-Work.
Besides making networks particularly resilient to DDoS attacks, aBFT also lowers the transaction’s latency, resulting in a faster network.
Finally, aBFT networks allow for greater scalability and decentralization since there isn’t excessive communication to limit the number of participating nodes.
How does Lachesis work?
In Lachesis each node stores a local DAG that’s composed of the event blocks which contain transactions. The DAG is able to use the happens-before relationship among events to calculate the final order of events independently on each node. Once done the event blocks are split into confirmed and unconfirmed blocks. Any blocks from the past 2-3 frames are considered confirmed, while new blocks are unconfirmed.
Consensus results in batches of confirmed event blocks, where each batch of events is called a block. Finalized blocks forming the final chain are calculated from event blocks independently on each node.
Notably, unlike other consensus mechanisms Lachesis nodes don’t send blocks to each other. Instead they focus on synching the events between nodes. Rather than voting on the concrete state of the network the nodes periodically exchange the events and transactions they have observed with their peers.
This also means Lachesis doesn’t use new events in any current election. Instead, new events are used to vote for the events in 2-3+ previous virtual elections simultaneously. This leads to a smaller number of created consensus messages, as the same event is reused in different elections. This allows Lachesis to achieves a lower time to finality and a smaller communication overhead.
StakeDag is one innovation that leverages participants’ stake as validating power to achieve practical BFT in a leaderless asynchronous system. The StakeDag protocol extends the Lachesis protocol to use layer assignment on the DAG to achieve quick consensus with a more reliable ordering of final event blocks.
The benefits of StakeDag are two-fold:
- StakeDag protocol is fair because every node has an equal chance to create a new event block.
- It has fewer vulnerabilities than PoW, PoS, and dPoS.
The Fantom Team
The team behind Fantom has gone through some changes since its earliest days, and the technical team is comprised of 12 platform developers. There are additionally a number of management personnel, community outreach members, marketing members, and directors of various regions.
The founder of Fantom is Dr. Ahn Byung Ik. He holds a Ph.D. in computer science and is also the president of the Korea Food-Tech Association. Dr. Ahn is a contributing author at Fortune magazine and has frequently been published in South Korea’s major business media outlets.
Previously he was the founder of the food-tech platform SikSin, which is similar to Yelp. That platform has over 22 million monthly page views and the mobile app has been downloaded over 3.5 million times.
However he is currently no longer associated with Fantom, and even his LinkedIn profile makes no mention of any past connection with the project.
Taking over in the role of CEO at Fantom is Michael Kong,who has several years experience in the blockchain space as a smart contract developer. He has also continued in his role as Chief Information Officer. Prior to joining Fantom, he was the Chief Technology Officer for the blockchain incubator Block8. He also built one of the first Solidity decompilers and one of the first detectors for vulnerabilities in smart contracts.
Also very notably at Fantom is the DeFi architect Andre Cronje, who is well known as the developer of Yearn Finance.
The rest of the team consists of highly successful, motivated and experienced members from a variety of disciplines including finance, cryptography, business development, software engineering and architecture and other related disciplines.
The FTM token was an ERC-20 token that is used for staking and to reward Fantom witness nodes. There were also BEP-2 and Xar Network versions created to enhance the interoperability of the network. When the mainnet was released in December 2019 a bridge was created to allow the conversion of other tokens to the native Opera FTM token. Even so, Binance only recently (March 1, 2021) completed the wallet integration for the native FTM token. Binance also continues to support both the ERC-20 and Bep-2 FTM tokens.
Fantom held their ICO in June 2018, selling 40% of the total supply of 3,175,000,000 FTM tokens. The ICO price was $0.04306 and the team raised $39,650,000 in the ICO.
Unfortunately, it took several months for the tokens to actually be issued, and by that time (October 2018) the market was deep into bear territory, which led to an initial price around the $0.02 level, or half of the ICO price.
And because it was deep in the midst of the bear market in cryptocurrencies the price headed lower still from there, finally reaching an all-time low of $0.003105 on February 4, 2019. Price began recovering from there, rising more than 200% over the next three months.
And in the meantime, Fantom issued BEP2 tokens on the Binance chain to increase interoperability by creating a multi-asset cross-chain ecosystem. This also saw the listing of Fantom first on the Binance DEX and several days later on the main Binance platform.
The listing created a surge in the price of Fantom that saw it gain over 300% in the space of a month and reach its all-time high of $0.039614 on June 11, 2019. In the following week, price pulled back by roughly 30%, even though the broader market remained strong.
There was little movement for the token over the following 18 months, but in 2021 it joined in the rest of the cryptocurrency markets in soaring to the moon. From January 1, 2021 to March 10, 2021 the price of the FTM token went from $0.017293 to $0.4904. On the way it notched an all-time high of $0.8717.
Buying & Storing FTM
FTM is listed on a number of different exchanges. These include the likes of Binance, KuCoin, MXC.com and a few others. However, about 55% of the trading volume is currently taking place on Binance.
Once you have bought your FTM tokens then the wise move would be to get them off the exchange and into a secure wallet. Because there are now three versions of FTM you need to know which version you’re buying when deciding what wallet to store the coin in.
The older and more prevalent ERC-20 token can be stored in any ERC-20 compliant wallet, such as MetaMask or MyEtherWallet / MyCrypto. The new BEP-2 token needs to be stored in a Binance chain wallet, which you need to create before you can use the Binance Bridge to convert the ERC-20 tokens to BEP-2 tokens. And the native Opera FTM token can be stored in the native fWallet created by Fantom.
Fantom is not the only project to choose DAG technology as the path to scalability. IOTA and Nano were some of the first DAG based projects, and both Constellation and Hedera Hashgraph have a similar architecture to Fantom in their use of smart contracts.
Fantom promises to add value through its addition of infrastructure supporting smart contracts and dApps, which could give it a leg up over projects like IOTA and Nano, which didn’t launch with smart contract functionality, although IOTA now has a separate layer that provides smart contract functionality. The solid performance of the IOTA token gives hope that investors will also see the value in Fantom.
There’s also speculation that Fantom can control the market for smart cities in South Korea, given the links to the market that the Fantom team possess. Of course, this isn’t guaranteed, and Fantom will need to progress and deliver on its promises to maintain the partnerships already forged. If they can do that they shouldn’t have a problem keeping their grip on the South Korean market.
Delivering high transactions per second and low fees is certainly helping Fantom increase its acceptance in some industries and will push it closer towards enterprise adoption.
Of course, enterprise adoption is the goal of many blockchain projects, and the question of when such adoption might become a reality remains open for Fantom along with all the others.
That said, the Fantom team appears to have the expertise, knowledge and drive to become successful, not to mention the industry connections that should help them maintain a solid grip on the South Korean industries being targeted by the technology.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.