Fantom announced the launch of its new upcoming blockchain, Sonic, in May. Sonic will be a separate blockchain from Fantom’s Opera network, but FTM tokenholders will be able exchange FTM tokens 1:1 for S tokens, the native token of Sonic, at the launch of the new network.
Opera was officially upgraded on May 29 after ~80% of staked FTM was delegated to validators running Fantom’s new technology. Due to this upgrade, Fantom can now achieve a TPS of 2,000 with 1-second TTF.
Fantom had QoQ growth across many key metrics in Q2, including stablecoin market cap (+15%), active validators (+6%), FTM staked (+5%), and DeFi TVL in FTM (+22%).
In April, Fantom announced that USDC bridged through Wormhole (USDC.e) will serve as the canonical stablecoin on Fantom. By quarter end, $4.1 million USDC was bridged to Fantom through Wormhole.
Primer
Fantom (FTM), launched in 2018, is a Layer-1 protocol focused on fast and cost-efficient transaction execution. Fantom became a DeFi hub with development help from Andre Cronje. As a result, Fantom’s network hosts dozens of DeFi protocols, including Equalizer Finance, Beethoven X, and SpookySwap. In addition to DeFi, Fantom also supports NFTs and games, like the new Estfor Kingdom.
Fantom uses a Proof-of-Stake consensus mechanism called “Lachesis,” which was created by the Fantom Foundation. Lachesis provides security to Fantom’s Opera chain, which is an EVM-compatible smart contract chain. 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 ($29,400 at quarter end). For a full primer on Fantom, refer to our Initiation of Coverage report.
Announced in March 2024, Fantom announced it would launch a new high-throughput chain named Sonic (ticker $S) run by a new organization named Sonic Labs. Sonic will be a separate blockchain from Fantom’s Opera network, but FTM tokenholders will be able to exchange FTM tokens 1:1 for S tokens at the launch of the new network. More information regarding Sonic can be found here.
After an outperformance during Q1, FTM cooled off in Q2 alongside the broader crypto market. The circulating market cap decreased 41% QoQ from $2.8 billion to $1.7 billion. Despite this correction, FTM’s circulating market cap is 94% higher YoY ($0.9 billion at the end of Q2’23). By the end of Q2’24, FTM’s market cap among all tokens fell by 4 spots from 48 to 52.
Revenue, which measures all gas fees collected by the network, fell in Q2. Revenue in FTM decreased 42% QoQ from 1.8 million to 1.0 million, while revenue in USD also decreased 38% QoQ from $1.2 million to $0.8 million. Revenue in FTM has been in a gradual downtrend since Q3’23. Notably, however, revenue in FTM was heightened in Q3’23 due to inscription-related activity. Revenue on Fantom should begin to pick back up once onchain activity rebounds across all smart contract platforms.
Supply Dynamics
The FTM token underwent a series of supply dynamic changes between Q4’22 and Q1’23. During Q4’23, the Ecosystem Vault and Gas Monetization program were introduced (more details in the Ecosystem section). They reduced the burn rate of transaction fees from 30% to 5% and reallocated the remaining 25%.
The Ecosystem Vault receives 10% of all gas fees paid on Fantom. By the end of Q2, the Ecosystem Vault balance was 1.6 million FTM, up 10% QoQ. However, due to the USD price depreciation of FTM, the Ecosystem Vault balance in USD fell 36% QoQ from $1.5 million to $0.9 million.
By quarter end, the circulating supply of FTM was 2.8 billion. The annualized inflation rate was 3%, up 25% QoQ. Furthermore, eligible supply staked increased by 6% QoQ from 44.6% to 47.2%. Lastly, a total of 11.3 million FTM (i.e., 0.3% of its total 3.2 billion supply) was burned by June 30, 2024.
Network Overview
Usage
In Q2’24, Fantom had an average of over 223,000 daily transactions, down 10% QoQ from 247,000. This downtrend was likely due to the broader crypto market slowing down after a highly active Q1. Average daily active addresses also trended lower, finishing Q2 down 21% QoQ to 31,900. However, daily active addresses reached their highest level at the end of the quarter (the last week of June averaged 48,000 daily active addresses) in part due to Fantom’s Meme Season in June, perhaps signaling a reversal of Q2’s downtrend in Q3.
