State of Fantom Q2 2023

Key Insights

• Fantom’s average daily active addresses declined by 18%, while new unique addresses grew by 146% QoQ. The growth in new addresses coincided with increased activity on LayerZero and Galxe.
• Fantom's average daily transactions have steadily declined over the past year and decreased by 24.4% QoQ.
• Like most cryptoassets, Fantom’s market cap declined 36% QoQ after the SEC took regulatory actions against Coinbase and Binance.US, even though FTM was not alleged a security.
• Proposal 34 was passed to reduce the minimum stake required to validate from 500,000 FTM to 50,000 FTM. The reduction aims to increase Fantom’s staking participation, grow its validator set, and facilitate greater decentralization.
• Several ecosystem growth initiatives have been established, including Fantom's recent Ecosystem Vault and Gas Monetization program, which started to build momentum in Q2 2023.
• Fantom TVL denominated in USD dropped 46% QoQ. Towards the end of May, the DeFi ecosystem saw a significant decline in TVL when concerns about cross-chain router protocol, Multichain, surfaced.
• Fantom has wide-reaching plans to remain competitive for the rest of 2023, including a new StateDB storage system, Fantom Virtual Machine (FVM), and account abstraction.

Primer on Fantom

Launched in 2018, Fantom is a Layer-1 protocol focused on fast and cost-efficient transaction execution. With developments pioneered by Andre Cronje, Fantom’s network hosts dozens of early DeFi protocols, including Curve, Yearn, and SushiSwap.

Fantom uses a Proof-of-Stake consensus mechanism, called Lachesis, which was created by the Fantom Foundation. Lachesis can provide security to multiple other layers, the first of which is Fantom's EVM-compatible smart contract chain, called Opera. Because Fantom nodes reach consensus independently, each node verifies transactions asynchronously and is not required to incorporate other blocks sequentially. This speeds-up transaction execution.

FTM, the project's native token, is used for payments and governance. It also enables ongoing block rewards for validators and delegators who stake FTM. Fantom validators must stake a minimum of 50,000 FTM.

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Key Metrics

Performance Analysis

Network Overview

In Q2’23, Fantom had ~44,000 average daily active addresses, down 18% QoQ. Despite the decrease, the metric was in line with the long-term trend of daily active addresses fluctuating around ~40,000 over the past year. However, Q4 2022 and Q1 2023 saw spikes in address activity that skewed the averages upwards.

Simultaneously, average new unique addresses reached ~430,000 in Q2’23 (up 146% QoQ), which is the highest level over the past five quarters (up 6,110% YoY). This increase in new Fantom address activity coincided with increased activity from LayerZero, a lightweight, generalized cross-chain messaging protocol. LayerZero found some traction after LayerZero Labs developed Stargate, a bridge built on top of LayerZero. Among other things, Stargate avoids using wrapped tokens, increases user experience and capital efficiency, and removes attack vectors.

After LayerZero announced its $120 million Series B fundraising on April 4, activity in terms of active wallets and transactions spiked on many of its supported networks. By June, Fantom was hosting 150,000-200,000 LayerZero and Stargate daily transactions and 100,000-150,000 daily unique addresses from those transactions.

Beyond LayerZero, network activity was supported by Fantom’s leading DeFi application SpookySwap and credentialing data network Galxe. Galxe experienced noticeable traction with its reward-based loyalty programs which have been in effect on Fantom since Q4 2022.

Despite the activity stemming from LayerZero and Galxe, Fantom's overall average daily transactions have steadily declined over the past year and decreased by 24.4% QoQ.

While daily transactions trended downward, Fantom's average daily transaction fee (in FTM) increased by 86% QoQ. However, the average was skewed by a significant spike in April. This spike coincided with the activity stemming from LayerZero but was also driven by XEN Crypto, a free-to-mint token known for consuming gas on many networks.

Staking and Decentralization

Fantom uses a Proof-of-Stake consensus mechanism called Lachesis. It provides security to multiple other layers, including Fantom's EVM-compatible smart contract chain, Opera.

Fantom nodes reach consensus independently. Because each node verifies transactions asynchronously and is not required to incorporate other blocks sequentially, Fantom’s consensus mechanism speeds up transaction execution. However, speed may come at the cost of decentralization.

As of Q2 2023, the state of Fantom's security and decentralization consisted of the following:

• Active validators - 61
• Total staked - 1.3 billion FTM ( ~$400 million)
• Nakamoto coefficient - 4

FTM, the network's native token, can be used for ongoing block rewards sent to validators and delegators who stake FTM and secure the network. On April 2, 2023, Proposal 34 was passed to reduce the minimum FTM required to stake from 500,000 FTM to 50,000 FTM.

