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Fantom: DeFi isn’t just about blockchain

April 20, 2022

9 min

Fantom: DeFi isn’t just about blockchain

Fantom is a DLT (Distributed Ledger Technologies) platform for developing Dapps and DeFi solutions. Its unique technology lays the foundation for a highly scalable and flexible ecosystem. Let’s find out how it works and what Fantom (FTM) is used for.


How did Fantom come about? 

In every branch of technology, innovation proceeds by addressing the limitations of previous projects. In blockchain, this process is aided by the generally open-source nature of the projects. 

Fantom, in particular, was created to respond to the trilemma of scalability: balancing scalability, security and decentralisation, which represents an insurmountable obstacle for many Layer 1 blockchains. The initial goal, then, was to provide an alternative to the costs and speeds of Ethereum, with its often high gas fees and a dozen transactions per second, before version 2.0.

And so Ahn Byung Ik, PhD in computer science and creator of the SikSin app (widely used in Korea to rate restaurants), Bob Tucker, Matthew Hur and Michael Kong, a skilled developer of smart contract Ethereum, set up the Fantom Foundation in 2018. 

The Cayman Islands headquarters, which coordinate operations in South Korea, have seen many changes: Tucker, Hur and Ahn have abandoned the project, with the latter leaving the role of CEO to Kong, former Chief Information Officer. In addition, Andre Cronje, founder of Yearn Finance, was a long-time technical adviser to Fantom but in March 2022, decided to leave DeFi, as he had already done in 2020, due to community hostility.

Is Fantom a Blockchain?

Fantom is a slightly different DLT from blockchain. While the term DLT encompasses all technologies used to construct decentralised databases, those in the form of distributed ledgers include, on the one hand, blockchain and, on the other hand, DAG. 

Fantom combines the structure of DAG with the consent mechanism of Proof-of-Stake.

DAG stands for Directed Acyclic Graph and indicates a particular structure and sorting of computer data. This type of DLT, therefore, does not involve consecutive data blocks, but a network of connected transactions in a tree structure. Generally, transactions are verified according to the “Gossip” method: the transmission of consent between one node and another via the network.

How does Fantom work?

The DAG structure

The Opera DAG is a variation also partly inspired by blockchain, as the tree network is composed of “event blocks” in chronological order that contain the new transactions. Each node of the network keeps a copy of the DAG.

Opera uses three components to make this network function. Curiously, these take their names from the Moirai, the goddesses of fate in Greek mythology who wove the thread of each person’s life. 

  • Clotho – the “spinner” of life – is a special kind of event block.
  • Lachesis – who turned the spindle deciding the fate of life – is the consensus mechanism.
  • Atropos – who severed the thread of life – is a special event block chosen by the Clotho.

Just as the Moirai spun each person’s life, these collaborating components decide the fate of Opera and therefore of Fantom.

dag di fantom

Transaction verification on Opera

The process is very complex, but bearing in mind the concept of “gossip” and the figures comprising the DAG, we can imagine the verification of transactions as a network effect that allows all nodes to obtain confirmations of the validity of transactions by simply notifying each other.

  • A node receives transactions from users and groups them into event blocks, which it transmits to the network.
  • When a block is known to most of the network, it is called Root.
  • The nodes transmit to the network both blocks received from others and their own blocks, thereby disseminating the information they have validated.
  • When a Root block reaches an additional level of dissemination, it becomes a Clotho, on which some simple event blocks depend and whose information and connections it contains.
  • Clothos communicate with each other to reach a consensus on the election of an Atropos.
  • The series of Atroposes formed along the DAG constitutes the main chain that all the nodes have preserved and which acts as a temporal reference.

How Lachesis works

This system is particularly fast and scalable because the validators don’t have to exchange blocks with each other as in other types of Proof-of-Stake and in Proof-of-Work, but only periodically exchange information about events, without having to be perfectly synchronised.

In fact, Lachesis is technically an aBFT (Asynchronous Byzantine Fault Tolerance) consent mechanism. On a practical level, this sees transactions finalised almost instantaneously and allows the network to tolerate malicious behaviour from up to one-third of participants.

