The “DeFi summer” of 2020 saw the influx of crypto projects that played to the demands for decentralized finance (DeFi) from crypto users worldwide. However, the Fantom team found that certain aspects of blockchain technology limited the functionality of many decentralized finance protocols, including high transaction fees and significant times to confirm transactions.
Fantom seeks to improve on these shortcomings by using a type of distributed ledger technology called a directed acyclic graph (DAG)—rather than a blockchain—alongside a novel Proof of Stake consensus mechanism, Lachesis. Together, the team hopes these solutions would address the frustrations of crypto enthusiasts and increase access to DeFi.
The FTM coin is Fantom’s native utility token. It is used to secure the network, process and validate transactions, and power the DeFi suite that developers have built using the ecosystem.
- Fantom is a network that uses a directed acyclic graph (DAG) rather than a blockchain as its distributed ledger technology.
- The Lachesis consensus mechanism is based on a more traditional Proof of Stake model, but it prioritizes speed of transactions while not sacrificing security.
- Fantom’s DeFi suite is powered by its smart contract platform and its native FTM token which is also used for staking and governance.
How was Fantom developed?
Fantom was founded by Ahn Byung Ik in 2018. Ahn earned his PhD in computer science from Yonsei University and is otherwise best known for founding the successful restaurant review/recommendation platform Siksin in 2010. He initially served as the CEO but stepped down in 2019, leaving the company in the hands of Michael Kong, a software developer with experience building Ethereum-based smart contracts.
Another prominent member of Fantom’s early development was yearn.finance founder Andre Cronje. As an advisor to the team, he brought extensive knowledge of the inner workings of DeFi to the ecosystem before his departure from the project in March 2022.
Fantom launched its mainnet in December 2019. By January 2022, daily transactions on Fantom (1.2 million) surpassed those on Ethereum for the first time, primarily driven by newer DeFi products promising high yield returns and its partnerships with crypto giants like Chainlink, The Graph, and Ren.
The team garnered financial backing from multiple venture capital sources. It raised $40 million to support its efforts in 2018 and received an additional $15 million from HyperChain Capital in 2021.
How does Fantom work?
Directed acyclic graph
A directed acyclic graph (DAG) allows a tokenized digital currency to function similarly to one based on a blockchain. A DAG—like a blockchain—is simply a type of distributed ledger, which is to say it is a decentralized, public record of transactions on a network.
In a DAG, computers process transactions simultaneously and gossip, or share, their findings to random sets of neighboring nodes in order to validate them. While many blockchains are limited by a single node leading the production of new blocks, DAG nodes are able to work in parallel, thus making the system more efficient.
Lachesis consensus mechanism
Networks like Fantom require a way for the network to reach consensus. In other words, nodes on the network need to be able to agree that the interactions and transactions it supports are valid before finalizing them on the DAG’s distributed ledger.
Fantom uses its own asynchronous Proof of Stake (PoS) consensus mechanism called Lachesis that seeks to solve the blockchain trilemma of security, decentralization, and scalability. This is applied to its DAG to record the transactions on a distributed ledger that aims to be uninhibited by some of the limitations of blockchain technology.
In developing Lachesis, Fantom sought to prioritize four aspects of processing transactions, ensuring their consensus mechanism was:
- Leaderless – The network does not rely on a leader to guide the validation of each transaction but on a system of nodes who always keep each other informed.
- Asynchronous – Nodes reach consensus independently and process commands (like transactions) at different times.
- Byzantine Fault-Tolerant (BFT) – Only two-thirds of Fantom’s nodes are needed to validate a transaction, meaning its network is tolerant of up to one-third of faulty nodes, promising quicker processing, and finality of decisions.
- Final – Transaction confirmation is reached in under 2 seconds by the system.
Opera and DeFi
Fantom’s Opera network is its smart contract-enabled ecosystem that allows it to support decentralized applications (dapps).
Opera was intentionally designed to be compatible with the Ethereum Virtual Machine (EVM), so that projects on Ethereum could easily be applied to its ecosystem. This is how DeFi projects like Curve, Aave, and yearn.finance have deployed and found success on Fantom.
Some of the success of decentralized finance on Fantom has also been due to its network-specific offerings, separate from platforms initially built for other blockchains. For example, its stablecoin, fUSD, is pegged 1:1 to the US dollar and is intended to drive initiatives such as decentralized exchanges and lending/borrowing protocols in its ecosystem.
By January 2022, Fantom boasted nearly 13 billion in total value locked (TVL) on DeFi protocols.
How is the FTM token used?
FTM, Fantom’s native token, is used for multiple purposes in its network, which include paying for transaction fees, staking to secure the network, and as a medium of governance.
While validators need to stake a minimum of 500,000 to help secure the network, FTM can also be delegated to network validators to make the process of receiving rewards more affordable. Rewards vary based on how long a user locks up their tokens and how much they delegate.
Additionally, one unique aspect of governance is that FTM holders who apply their tokens to voting can scale their vote on a five-point scale based on how much they agree or disagree with a governance proposal. Therefore, a user can vote “4” on a proposal they strongly feel would improve the system whereas another user might vote “2” if they feel lukewarm about its implementation. This granularity of opinion is then taken into consideration in the final community tally.
There is a total supply of 3.175 billion FTM. Of these, 40% were sold during seed and private token sales prior to launch in 2019, nearly 33% were reserved for validation rewards, about 20% were reserved for the team and project advisors, 6% were allocated to a token reserve, and approximately 1.5% were sold as part of Fantom’s initial coin offering (ICO).
All non-rewards coins, or about two-thirds of the total supply, were released at the time of mainnet launch in 2019 and were subject to vesting periods of up to 2 years.
How to buy FTM
You can buy the Fantom coin on Bitstamp. Sign up for a Bitstamp account and start trading FTM today!
Disclosure: Bitstamp is licensed to engage in virtual currency business activity by the New York State Department of Financial Services.