For networks to become more decentralized, they must increase the number of validators securing the network. By having more validators, a network makes it more difficult for malicious actors to compromise the network. With the passing of Proposal 34, the Fantom network is anticipated to increase its staking participation, grow its validator set, and facilitate greater decentralization.

Financial Overview

After the value of FTM increased by 162% in Q1, the Securities and Exchange Commission (SEC) put a damper on market sentiment during Q2 after it alleged that several exchanges (including Coinbase and Binance.US) engaged in unregistered offers and sales of cryptoasset securities. Even though FTM was not alleged a security, the complaint put downward pressure on FTM’s price, as it did for most cryptoassets. As such, FTM experienced a sharp decline in June and finished the quarter down 36%.

Beyond the circulating market cap, the circulating supply of FTM was flat QoQ after supply dynamics changed between Q4'22 and Q1'23. During Q4, Fantom's Ecosystem Vault and Gas Monetization program were introduced. They reduced the burn rate of transaction fees from 30% to 5% (more details in the Ecosystem section). At the same time, validator rewards remained constant.

To that end, Proposal 23 aimed to reduce the staking reward parameter and was passed in Q1. Consequently, validator rewards were reduced from ~14% to 6%, thereby decreasing the inflation rate that targets a ~2028 end date for rewards. Collectively, the circulating supply of FTM increased during Q1, but the network returned to its historical inflationary levels by the end of Q2. By June 30, 2023, over 10 million FTM (~0.3% of its 3.175 billion total supply) had been burned.

Revenue in FTM (total transaction fees paid in FTM) increased by 35% (+22% in USD terms), while network value decreased by 36.1% QoQ. The increase in revenue was largely driven by the increase in average transaction fees brought on by XEN Crypto.

Nonetheless, the difference between the change in revenue versus market cap (in USD) suggests that value accrual from network activity was more significant than market behavior. The circulating market cap of FTM was 408x the annualized quarterly revenue at the end of Q1 2023 versus 214x at the end of Q2, suggesting a move to a more favorable valuation.

While a P/S ratio may provide directional insight into fundamental value accrual versus speculative market behavior, it is not necessarily adequate for evaluating blockchain assets. Other valuation techniques have also been introduced, including Messari’s Expected Demand for Security Model and Multicoin’s Sum of the Parts framework.

Ecosystem and Development Overview

Ecosystem Growth Strategy

In addition to the Fantom Foundation's 30-year runway, several growth initiatives have been established. Of note, Fantom's recent Ecosystem Vault and Gas Monetization program both started to build momentum in Q2 2023.

In Q4 2022, the Fantom Foundation launched an Ecosystem Vault on Fantom, which introduced a decentralized funding process to support ecosystem builders. With the initiative, one-third of the 30% transaction fee burn rate (at the time) would be redirected to a Special Fee Contract (SFC). Through on-chain governance, validators can allocate funds from the SFC. Through Q2 2023, the Ecosystem Vault had amassed ~530,000 FTM, with no funding proposals yet approved. However, at the end of Q2, the Fantom Foundation introduced a new governance proposal to expedite the distribution of these funds using the Gitcoin Grants program.

Gitcoin Grants is a quadratic funding program created by Gitcoin. After community members donate tokens to participating projects in grant rounds, the program matches these donations through a funding allocation method known as quadratic funding. The more unique donations a project receives, the higher the matching funding will be. The first round of funding for Fantom projects began in Q1, with Fantom Foundation as the matching partner.

In Q4 2022, Fantom's Gas Monetization program was introduced to reduce the burn rate of the network's transaction fees from 20% to 5%. It also redirected the remaining 15% of the transaction fees to the Affiliate Rewards program, which rewards high-quality applications and offers sustainable income for developers. The proposal was passed in Q2, and Fantom's Gas Monetization program was launched in beta. By the end of Q2, more than a dozen applications joined the program, generating over 90,000 FTM in funding.

Other growth initiatives include:

• Fantom Hackathons - In Q1, Fantom Hackathon Q1 2023 attracted over 1,200 participants and a prize pool of $50,000. Soon after, Fantom Hackathon Q2 2023 featured a prize pool of over $200,000. The winners of this hackathon will be announced in August 2023.
• Venture Capital Partnerships - Since genesis, the Fantom Foundation has formed several partnerships with venture capital firms, e.g., Hyperchain Capital, Cypher Capital, GDA Capital, and Mapleblock Capital.

