Ocular Ventures is an investment fund focused on crypto VC and HF fund investments with a discretionary pocket to invest directly in crypto projects. We are a group of crypto enthusiasts with venture capital and data science background.
We started this newsletter to share our knowledge of the latest blockchain technologies, including infrastructure protocols, DeFi, NFTs, and other dApps which are going to reinvent how things work in web2.0. We hope you will enjoy this newsletter and provide us with valuable feedback.
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Disclaimer: All write-ups in this substack channel are Ocular Ventures’ own opinions, and should not be misconstrued as investment advice or recommendations. Ocular Ventures does not hold positions in the projects discussed in this channel, unless otherwise stated. This content is intended for informational purposes only.
The recent bull run in the cryptocurrency markets has driven up the prices of a few popular layer-1 and layer-2 tokens. In the past six weeks, Bitcoin’s dominance as a percentage of the total market cap has decreased from 45% to about 42% currently. The total market cap for cryptocurrencies (excluding Bitcoin) has also increased by about $100 billion.
In our previous two posts, we shared a layer-1 and layer-2 project, Solana and Polygon respectively, both of which have gained significant traction this year. This week, we would like to introduce a lesser-known project, outside of the top 40 cryptocurrencies by market cap. This project has also been making moves in the market and could be an exciting pick. It is none other than Fantom.
Fantom’s token is $FTM, and $FTM’s YTD ROI stands at a staggering ~10,000%. In this piece, we will discuss what Fantom is, the reasons for its extraordinary price hike in 2021 and its future plans.
Background of Fantom
Fantom was founded in 2018 by Ahn Byung Ik, a South Korean computer scientist, who previously served as President of the Korea Food-Tech Association and co-founded a food-tech platform called SikSin.
Ahn left Fantom in 2019 and the project is now led by the Fantom Foundation, which is helmed by Micheal Kong and comprises a team of 27 members. A notable name within the team is Andre Cronje, who is acting as the project’s DeFi Architect. Andre is a prolific DeFi developer that founded Yearn Finance. For his contributions to the DeFi space, he was named the “DeFi Person of the Year” in 2020 by DeFi Prime.
Fantom is a Layer-1 platform that is compatible with the Ethereum Virtual Machine (EVM) - the runtime environment for the Ethereum blockchain. This means that projects on Fantom are interoperable with those on Ethereum, and developers on Fantom can benefit from Ethereum’s tools and applications.
Fantom promises to overcome the limitations of previous generations of blockchains and resolve the scalability trilemma of scalability, security and decentralization. Fantom aims to overcome these challenges through its high-speed consensus mechanism, Lachesis. Lachesis uses a different variant of distributed ledger technology known as directed acyclic graphs (DAGs) and has the below features:
- Asynchronous. Participants can process commands at different times and not all information will need to be conveyed to all participants.
- Leaderless. No participant plays a “special role” or has added abilities to manipulate the blockchain in their favor.
- Byzantine Fault-Tolerant. Refers to the ability of a distributed network to achieve consensus, therefore to continue to operate, despite incorrect information or malicious participants within the network. Fantom supports up to one-third of faulty nodes, including malicious behavior.
- Final. Lachesis’ output can be used immediately. There is no need to wait for block confirmations; transactions are confirmed in seconds.
A quick summary of the milestones that the Fantom project has reached since its inception can be found below.
Diving deeper into Fantom’s technology, we observe that Fantom was built with the considerations of speed, security and scalability in mind.
- Speed. The DAG-based Lachesis is able to capture the past relationship between events and calculate the exact final order of events (and hence transactions) independently of each node. Given so, there is no need for nodes to send finalized blocks to one another.
- Validators on the network do not vote on the concrete state of the network; instead, they periodically exchange observed transactions and events with peers to build consensus. Lachesis also uses new events to vote for the order of the past events. As the same event may be used in various elections simultaneously, this creates fewer consensus messages and helps to reduce latency.
- Security. Fantom uses a leaderless Proof-of-Stake (PoS) protocol for its network. By removing leaders, the network security is not dependent on a small set of actors, unlike leader-based or delegated PoS systems.
- In addition, Fantom’s asynchronous Byzantine Fault-Tolerant (aBFT) consensus algorithm ensures that it can continue to function and provide reliable information even when there is an attack, so long as less than 1/3 of the nodes are malicious.
