Fantom, The Future of Open Finance and DeFi

Introduction to Fantom

Fantom is a Directed Acyclic Graph (DAG)-based, EVM-compatible blockchain built by industry veterans Michael Kong, Andre Cronje, and Quan Nguyen. It’s designed to overcome legacy blockchains’ shortcomings by making use of Lachesis, a new consensus mechanism that Fantom built from scratch, enabling Fantom to be much faster, cheaper, and vertically scalable.

With its lightning-fast and cost-effective transactions, Fantom has been taking DeFi by storm through its native DEXs, lending protocols, and other innovations. The impressive calibre of these DeFi projects has fueled an influx of users and developers to join Fantom’s thriving ecosystem – turbocharging the network’s growth and flywheel effects. Covalent has been building side-by-side with Fantom since 2021, empowering developers and analysts to easily access data from the Fantom Mainnet and Testnet.

Today, even as the projects on Fantom are beginning to diversify, it’s clear that Fantom’s DeFi ecosystem is only getting stronger. Let’s take a look into why Fantom has become a favourite among DeFi users and developers.

Ethereum’s Design Limitations

Before we dive deeper into Fantom, let’s examine the inherent design limitations of older blockchains like Ethereum. Ethereum is one of the most secure and popular blockchains in the industry, but it’s currently not very scalable because its cost per transaction is dependent on a fixed supply of network throughput and growing demand from users. This will remain the case until more key upgrades to the network are implemented, which could take a few more years.

In the meantime, interacting with Ethereum has become more expensive because it doesn’t have enough network throughput to meet users’ huge demand. As usage has increased, gas fees have gotten higher. This is particularly true when the network is congested, where at times, the transaction fee itself can cross the value of the transaction. From the Covalent data below, we can see that Ethereum’s average gas fees have stayed relatively high over the past three months.

With such expensive fees to execute transactions on Ethereum, many have found it difficult to participate in its DeFi ecosystem. Due to this, users and developers who didn’t want to wait for Ethereum to be re-architected began looking for a highly scalable and Ethereum-compatible solution.

Fantom’s Key Differentiators

Fantom recognized Ethereum’s challenge of scaling early on and aimed to construct a network built for DeFi and the efficient processing of transactions. At the time of writing, Fantom processes about 500,000 transactions daily, which has been on a steady trend.

Fantom is powered by Lachesis – Fantom’s revolutionary asynchronous Byzantine Fault Tolerance (aBFT) consensus mechanism designed for high throughput and fast finality compared to other consensus mechanisms like Ethereum’s synchronous BFT. The two main properties of Lachesis are:

• Asynchronous Transaction Processing: validators can process transactions simultaneously without having to work through a queue, and users can interact with the network without having to overbid to accelerate transaction confirmation.

• Leaderless Consensus: no validators serve special roles in block production, so transaction processing does not rely on the validators that hold the largest number of $FTM, and any validator can independently process users’ transactions.

Lachesis allows Fantom to confirm thousands of Transactions Per Second (TPS) at a minimal fee, thus addressing problems inherent to present-day Ethereum – all without fragmentation, Layer 2s, or Subnets. As the Covalent data beneath shows, for most transactions on Fantom, fees are less than $0.1, even during high-traffic periods.

Fantom vs Other Layer 1s

With the extraordinary capabilities of Lachesis and the comprehensive functionalities of the EVM, Fantom is a great option for users priced out of Ethereum’s DeFi ecosystem right now. The way developers write and deploy smart contracts on Ethereum works the same way on Fantom, meaning that Ethereum’s DeFi ecosystem can be applied in the exact same manner on Fantom.

Fantom is also a good alternative for DeFi compared with other Layer 1s like Avalanche, Cronos, and Canto. As seen in the following Covalent data, the number of transactions on Fantom has been much higher than the number of transactions on Avalanche, Cronos, and Canto in 2023. However, the average daily gas paid on Fantom still remains much less, for example, than that of Avalanche – demonstrating that Fantom processes transactions much more efficiently.

These other Layer 1s could be considered Fantom’s competition, but Fantom is constantly building to be better through a faster and cheaper consensus and allowing developers to easily deploy and run Dapps on top of it. Similarly, Covalent provides a Unified API that allows developers to easily deploy and run Dapps on Fantom.

Fantom’s DeFi Ecosystem

For DeFi users working around other Layer 1s’ limitations, Fantom opens up a new world of possibilities. DeFi projects have multiplied on Fantom as users and developers take advantage of the network’s fast transaction speeds and low fees, as well as Covalent’s granular and historical data. Covalent’s Balances Endpoints can return all the token balances for an address, and Covalent’s Transactions Endpoints can track any event throughout the entire chain in real time. Utilizing these API Endpoints, all sorts of Fantom-native projects are pushing the limits of DeFi at the protocol level, such as:

• DEXs: that create a liquidity pool and allow users to swap or trade assets, like SpookySwap, SpiritSwap, and Beethoven X.

• Lending Protocols: that act as DeFi banks and allow users to borrow and lend assets, like Geist Finance, Scream, and Tarot.

• Yield Aggregators: that pool investors’ assets and invest them into diverse, yield-paying protocols, like Reaper Farm.

• Derivatives: that allow traders to bet on Options, Futures, and Perpetuals with leverage, like Mummy Finance.

These Fantom-native projects empower DeFi users to take control of their finances in a self-custodial manner, whether performing simple swaps or leveraging derivatives. This is why Fantom has been known by many as the DeFi chain and why Fantom still has one of the highest amounts of Total Value Locked (TVL) on-chain at $503 million, despite the market-wide downturn. The TVL on Fantom’s first-native DEX, Spookyswap, also still stands strong at $106 million, whereas the TVL on many other protocols has depleted.

DeFi on Fantom demonstrates what’s possible – users no longer need to spend up to $10 to execute a trade and no longer need to wait up to 10 minutes for a transaction to go through. The Covalent data below says it all, Monthly Active Users (MAU) on Fantom have skyrocketed in the last quarter, showing that Fantom’s ecosystem has a strong core community that has grown fast within a short period of time.

Fantom as a Future-Proof DeFi Solution

DeFi is currently going up against the headwinds of a bear market and the ever-present spectre of regulation. However, it remains a catalyst to separate state from finance, empowering people to take a higher level of custody over their assets and allowing anyone to have access to a money market without needing to go through KYC or credit checks. With 30 years of runway, Fantom and its DeFi ecosystem is an excellent home of innovation, collaboration, and community.

As the DeFi landscape evolves, Fantom is uniquely positioned to meet the needs of emerging protocols through the unparalleled qualities that its network offers. Fantom has already successfully attracted bright developers in the space and is working on further improving scalability through its upcoming Fantom Virtual Machine. At Covalent, we believe that DeFi will one day replace the traditional banking system with protocols that anyone can use, are token-holder governed, and transparently run through on-chain smart contracts… and Fantom will be at the center of it.

Does this type of on-chain data interest you? All the data used in this blog post is readily available through Covalent’s Unified API. Sign up for a Free API Key today!

Quote from Michael Kong, CEO and CIO at Fantom

“Covalent has been a great data provider for the Fantom network and users of the Fantom network since very early on. They make it easy for developers and users to parse through large amounts of data, removing the pain of dealing with messy or unstructured data.”

Quote from Ganesh Swami, Co-Founder and CEO at Covalent

“DeFi will continue to be a market disruptor, and Fantom’s network of DeFi protocols will continue to give users open access to financial tools, such as lending and liquidity provisioning. Through rain, shine, and market volatility, we will always support Fantom by bringing full transparency and visibility to assets in their ecosystem.”

Written by David Tso.