DeFi

In Q2 2023, Fantom TVL denominated in USD dropped 46% QoQ. However, TVL denominated in FTM only decreased by 13%, suggesting that TVL was determined more by asset price decreases in USD than the flow of cryptoassets. Towards the end of May, the DeFi ecosystem saw a significant decline in TVL when security concerns about the cross-chain router protocol, Multichain, surfaced in May.

Subsequent events: After communications in late May, no further details about the issues behind the concerns were surfaced until July (Q3'23) when Multichain recommended all users suspend the use of its services. It was later determined that the protocol had been exploited, and the aftermath of the Multichain debacle went on to significantly impact Fantom's DeFi ecosystem along with several others.

All of the top DeFi applications on Fantom experienced declines in TVL throughout Q2 2023. Of these, Fantom's most prominent protocols by TVL were SpookySwap (-45%), Geist Finance (-42%), Scream (-37%), Curve DEX (-18%), and Beethoven X (-55%).

Despite the declines in TVL and issues stemming from Multichain, there was a consistent and healthy distribution of TVL across applications on Fantom, which may have mitigated further damage to the overall DeFi ecosystem. Historically, ~40% of TVL has been locked across most of the "other" long-tail DeFi protocols on the network. The continued distribution of TVL on Fantom signals that the DeFi ecosystem is robust enough to manage the risk of TVL concentration in a single application.

To that end, the Fantom growth initiatives and recent integrations throughout Fantom DeFi are positioned to support the ecosystem.

Although excluded from the above TVL figures to avoid double-counting, liquid staking emerged and supported the Fantom DeFi ecosystem. In Q2, Ankr announced its move to Fantom and its focus on increasing its liquid staking TVL on the Fantom network. During the quarter, Ankr enabled the bridging of ankrETH through its ankrETH bridge, enabling users to stake Ethereum-based assets on the Fantom network and earn rewards in FTM. Ankr also introduced ankrFTM, a token used in several liquidity pools, including those with Beethoven X. The token allows users to provide liquidity and earn rewards. Ultimately, Ankr ended Q1 2023 with ~$270,000 in TVL on Fantom and finished Q2 with TVL up ~185%.

Further developments spanning across Fantom DeFi included:

• Flux Exchange - A decentralized perpetual trading platform that went live on Fantom in Q2.
• DAMX - A decentralized automated market exchange built on Fantom. It announced the beta launch of its DEX and began trading with seven supported assets in May.
• Odos Protocol - A novel DEX aggregator launched to enable optimal routes and multi-token swaps on Fantom during Q2.
• DLN - A cross-chain DEX that enables users to trade assets across chains without using a bridge integrated with the Fantom network.
• WigoSwap - A gamified DeFi ecosystem launched its bridge to streamline cross-chain transactions with Fantom. It experienced initial traction during Q2.

NFTs

Fantom experienced a resurgence in secondary NFT sales volume after slow growth through 2022. NFT secondary sales volume (USD) increased by 26% QoQ after growing by 202% in Q1.

The increase in activity coincided with several developments across the NFT space, including:

• Bounce Finance - A decentralized auction protocol integrated with Fantom during the quarter. The protocol enables a secure auction experience with a range of products, including token and NFT auctions, real-world collectible (RWC) auctions, ad space auctions, SDKs, and a private launchpad service designed to streamline initial DEX offerings (IDOs) for new projects.
• GHOST - A cross-chain interoperability platform that provides anonymity for NFTs launched ghostNFT on Fantom, enabling NFT collateralization for ERC-721 NFT collections.
• DAMX - Following the launch of its DEX, DAMX announced the sale of its Robot NFT, which provided its early users with bonuses and rewards.
• NOVABLOX - An NFT utility platform introduced non-custodial ERC-1155 NFT staking on Fantom, enabling users to utilize their NFTs through staking.

Gaming

Gaming activity on the Fantom network is still in its early stages. In addition to Fanom’s growth initiatives, several developer tools have been rolled out to spur growth in the Fantom GameFi sector.

• Balthazar - Gaming infrastructure that offers its Babylon SDK to enable developers to easily integrate non-custodial wallets into their games.
• MetaFab - Gaming infrastructure that enables developers to build an experience that does not require gamers to have blockchain knowledge while still providing the benefits of digital ownership.
• thirdweb - Offers a suite of services that streamline the creation of smart contracts and integration of blockchain into games. Its services include its Solidity SDK for prebuilt contracts to deploy with optional extensions such as NFTs, a GamingKit for prebuilt contracts that create marketplaces, and the Unity SDK for integrating Web3 functions into games built with Unity.
• Moralis - Offers the Moralis Metaverse SDK for games to plug into Unity and enable developers to leverage Web3 data APIs. The SDK also simplifies the minting and trading of NFTs and wallet connections.
• Wombat - Enables developers to integrate NFTs into their games with Game Studios, which offers services like minting NFTs for players with the Wombat API. Developers can also list their games on the Wombat mobile application and gain exposure to the platform’s existing user base.