This is a much lower percentage than the classic 51% of Proof-of-Work. However, there is a very high entry barrier for nodes that want to participate in validation on Opera.

Fantom’s nodes are all equally important and powerful, but there are very few of them (about 60). This is because the Fantom Foundation requires at least 500,000 FTM to be staked in order to become a validator and supervises them itself. Moreover, there is zero tolerance for behaviour harmful to the network: any attempted compromise incurs slashing, i.e. confiscation of the validator’s stake.

Staking – as a simple locking of tokens to receive rewards – is more accessible, thanks to the delegation mechanism that requires at least 1 FTM to be locked, including through the native Fantom wallet. 

DeFi on Fantom

Thanks to its extreme scalability, Fantom is particularly suitable for developing Dapps. Each dapp can use a customisable sidechain of Opera, whose number is unlimited, unlike Polkadot’s parachains.

Fantom smart contracts are completely based on Ethereum’s EVM, the infrastructure that allows you to program smart contracts with Solidity.

This means, on the one hand, that the two ecosystems are fully compatible including in terms of standard tokens, which certainly helps developers, but on the other hand, it implies Fantom’s dependence on Ethereum. For this reason, many are hoping for an upcoming release of a native FVM, which will not necessarily entail lower compatibility (cf. Avalanche).

Fantom, originally dedicated to creating “smart cities” (as support for services), then moved on to DeFi, supply chain tracking, asset tokenisation and the creation of central bank digital currencies (CBDC). 

The distinctive feature of Fantom is that it not only hosts projects by external developers, but has also provided a suite of completely native DeFi services conceived by the internal team under the supervision of Andre Cronje. Let’s start with the latter.

The most innovative feature of the suite is liquid staking, an option still offered by very few protocols. This allows you to use FTM tokens in some Dapps, even when they are staked. fantom.finance offers fMint, fSwap, and fLend functionalities where you can use both FTM and synthesised versions of other currencies, similar to wrapped tokens and synthetic assets, based on Fantom’s standard token. 

The fMint protocol can be used to mint the stablecoin pegged to the fUSD dollar, locking FTM with a 5:1 ratio. With the fUSD obtained, you can buy fBTC, fETH, or another 174 synthetic assets on fSwap

Liquid staking applies to fMint because to generate fUSD you can also use your own stake in the form of fFTM, the tokenised version of the native token. 

Finally, with fLend, you can receive or grant decentralised loans in fTokens and receive yield farming rewards.

Fantom Finance’s DeFi platform can be reached directly from Fantom’s web wallet fWallet, also used for FTM staking.

Fantom also supports NFTs, used in various dapps developed on Opera.

Fantom’s second DeFi ecosystem is based on the interoperability between Ethereum protocols, including Sushiswap, Curve and Cream finance. Compatibility with the EVM is essential to attract the new capital of decentralised finance. For this purpose, Fantom provides the Fantom Bridge to transfer ERC-20 tokens on Opera.

What is FTM used for? 

Fantom’s native token (FTM) is the basis of the staking and governance processes and can be used in the ecosystem’s Dapps, but it is also the means of payment for network fees.

The maximum supply the FTM token can reach is 3.175 billion, all pre-mined at the launch of the network. About 40% were distributed among private investors in three investment rounds, raising nearly $40 million. Only 1.5% of the supply was granted to the 2018 ICO. The founders and team retained about 7.5% of the tokens, rewarding advisers and other collaborators with 12%, while the remainder (about another 40%) will be reserved for the Treasury and staking incentives. 

To vote on governance decisions, 1 FTM is equivalent to one vote. The distinctive feature of voting on Fantom is that for the options “Yes” and “No”, you can express a preference on a scale from 1 to 4. 

In addition, the platform’s flexible structure is reinforced by the fact that Fantom’s governance system is completely on-chain, and therefore does not require the typical hard forks associated with radical changes in the protocol.

All in all, Fantom looks like a project with a solid direction and advanced basic technology, which overcomes the limitations of blockchain by getting to the root of the problem without taking shortcuts. Significant attention to security and an emerging brand further support its candidacy among the Ethereum Killers.