Average daily new addresses decreased by 47% QoQ, from 9,500 to 5,000. Q2’24 averaged the lowest amount of daily new addresses since Q3’22 (2,000). New ecosystem initiatives and technological upgrades (discussed in further detail in subsequent sections) should help new address growth in future quarters.
Security and Decentralization
Fantom uses a Delegated Proof-of-Stake (DPoS) consensus mechanism called “Lachesis.” Under Lachesis, Fantom validators run a local Directed Acyclic Graph (DAG) composed of “event blocks.” Each event block contains transactions on Fantom. As each validator independently orders transactions and event blocks, each validator calculates an exact order of event blocks. Validators further divide event blocks into “confirmed event blocks” and “unconfirmed event blocks.”
As validators create event blocks, they also share them with other validators across the network. As an event block spreads across the network, more validators incorporate it within the validator’s local DAG. Once 2/3 of all validators, by stake, agree on a batch of confirmed event blocks, the batch is organized as a block and added to the blockchain.
In Q1, the staking requirement to operate a Fantom validator was reduced from 500,000 FTM to 50,000 FTM after a governance proposal was passed. The change aims to make operating a validator on Fantom more accessible. This change in staking requirements helped the number of active validators increase in Q2, which was up 6% QoQ from 55 to 58. Of the 58 active validators, 14 of them had less than 500,000 FTM self-staked.
Staked FTM saw inflows for the second straight quarter, increasing 5% QoQ to 1.3 billion. Despite the inflow of staked FTM, the total dollar amount of staked FTM decreased 39% QoQ, from $1.2 billion to $780.4 million, due to the price depreciation of FTM. Compared to other PoS networks, Fantom had the 22nd most dollar value of funds staked by the end of Q2’24.
The Nakamoto coefficient represents the number of node operators that collectively control more than 33% of the network. The higher the coefficient, the more resilient a network is to attacks and bugs. Fantom’s Nakamoto coefficient increased for the first time in over a year to 5. As of the quarter end, a malicious actor would need to control 883 million FTM ($520.3 million) to take over the network through a two-thirds attack.
Opera Upgrade and Introducing Sonic
Opera Upgrade
In Q2, Fantom’s Opera chain underwent a successful upgrade, with the first validator using Fantom’s new technology on April 9. Opera was officially upgraded on May 29 after ~80% of staked FTM was delegated to validators running the new technology. As of writing, 55 validators are running on the upgraded Opera network, collectively accounting for 97% of staked FTM. With this upgrade, Fantom can now theoretically achieve a TPS of 2,000 with 1-second TTF.
The upgraded Opera features two new implementations. The first is the Fantom Virtual Machine (FVM), which offers improvements that increase Fantom’s execution speed while remaining compatible with Solidity and Vyper.
The second change is a new storage system for Fantom’s Opera chain, which decreases access times through a file-based StateDB. For validator nodes, it has the potential to reduce storage requirements by over 66%. Additionally, the upgrade includes optimization and fine-tuning improvements to the Lachesis consensus mechanism.
Introducing Sonic and Sonic Labs
On March 25, Fantom announced it would launch a new high-throughput chain named Sonic (ticker $S) run by a new organization named Sonic Labs. Sonic will be a separate blockchain from Fantom’s Opera network, but FTM tokenholders will be able to exchange FTM tokens 1:1 for S tokens at the launch of the new network.
Sonic is a Layer-1 blockchain with a secure gateway to Ethereum. It hopes to provide one of the fastest settlement layers for digital assets, with the potential for over 10,000 TPS and complete, one-second confirmation times. Additionally, Sonic’s ecosystem will be supported by an incentive program featuring rewards for users and developers.
Sonic will feature a native gateway connecting it to the Ethereum network, allowing it to tap directly into Ethereum’s liquidity, users, and protocols. This gateway will operate similarly to a Layer-2 bridge, granting users greater security over bridged assets. A series of four governance proposals have been made to facilitate the creation of a community-approved Sonic network. Additionally, 200 million FTM has been allocated to the Sonic Labs Innovator Fund. The Sonic Labs Innovator Fund will support ecosystem projects, launch various initiatives and grant programs, and facilitate Sonic adoption.
