What Are Fantom and FTM's Key Weaknesses?

By Michael @ CryptoEQ | CryptoEQ | 2 Jan 2023


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Core Report Vulnerabilities

The Fantom network has a number of notable vulnerabilities of which investors and users alike should be aware. Before any specifics, it's worth including a brief overview of Fantom’s highly controversial launch. 

ftm devs dec 2022

Source: Artemis

It's unknown whether these developers are working in different repos or a separate platform from the main Fantom Github, but it appears the activity is nearly dead. With the rumored return of Andre Cronje in Q4 2022, it is possible there is a resurgence in commitments within the Fantom ecosystem in 2023, but for now, this is purely speculation.

Centralization

The Fantom protocol itself suffers from a substantial amount of centralization on two fronts: the requirements to become a validator, and the way its governance model was actually erected. First off, validators must have a 500,000 FTM stake to run a node. This puts the cost of becoming a validator at $109,000 as of Q4 2022.

Presently, Fantom has less than 100 validators, of which only five control the majority of the network. There’s a proposal to lower the staking threshold, with options of 250,000, 100,000, and 50,000 FTM. 100,000 received 73% of the total votes, but the vote failed as it only garnered 55.5% of the total votes, of which 90% is needed to pass the proposal. Thus, no improvements have been made.

Besides validators, the governance model is constructed to give the Fantom Foundation and top validators direct control over the entire system. This is seen in the design and role of the Review Board, an entity with absolute vetoing power. For example, even if a 90% voting threshold is reached and all of the token holders agree, the Review Board could still veto the proposal. This is a classic example of a distributed system with centralized decision-making power. Distribution, in this case, refers to the ability of anyone to interact with the governance system, but the decentralization here doesn’t exist. The only true voting power lies with the largest token holders and the Review Board.

Other Risks

Fantom has a number of other identifiable risks associated with the network. The biggest of these remaining risks is the ending of validator rewards in 2023 combined with the dangerous lack of liquidity. Validators currently secure the network through incentives. These incentives are a combination of inflationary rewards and a 70% cut of the network’s transaction fees. In 2024, the pool of rewards will be dried up, meaning validator incentives will drop dramatically.

Additionally, Fantom had a liquidity crisis back in Q2 2022 due to its significant wealth concentration. A single Fantom whale was at risk of being liquidated from a $50 million FTM position. This led to cascading fears across Fantom and caused gas fees to spike especially high (~35,000 gwei). Gas fees themselves have surged before on the network due to congestion.

ftm gas spike

Source: Delphi Digital

ftm gas used 2022

Source

Bug bounty and Watchdog Program

In 2022, Fantom implemented Watchdog, an automated smart contract monitoring system, to enhance the security of decentralized applications on its blockchain. Watchdog automatically searches smart contracts for faulty code, focusing primarily on Fantom DeFi applications.

Fantom Foundation stated that Watchdog will automatically scan all smart contracts inside the Fantom ecosystem for flaws. In the event that a vulnerability is discovered, the security firm Dedaub will alert the project. While Watchdog does not provide 100% security against attacks, it is intended to augment expensive third-party audits, as opposed to completely replacing them.

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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


CryptoEQ
CryptoEQ

Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.

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