- While the usual practical Byzantine Fault-Tolerant (pBFT) mechanism will provide similar security features, it is worth noting that pFBT reaches a consensus about a decision by passing messages amongst all nodes and requiring nodes to stay in constant communication. This communication overhead increases exponentially each time a new node joins the network, and for large networks, there will be a time lag in reaching finality unlike the almost instantaneous confirmation with Fantom.
- Scalability. Lachesis is modular in nature, as it represents one layer of the Fantom stack. It may be plugged into any distributed ledger, and developers may port any existing Ethereum-based decentralized applications onto Fantom in minutes. Besides providing users with greater flexibility and a better UI/UX experience, this also means that each project built on Fantom is independent of the others and is customizable.
- Because of the Lachesis design, the performance and stability of each project will be unaffected by traffic and projects can build on each other. As described on the Fantom website, Fantom is a network of networks. If we think of Ethereum as a decentralized computer, Fantom is a network made of a potentially infinite number of decentralized computers. Nonetheless, each project will share the same software logic and can communicate with one another.
The table below summarizes the key attributes of Fantom. Compared to other layer-1 solutions such as Solana, Terra and Avalanche on these fronts, it can be seen that Fantom is on par with its peers in terms of speed and scalability, but performs slightly better on security.
While Fantom may have many advantages over its peers, we would like to caution that it may not be as decentralized as hoped for. Fantom currently only has 47 active validators and has high entry requirements to be a new validator. This resulted in network failures previously, which will discuss in the risks/threats section later on. Referencing the scalability trilemma, it appears that Fantom may have prioritized security and scalability over decentralization.
Nonetheless, we believe that overall, Fantom’s technology remains robust and their DAG-based model may be the blueprint adopted by other emerging protocols moving forward. Besides Fantom’s technology, we would also like to highlight that 1) Fantom has high adoption rates, both at the retail/individual and institutional level, and 2) it has a reasonable valuation with strong fundamentals, which are likely to be strengthened in the future with its exciting plans in the pipeline.
Adoption rates for Fantom have been on a steady increase in the last year. This can be seen at the retail/individual level as well as at the institutional level.
- Retail/individual level. In terms of usage, the number of daily transactions and unique addresses on Fantom has risen significantly in the last month. This is in part due to a 370 million $FTM incentive program that Fantom had rolled out on Aug 30, 2021, to encourage more projects to be built on the platform.
- (Data Source: $FTMScan)
- As for retail investing, $FTM is now listed on major CeFi exchanges such as Binance, Gemini, Bitfinex and Crypto.com. $FTM can also be found on DeFi platforms such as 1inch, Uniswap and Sushiswap. $FTM’s price has doubled in the last month and reached its all-time high in early Sep 2021 (as seen below). $FTM was also the 3rd most popular search on CoinGecko from Sep 6, 2021 - Sep 13, 2021.
- (Data Source: CoinMarketCap. Price stated per day is based on close price, i.e. latest data in range – UTC time)
- Institutional level. Fantom has been adopted by several government agencies across various sectors, including the Afghanistan Ministry of Health, Pakistan Punjab Prisons Department, Ministry of Industry of New Technologies of Tajikistan and AG Mentors Group, which will incorporate Fantom in the Uzbekistan Government’s IT infrastructure.
- It is worth pointing out that developing countries have often been the preferred test-beds for blockchain technologies, as they aim to promote greater inclusion, address inefficiencies in existing processes and raise trust in government management. Nonetheless, only a few protocols have proven popular with governments worldwide – besides Fantom, other protocols that have been adopted include Stellar, Cardano and Algorand.
- Last Sunday on Sep 26, 2021, Andre himself launched a new NFT marketplace called Artion on the Fantom blockchain. It promises zero platform fees and low transaction fees of a few cents to allow users to create and trade many NFTs easily. To date, there are about 50,000 NFTs on Artion.
- In 2018, Fantom had received over $40 million in funding for its venture round, and investors included Obsidian Capital and HyperChain Capital. In Apr 2021, HyperChain Capital announced that it bought an added $15 million stake in Fantom. This is on top of the $35 million and $20 million stakes that Alameda Research and BlockTower Capital had acquired in Fantom respectively.
- Earlier this month, Fireblocks also shared that it has added support for Fantom, making the $FTM token available to 500+ banks, hedge funds, lending desks and other financial institutions using its platform. With the establishment of this partnership, we may expect further investments to flow into Fantom in the future.
Fantom is currently the 7th largest chain by TVL with $1.25 billion, ahead of others like Klaytn ($928.3 million), Celo ($861.7 million) and Optimism ($129.9 million).
