SWOT Analysis: Fantom (FTM)


*Note: a SWOT analysis is an evaluation of the fundamental, operational, technical, social, economic, and even to some degree administrative elements of a project. This is not a model to be used for trading purposes. (NFA, DYOR)

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Composed of four elements, Strengths, Weaknesses, Opportunities, and Threats, a SWOT analysis framework provides excellent insight for establishing a high-level understanding of the state of a project’s well-being through the lens of a birds-eye view.

It can help formulate decisions around which areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.

Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.

Today, Fantom (FTM), the notoriously innovative, developer-loving, DAG-based, alternative EVM-compatible layer one blockchain, will get a SWOT.

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💪 Strengths (Internal) (Helpful)

1. Decentralization Balancing
Being the logical/philosophical backbone of blockchain and Web3, decentralization is an abstract, subjective concept whose meaning varies depending on subjective bias. Impossible to universally define, striking an effective model of decentralization has proven to be elusive for every project (even Bitcoin). Fantom has put in obvious effort into constructing as balanced an approach as possible: allowing delegation, lowering validator hardware requirements (thus lowering the threshold for participation), 500,000 FTM (0.015% of total supply) requirement for validators, leveraging leaderless consensus et al. Whenever contextualizing the potential success of a network on a long-term time horizen, decentralization will prove superior to its alternative.
2. Gas Fee System
Previously, the FTM transaction model was a simple 70/30 split, with 70% of gas fees being distributed to validators and 30% being burned. In the latter half of 2022, Fantom adjusted the fee split model and rolled out two new initiatives to help bolster the ecosystem. Today, there is a 70/15/10/5 split, with 70% still allocated to validators, 15% to the Gas Monetization program, 10% to the ecosystem vault, and just 5% being burned. The results of experimentation with fee markets will have the potential to translate to stronger community effects and better value cycling.
3. Sonic Network Upgrade
Currently in testnet, but with mainnet in sight, a network upgrade that brings a smorgasbord of technical improvements will be taking place on Fantom. Dubbed “Sonic” and requiring no hard fork, the upgrade includes three key changes: throughput increases from the current 30 tps to over 2,000 tps, database storage reductions for validators by over 90% (from ~2,000 GB to ~300), and the introduction of the FVM (Fantom Virtual machine). The transactions per second metric receive its boost from optimizations in the Lachesis consensus transaction pool and modifications on the FVM. Disk space requirements were reduced drastically thanks to the new Carmen Database’s capabilities for live pruning, which in turn lower the barriers to participation, inviting in a larger potential stakeholder base.
4. Gas Monetization Program
Overall impact, better incentives = more sustainability. 15% of all transaction fees are allocated back to the creator of a contract that was involved in the transaction, creating a recursive value feedback between application developers and the network itself. Projects that meet a certain criteria (completed over 125,000 txs and been live for longer than 3 months) will automatically begin to retain a portion of all the activity that they elicit on Fantom. If AAVE creates $100,000 worth of network transaction fees it will claim $15,000 of that. With this additional vector for generating revenue becoming available, projects are further incentivized to build and market their products on FTM. Noteworthy that there are nuances regarding the transaction types that qualify; non-qualified transaction fees are aggregated separately and distributed to the network’s top 15 leading protocols on a quarterly basis.
5. Implementing Ecosystem Vault
10% of all transaction fees that were once burned will now be allocated to an ecosystem vault. Acting like a treasury for funding/rewarding projects building on FTM, the purpose of the vault is twofold: to breed stronger community relationships through coordinating how the vault’s assets are allocated and to incentivize application development. Additionally, since the funding is derived from a source that was previously discarded, interesting experiments around value attribution/utilization are taking place, which might ultimately yield macroeconomic insights that can contribute to the further evolution/optimization of society.
6. Lachesis Consensus Protocol
Fantom has always been recognized for its emphasis on technology. Showing its deep commitment to creating something innovative and useful, the project has implemented its own leaderless, asynchronous BFT (Byzantine Fault Tolerance) mechanism, capable of withstanding a 1/3 fault in node operators called Lachesis. In Lachesis, the network grows without having the entire validator set approve each individual transaction on the fly; rather, on-chain events are batched into blocks and appended as either confirmed or unconfirmed. The status of unconfirmed blocks is used to confirm the preceding blocks, which are arranged independently. This optimistic throughput is secured by occasional validator observations, and the incoming epochs confirm the preceding ones. 
7. Instant Finality
Finality has been a touchy subject in the public blockchain space. First-generation networks, such as BTC, have a model of “probable finality,” meaning that transactions never become irreversible, and the chain can experience a rollback at random. As the industry transitions to newer generations of technology, finality has become a focal point for consideration by enterprise-grade market participants. At its simplest, the faster the finality, the more security a user feels about their transactions, the more user-friendly the experience, the more likely they are to come back. Fantoms per-block finality addresses certain elements in counter-party risk that empower developers to create products capable of appealing to the masses.