Further, the Lava Network announced its partnership with Fantom during Q2. Lava aggregates node providers to give wallets, block explorers, and applications RPC endpoints for more than 20 chains. It offers its Lava SDK, a TypeScript/JavaScript implementation of the Lava Protocol. The SDK enables direct communications between developers and RPC providers.

Developments leveraging such tools during Q2 included those with the following:

• SUPA Foundation - A play-and-earn metaverse that includes diverse games. It announced the launch of its SUPA Portal Marketplace and beta launch of its game Internal Conflict.
• 8PLAY.GAMES - An arcade platform that released Granary Dash, the platform's first 3D game.
• Estfor Kingdom - A browser-based idle game. After becoming the first-place winner of the Q1 Fantom Hackathon, Estfor Kingdom launched its alpha version.

Other Use Cases, Infrastructure, and Tooling

Outside of the DeFi, NFT, and GameFi sectors, noticeable network activity continued to stem from other use cases like the credentialing social application, Galxe.

Galxe emerged as a leading social application through Q2 2023. The application grew its quarterly total of UAWs from 966,000 in Q1 to 3.4 million (+255%) QoQ.

In light of the recent events surrounding Multichain, the Fantom ecosystem would benefit from expanding infrastructure to mitigate ecosystem reliance on a single provider. Examples of such expansion through Q2 included developments with the following:

• Polyhedra Network - Polyhedra's zkBridge, which went live on Fantom. The zkBridge is an efficient and trustless interoperability protocol that uses zkSNARK technology. Polyhedra also offers a zk light client built on LayerZero, which also announced support for Fantom during the quarter.
• deBridge - A cross-chain protocol that added support for Fantom, enabling market participants to efficiently price and perform cross-chain transfers to and from the Fantom network.
• hashport - An interoperability solution integrated Fantom into its portal. It enables users to port tokens between the Fantom and Hedera networks.

Further, security integrations were rolled out including:

• Web3 Defense Suite - De.Fi, a security audit application, integrated with Fantom in Q2. The app enables users to input a smart contract of any Fantom-built token, NFT, LP, or vault. Then, they receive a thorough analysis of the contract's safety, high-risk features, liquidity, and token distribution.
• Shield Protocol - A blockchain security, smart contract audits and KYC platform. It announced its collaboration with Fantom to enable ecosystem projects to leverage smart contract and KYC audit services.

Ultimately, while the DeFi ecosystem began to shudder with concerns around Multichain, Fantom continued to build on its strategy to deploy financial and human capital across its ecosystem. Developments continued to be rolled out to support DeFi, usher in NFT platforms, provide tools for gaming, and expand infrastructure for greater interoperability.

Development Activity

Developer engagement began to catch up to Fantom's growth strategy at the onset of its Gas Monetization program and Ecosystem Vault.

One measure for development activity is the number of unique smart contracts deployed on a blockchain. A unique contract deployment uses a contract code intended to be one-of-a-kind so that only one contract instance can exist on the network. This measure grew by 155% QoQ.

The number of unique contracts verified is determined by the number of smart contract verifications, which developers trigger to translate code into a higher-level language. This metric reversed course and declined by 20% QoQ.

Further, data sources tracking the events in Fantom's GitHub repository can also give insight into developer involvement. According to Electric Capital's Developer report, full-time developers on Fantom decreased from 25 to 21 QoQ. However, like the trend in smart contract deployments, part-time developers on Fantom increased from 44 to 56 QoQ.

Qualitative Analysis

Other Key Events, Catalysts, and Strategies for Ecosystem Growth

Aside from the ecosystem developments and growth strategies mentioned above, other aspects of Fantom’s strategy pushed forward through Q2. Two strategic elements stood out during Q2 in particular:

• User access and experience — Captivate users and developers with improved user access and experience.
• Community — Acquire developers and drive adoption through community building.

User Access and Experience

A series of developments and integrations were rolled out to improve user and developer experience.