(Data source: DeFi Llama)
Based on the above numbers, Fantom appears to be reasonably priced, as its market cap/TVL ratio is a lot lower (or better) than other projects (including those with a higher TVL). Fantom’s ratio stands at 1.49, as compared to Ethereum (2.81), Avalanche (4.04) and Solana (4.62).
Fantom’s fundamentals are likely to be strengthened in the future, as they are undertaking a series of efforts to develop the community and build the ecosystem. As shared above, Fantom had announced an incentive program to encourage developers to build on and grow its network. Fantom will also be holding its first Fantom Developer Conference in end-Oct 2021 to bring together its users.
In Mar 2021, Fantom had presented its CDBC case to the United Nations and its connected stakeholders. Fantom’s ties with several government agencies worldwide will stand it in good stead and should Fantom’s CDBC solutions prove successful, we will see more central banks and enterprises onboarded onto Fantom’s network.
The $FTM coin was launched in a Jun 2018 ICO. The total supply of $FTM coins is capped at 3.175 billion, and there are currently about 2.55 billion $FTM coins in circulation.
Fantom made 40% of the total token supply available for sale at the ICO in mid-2018. The rest are reserved: 30% for staking rewards, 15% for advisors and contributors, and 15% for Fantom project team members and founders.
Risks and Threats
While there are reasons to be optimistic about Fantom, Fantom may also face a few risks and threats.
- Alternative layer-1 and layer-2 solutions. There are currently other protocols, including Solana, Terra, Polygon and Avalanche, which are more popular than Fantom, in terms of the number of projects, TVL, number of daily transactions and revenue generated. With a greater number of use cases and stronger network effects to tap on, these protocols may be more likely to be adopted by users.
- While we acknowledge that other protocols may be more prominent than Fantom at the moment, we believe that the future will be a co-existence of multiple solutions. It is unlikely that there will be a winner-take-all scenario. When users find that gas fees on Ethereum are too high, they will naturally look for cheaper and faster layer-1 and layer-2 solutions, with Fantom being one of them. Should Fantom be able to continue the momentum of attracting developers and projects, it could keep gaining traction with its robust technology, and emerge as an important player in the blockchain ecosystem.
- Centralization. In Feb 2021, the Fantom Opera mainnet experienced a temporary outage and new block confirmations were halted for seven hours. The outage was caused by the fact that two validators represented more than 1/3 worth of stake and they were unable to keep up with the block production process.
- This episode highlights the centralized nature of the network. It also shows that Fantom is a work-in-progress and has yet to fully figure out how to scale the network for mass adoption. There may be further hiccups along the way and there is no guarantee that it can eventually fulfil its objectives.
- Fantom is cognizant that much of the staking power is concentrated amongst a few nodes and are taking steps to address this. They are defining the parameters of their proposals, but are likely to lower the minimum amount of $FTM required to run a node and put a cap on the node size. We will continue to keep a close watch on their plans to decentralize and upkeep its technology.
- Price volatility. As Fantom is still in its developmental phase, $FTM’s price may experience significant fluctuations depending on the news surrounding it. In addition, as it is one of the smaller tokens, its trading volume is not high and prices are subject to speculative pressures. For context, the trading volume on $FTM was around 540 million on Sep 29, 2021, and this was around 1.8% of the trading volume on Bitcoin, which was over $29.8 billion.
- $FTM’s price may also be influenced by the sentiments towards cryptocurrencies in general and is often aligned with changes to Bitcoin’s price. In recent weeks, with China’s ban on cryptocurrency trading and the SEC sounding signals on the need for greater cryptocurrency regulations, the cryptocurrency markets have taken a tumble and $FTM, alongside the other cryptocurrencies including Bitcoin, have all experienced a dip in prices.
- Nonetheless, the above considerations are not unique to $FTM and will apply to most small tokens. Investors are encouraged to manage their risks accordingly.
Here at Ocular, we believe that the Fantom project is promising. We are not the only ones that see its value. Individual and institutional adoption rates of Fantom have been on the rise, with many government agencies, enterprises and blockchain projects incorporating Fantom as part of their solutions across a variety of sectors.
Despite Fantom’s meteoric rise since the start of the year, Fantom remains reasonably priced and is flying under the radar. While there are risks and threats that Fantom will have to manage, the future looks bright for Fantom especially with the exciting slew of projects and partnerships coming up. Through its incentive program and events targeted at developers, Fantom has also built a vibrant community that will be well-placed to support its growth.