Once the new Sonic network is live, Opera will continue to operate. The Fantom Foundation will operate validators on Opera indefinitely.
Sonic Governance Proposals
FTM to S Compatibility
This governance proposal was posted on May 17 and subsequently approved on May 22. The proposal approves 1:1 compatibility between the FTM and S tokens upon the genesis launch of Sonic.
Airdrop & Unique Burn Mechanic
This governance proposal was posted on June 10 and was subsequently approved on June 19. The proposal approves the minting of 6% of the S token FDV for future airdrops. The airdrop will occur six months after Sonic’s launch and will be used to reward both past users of Fantom’s Opera chain and incentive usage on Sonic once launched. Incentivized activities may include providing liquidity, staking, operating a validator, bridging, and more.
Furthermore, airdrops will be distributed in the form of an ERC-1155 NFT token (fNFT). fNFTs will contain S tokens and will be tradeable on secondary marketplaces such as PaintSwap. Upon claiming an fNFT, 25% of the S tokens will be immediately redeemable, with the remaining 75% unlocking based on a vesting schedule chosen by the airdrop recipient. Faster vesting schedules will unlock fewer S tokens, with unvested S tokens being burned. More details regarding S token airdrop vesting schedules can be found here.
Booming (and Building) For The Long Run
This governance proposal was posted on June 21 and subsequently approved on July 1. This proposal enabled the minting of an additional 1.5% of S (47,625,000 tokens) annually for six years, starting six months after the Sonic mainnet launch. The purpose of these additional tokens is to help support network growth through a variety of initiatives and programs.
The two programs enabled by the proposal are:
Sonic Spark - Grant program for Web3 and dApp developers within the Sonic ecosystem. This program aims to nurture development for protocols within various sectors including DeFi, Gaming, SocialFi, NFTs, DePIN, and more.
Sonic University - Grant program for students at select colleges and universities. This program aims to provide resources, knowledge, and guidance to students to help bring about the next generation of protocols built on Sonic.
To guard against inflation, the Foundation will burn newly minted tokens not used during the year, ensuring that 100% of all newly minted tokens from this initiative are allocated toward network growth rather than being held by the Foundation’s treasury for later use. For example, if only 5,000,000 tokens are used in the first year, the Foundation will burn the remaining 42,625,000 tokens.
Unlocking The New Frontier for Validators and Stakeholders
This governance proposal was posted on June 27 and subsequently approved on July 4. This proposal approves a variety of changes, including:
Staking Rewards - All FTM staking rewards for Opera validators and stakers will be migrated to Sonic upon launch. Sonic will have a target block reward rate of ~3.5%.
Liquid Staking - S token staking will have a max lock-up period of 14 days, enabling a simpler experience for liquid staking protocols on Sonic.
Gas Monetization - A revamped method for Fantom’s Gas Monetization program to better incentivize protocols. Protocols within the Gas Monetization program will receive up to 90% of the gas fees from their transactions (with the remaining 10% being sent to validators), while transactions not associated with the Gas Monetization program will be split: 50% burn, 45% to validators, and 5% to the Ecosystem Vault.
Ecosystem Vault - The Ecosystem Vault will also be revamped with those funds allocated quarterly to the Sonic Community Council (SCC), an independent collective of ecosystem participants, to aim to grow and support the Sonic ecosystem.
Ecosystem Overview
DeFi
Fantom TVL denominated in USD decreased from $127.1 million in Q1 to $91.2 million, a 28% QoQ decrease. By the end of the quarter, Fantom ranked as the 42nd-highest chain by TVL denominated in USD. However, TVL denominated in FTM increased by 22% QoQ, from 136.7 million in Q1 to 154.8 million FTM.
Additionally, TVL denominated in FTM decreased by 21% QoQ, from 126.5 million FTM to 154.8 million FTM. This dynamic indicates that Fantom DeFi TVL saw capital inflows despite the price depreciation of FTM in Q2.
Fantom remained one of the most diverse DeFi ecosystems amongst all smart contract platforms in Q2. Fantom’s DeFi Diversity Score, which measures the number of protocols that make up the top 90% of TVL, remained flat at 16.