😞 Weaknesses (Internal) (Harmful)

1. Multi-Chain Hack
Slammed with a ~126 million USD loss (of which the majority was USDT, USDC, WETH, and WBTC) that took place during an unforeseen attack. The happenings of the event itself coincided with Multichain’s CEO disappearing for over a month, ultimately due to legal implications, which have raised concerns and theories that the depegging and private key vulnerabilities were the result of coordinated insider mal intentions. Reverberating throughout the entire network, both end users and protocols suffered materially. In fact, one of the networks leading DEX protocols at the time, SpiritSwap, was forced to shut down its operations.
2. DEFI TVL Fleeing, Fast.
Falling from ~450 million to ~75 million, the year-on-year DEFI TVL collapsed alongside the broader crypto market; however, the severity of liquidity fleeing has only been amplified by the Multi-chain incident. While many networks’ percentage decrease has been showing signs of bottoming out, FTM has had the inverse take place, with the last quarter showing the most dramatic loss (-69%). Placed against the backdrop of increasing pricing and sentiment shifts, coupled with the decently high diversity score of 15 (15 different projects contributing to TVL), the dramatic loss of interest might indicate mass abandonment.

🧐 Opportunities (External) (Helpful)

1. Affiliation with Andre Cronje
Andre Cronje is a controversial genius in the space. He is a technically skilled thought leader who has contributed to many of the industry’s most prominent protocols, including YEARN and Keep3r. Coming out of nowhere, Andre was given a holy title, the same caliber as Vitalik, in the crypto space (rightfully so) that imbued the project with credibility. Granted, the role of Andre in the ecosystem was as an advisor; however, in spite of that, whenever personal news about him would arise, the project would react. In the event that Andre does rise above the challenges and becomes a hero of the industry, FTM will inherit some of that clout.
2. Warm Market Reception
Alternative smart contract networks, especially layer 1’s, whether they are EVM compatible or not, generally receive a lot of backlash. Every major platform, from Ripple to Solana to BSC to Arbitrum, has been subject to some extent of intellectual tyranny. Tribalism from communities such as Ethereum stirs up conflicts, constantly trying to hurt the images of competing platforms through insults. Interestingly enough, Fantom has somehow been able to side-step this drama and, in fact, has actually caught some support from the marketplace.
3. Market Over-reaction
Fantom is among the layer ones that have been hit hardest in the last market cycle. Excessive losses in TVL present an opportunity for it to come back, which would translate into massive opportunities for the protocols building on top. Abandonment by users opens the floodgates for massive shifts in the event of mass migrations to the network (growing from 3,000 DAU to 30,000 DAU {10x} can have more impact than growth from 30,000 to 90,000 {3x}). Whenever market conditions are restored, the reconciliation point for FTM would be higher.

😳 Threats (External) (Harmful)

1. Affiliation with Andre Cronje
Notorious for randomly disappearing and his “I test in prod” hot-take on development, Andre Cronje is a wild card in crypto. Getting caught in the crossfire of technical and governance problems that arose in some of his previously affiliated projects has caused a segment of the crypto community to turn their back on him. Positioned somewhat as a leader of the projects with which he is involved, the veil of uncertainty regarding what to expect from him creates an environment that large institutions might not be too keen to interact with.
2. No Native Stablecoins
Fantom does not have any native stablecoins, the crypto product with the greatest potential market size and market fit. Instead, Fantom leverages wrapped versions of the assets. The presence of stablecoins is a strong signifier that the chain has some degree of interaction with real-world use by consumers (payments); the lack of it would hint at the opposite. Having no major issuers of fiat {USDT, USDC} or crypto {WBTC, WETH} stablecoins, Fantom is missing out on a major sector of the market.

Takeaway:

A lot of work is put forth in the technology.
A lot of efforts towards becoming anti-fragile.

The more difficulties a project survives through and thrives after, the more valuable it becomes. 

It seems as though while the fundamentals are improving, social sentiment has been relatively weak. This divergence is reminiscent of previous market cycles when technologically sound projects became obscure only to rise like a phoenix from the ashes and melt faces.

The future is bright for Fantom.

A note on the absence of native stablecoins;
If this is a strategic move to position the chain by leaving out the native stablecoin market, the project becomes able to allocate the resources (finances and development) that would have otherwise been expended on stablecoins to other areas. Potentially honing FTM in as a product for non-payment-based utilities.

Conclusion:

Fantom is a contender for the throne of alternative smart contract platforms. 

Not mentioned, but deserves attention:
As far as tokenomics go, Fantom’s FTM is definitely worthy of exploration. With nearly 90% of the total max supply already in circulation, an inflation rate that is heading towards 0 (currently at 2%), existing for over five years, and having over 2,000,000 on-chain accounts, there is positive reflexivity building up in the asset. 

At the end of November 2023, Fantom’s chain experienced a surge in activity, spiking the daily transaction count from ~200,000 to over 5,000,000, setting new all-time highs (>2x above the bull market peak of ~2m). It is still to be seen what this could imply for the project, but this cannot be discounted.

 


 

Thank you so much for reading,

I hope this serves you well on your journey.

Live long and prosper 🥂

 

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Andrey Didovskiy
Andrey Didovskiy

🌟 Crypto, Blockchain, DLT & being digitally Free 🌟 🌹 Met Bitcoin in the summer of 2014 — the rest is history 💎


The Crypto Masters Guide (TCMG)
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