Notable developments aimed at ushering in users and improving user experience included:

• fWallet - At the end of Q1, the Fantom Foundation launched its upgraded wallet, which enabled users to natively delegate FTM to validators, create governance proposals, bridge tokens, and swap assets. The fWallet also integrated Unstoppable Domains to create a personalized Web3 domain that points directly to users' crypto addresses. In Q2, the fWallet was upgraded to fix minor bugs and further improve UX.
• iMe Smart Platform - A messaging smart platform powered by Telegram "Twitter-enabled" FTM and other Fantom-based tokens. It enables users to send crypto with just a Twitter handle via Twitter and Telegram.
• Fantom Name Service (FNS) - FTMScan, the most commonly used transaction explorer on Fantom, integrated FNS, enabling users to see FNS Domain names associated with Fantom wallets.
• CoinSender - A token distribution and management platform which launched support for Fantom. The platform enables users and companies to harness airdrops and perform multi-transaction payouts and multi-address transactions with one click.
• CryptoWallet.com - Integrated Fantom into its neobank, enabling users to manage FTM on three chains.

Notable developments aimed at ushering in developers and improving developer experience included:

• The Graph - A Web3 protocol for organizing and accessing blockchain data announced its integration with Fantom, enabling developers to use its subgraphs to rapidly load Fantom data securely and reliably.
• CryptoDo - A multichain no-code solution integrated with Fantom to enable businesses and developers to create and deploy applications on Fantom without programming skills.

Community

During Q2, the Fantom community made efforts to grow its members and educate developers. Outside of allocating financial capital, the community also attracted human capital to the ecosystem through:

• Fantom Academy - Launched a series of lessons aimed at developers building on Fantom. The first lesson was geared towards Solidity basics, Chainlink VRF, token standards, and gas optimization, to name a few topics.
• Fantom Networking - Fantom Insider introduced Fantom Networking Nights, events held globally to bring together developers, VCs, and Web3 enthusiasts to discuss the growth of Fantom in respective locations.

The Road Ahead

Just as Fantom released its go-opera version 1.1.2-rc.5 to further optimize the network in Q1, the Fantom Foundation laid out robust plans for 2023. Looking ahead, Fantom's approach to success will continue to include its revamped growth strategies as well as significant network upgrades that could facilitate a greater value proposition for users and developers.

The roadmap introduced a new StateDB storage system, Fantom Virtual Machine (FVM), and account abstraction.

Fantom Virtual Machine and Storage: The new file-based StateDB will replace the currently used key-value storage system and will aim to achieve storage savings and faster processing times. Simultaneously, the Fantom Virtual Machine (FVM) will replace the EVM and increase the execution speed on Fantom. The FVM will be Solidity and Vyper compatible and will allow for more efficient smart contract execution. A release date is still pending.

Fantom Account Abstraction: The Fantom Foundation is currently working on introducing account abstraction on its mainnet. Through this initiative, Fantom aims to address the drawbacks of the current account infrastructure on EVM networks by enhancing the application experience and enabling social recovery options for wallets on Fantom.

An experiment was conducted to measure the impact of the new storage system and virtual machine on the Fantom network. The results showed improvements in transactions per second, averaging approximately 4,500 per second. According to the team, "the transactions were 8.1x faster, and the blocks used 98% less storage" than the previous storage and virtual machine implementations.

Fantom also has gas subsidies and smart wallets on the horizon. Gas subsidies will help onboard users to the network without needing FTM. The launch of gas subsidies is expected to occur in Q3 2023.

Smart Wallets, which would be smart contract-controlled wallets, would enable fee-paying in non-FTM assets. The feature would also allow for multiple transaction simulations and could implement spending limits.

Ultimately, Fantom has wide-reaching plans to remain competitive for the rest of 2023.

Closing Summary

During Q2, Fantom's average daily active addresses declined by 18%, while new unique addresses grew by 146% QoQ. The growth in new addresses coincided with increased activity on LayerZero and Galxe. Despite the activity stemming from LayerZero and Galxe, Fantom's overall average daily transactions have steadily declined over the past year and decreased by 24.4% QoQ.

After the value of FTM increased by 162% in Q1, the Securities and Exchange Commission (SEC) regulatory actions in Q2 (unrelated to FTM) put a damper on market sentiment. The strained environment put downward pressure on FTM, which experienced a sharp decline in June and finished the quarter down 36%.

Nonetheless, the drivers of Fantom's network activity and fundamental value accrual include its growth strategy to attract developers and grow its ecosystem. Several growth initiatives have been established, including Fantom's recent Ecosystem Vault and Gas Monetization program, which started to build momentum in Q2 2023.

Fantom TVL denominated in USD dropped 46% QoQ. Towards the end of May, the DeFi ecosystem saw a significant decline in TVL when concerns about Multichain surfaced.

Despite the concerns and subsequent events that significantly impacted Fantom's DeFi ecosystem, Fantom has wide-reaching plans to remain competitive for the rest of 2023. The network aims to continue building on its growth strategies to expand its ecosystem. Significant network upgrades are also on the horizon, including a new StateDB storage system, Fantom Virtual Machine (FVM), and account abstraction.