Notable protocols by TVL on Fantom include the following:
Collectively, these six protocols accounted for over $60.7 million (67%) of Fantom’s DeFi TVL. Furthermore, they collectively experienced a $26.3 million decrease in TVL in Q2, which was 73% of Fantom’s total TVL increase in Q1.
The protocol with the largest gains in TVL share for Q2 was Polter Finance. Polter Finance is a native lending platform on Fantom that launched last quarter in January. Polter Finance began experiencing significant inflows at the beginning of the quarter, mainly led by FTM and sFTMx. By the end of the quarter, FTM and sFTMx account for over 90% of Polter Finance’s TVL. Additionally, this TVL is well utilized. As of writing, over $2 million in FTM and USDC has been borrowed from Polter Finance.
The average daily DEX volume on Fantom slightly decreased by 2% QoQ from $16.9 million to $16.6 million. However, looking at volumes on a monthly basis, each month of Q2 was higher than every month in Q1’24 and Q4’23 except for March.
By the end of Q2, there were 31 different DEXs on Fantom. Over the past year, DEXs in the Fantom ecosystem have become more competitive. In a market once dominated by SpookySwap, last quarter, WigoSwap flipped SpookySwap in trading volume. For the second straight quarter, WigoSwap remained the top DEX by trading volume on Fantom. For Q2, the top five DEXs by average daily trading volume were:
WigoSwap - up 28% QoQ to $6.5 million (39% of Fantom DEX volume)
Guru Network DAO - up 11% QoQ to $2 million (12% of Fantom DEX volume)
SpookySwap - down 25% QoQ to $2 million (12% of Fantom DEX volume)
Mummy Finance - up 30% QoQ to $1.6 million (10% of Fantom DEX volume)
Equalizer - down 20% QoQ to $1.4 million (8% of Fantom DEX volume)
In sum, the top five DEXs accounted for 82% of Fantom DEX volume in Q2.
Stablecoins
In Q3’23, Fantom was affected by the Multichain exploit (more info can be found in the Q4’23 report). Prior to the exploit, the vast majority of stablecoins on Fantom were bridged through Multichain. As such, all stablecoins bridged through Multichain lost their backing once the exploit occurred.
On January 30, 2024 (effective as of November 30, 2023), the High Court of Singapore granted a default judgment ruling in Fantom’s favor against Multichain. On July 8, Judicial Commissioner Mohamed Faizal delivered his final judgment against Multichain as the company moves forward to assign a third-party liquidator to help recover and distribute missing or frozen assets for all parties affected. In this scenario, the liquidator would be partially funded by Fantom Foundation.
Prior to the exploit, the Fantom Foundation had taken steps to increase the liquidity of stablecoins on Fantom. Prior to Q2’24, there were primarily two independent third-party bridging solutions: Axelar (axlUSDC and axlUSDT) and LayerZero (lzUSDC and lzUSDT). It is important to note that as independent third parties deployed on Fantom, these two bridges are not actually managed by the Fantom Foundation.
In April, Fantom announced that USDC bridged through Wormhole (USDC.e) will serve as the canonical stablecoin on Fantom. Furthermore, in the future, bridged USDC may be upgraded to native USDC upon reaching a significant amount of supply, integrations, and users.
As a result of this, USDC is the stablecoin of choice on Fantom, accounting for 99% of the stablecoin market cap. USDC increased by 16% QoQ from $18.9 million to $22 million. Between the three bridged USDC solutions, lzUSDC was at $12.7 million (58% of USDC), axlUSDC was at $5.2 million (24% of USDC), and USDC.e was at $4.1 million (19% of USDC). As for USDT, it decreased 25% QoQ from $386,000 to $291,000.
Gaming
Fantom is an ideal blockchain for building gaming applications due to its transaction speeds, costs, and ease of use.
On May 2, Sacra: Falling of Myrd, an onchain Play-to-Earn (P2E) role-playing game (RPG), launched on Fantom. Sacra was developed by the team behind Tetu, an asset management protocol on Polygon. It is browser-based and utilizes the Fantom blockchain for some of its in-game mechanics.
The dark fantasy game is centered around in-game NFTs called Heroes. As of writing, there are four different heroes (Thrall, Savage, Mage, and Assassin), each with a unique set of stats and capabilities. Users level up their heroes’ stats by playing the game and earning experience points. Furthermore, all heroes and other item NFTs can be traded in Sacra’s in-game marketplace using the SACRA token.
Sacra has garnered a small but dedicated player base in its first few months of being live. As of writing, there are 700 unique holders of the SACRA token alongside 391,000 transactions involving the SACRA token.
Another popular game on Fantom is Estfor Kingdom, a multiplayer online role-playing game (MMORPG) launched by the PaintSwap development team during Q3’23. It is browser-based and utilizes the Fantom blockchain for some of its in-game mechanics (more info can be found in the Q4’23 report).
After Q2 ended, Estfor Kingdom released a major update, Montanite Sommar. Montanite Sommar introduces new gameplay features through locations, heroes, and more. Most importantly, the update introduces 27 new quests for players. A full list of changes brought on by this update can be found here.
Additionally, some in-game actions, such as purchases in the Shop, work by burning 25% of the BRUSH tokens associated with the transaction. Since launch, these burning mechanisms have burned 378,000 BRUSH.
Ecosystem Growth
One of Fantom’s main growth initiatives for its ecosystem is the Gas Monetization program. This program aims to reward high-quality applications and offer a sustainable income for developers with a portion of the transaction fees they generate.
In Q3’23, the Fantom Foundation announced the introduction of a quarterly bonus for its Gas Monetization program. To qualify for the program, dApps need to have completed at least 125,000 transactions on Fantom and to have been live on Fantom for at least three months. Since not all dApps on Fantom qualify for the Gas Monetization program, a portion of FTM from transaction fees accumulates to the program with no clear recipient. The Fantom Foundation distributes these FTM tokens to the top 12 earning projects. The total quarterly bonus for Q2 was 42,000 FTM and distributed according to the following split:
Ranks #1-3: 40% (each received 5,600 FTM)
Ranks #4-6: 30% (each received 4,200 FTM)
Ranks #7-9: 20% (each received 2,800 FTM)
Ranks #10-12: 10% (each received 1,400 FTM)
Projects that received a gas bonus for the first time were Sacra: Falling of Myrd, Polter Finance, and ODOS (a multichain DEX aggregator).
One major ecosystem initiative for Q2 was Meme Season, a competition for memecoins on Fantom. The competition occurred during the month of June and rewarded memecoin teams, holders, and traders with 1 million sFTMx. Notably, 80% of the sFTMx is rewarded to the holders of the top three winning memecoins, weighted by token holdings. The remaining 20% of the sFTMx is rewarded to the teams behind the top three memecoins. A memecoin’s leaderboard position was determined by the following formula:
Leaderboard Position = (market cap * 0.5) + (gas used * 0.35) + (DEX volume * 0.15)
Additionally, memecoins had to meet a set of requirements, as seen here, to be in the competition. The following winners of Meme Season were announced after Q2 ended:
Q2'24 was a pivotal period for Fantom. While market cap (-41%) and revenue (-38%) saw declines due to a broader market pullback, the network made significant strides in technology and ecosystem development. The introduction of the Sonic tech stack sets the framework for the next stage of Fantom: the upcoming launch of the Sonic network. It hopes to provide a fast settlement layer, TPS over 10,000, one-second confirmation times, and rewards for its ecosystem users and developers.
Despite the downturn, key metrics such as staking rates (+5%) and active validators (+6%) increased, indicating continued community support. The ecosystem also saw new protocols and games, like Sacra: Falling of Myrd and updates to Estfor Kingdom.
Initiatives such as the Sonic Labs Innovator Fund and the Gas Monetization program continued to support and attract developers. Looking ahead, these technological and ecosystem advancements position Fantom well for future growth.
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AJC is a Research Manager at Messari for the Enterprise team. His primary focuses are on Bitcoin and Consumer. Prior to joining Messari, AJC wrote an independent crypto blog.
AJC is a Research Manager at Messari for the Enterprise team. His primary focuses are on Bitcoin and Consumer. Prior to joining Messari, AJC wrote an independent crypto blog.
