After recognizing in our recent newsletter, that this cycle is one characterized by upgrades, we want to dedicate this newsletter to an upgrade we’re especially curious about: Fantom’s migration to Sonic brewing this quarter.
Fantom, despite its longevity in the blockchain space, has faced challenges and setbacks since the previous market cycle. While key metrics such as active users and Total Value Locked (TVL) have declined, the network’s upcoming upgrade presents a promising opportunity for revitalization, which is what we’ll focus on here.
What is Fantom?
Launched in 2018, Fantom is a highly scalable platform that aimed to compete with Ethereum and other smart-contract rivals. In December 2019, Fantom’s Opera mainnet launched as a compatible blockchain with Ethereum Virtual Machine (EVM). This means it’s interoperable with Ethereum and other EVM-compatible chains, such as Polygon, and Ethereum-scaling solutions like Arbitrum. With a mission to solve the blockchain trilemma, Fantom aims to create a secure and efficient global app store.
Figure 1 – Fantom in the Layers
Source: 21Shares
The Lachesis consensus mechanism is what makes Fantom’s blockchain fast and scalable. Its asynchronous and leaderless design enables validators to process transactions concurrently without waiting for prior block confirmations. This parallel processing architecture is what allows Fantom to achieve near-instant transaction finality.
With over 400 projects deployed on its network, Fantom’s adoption is mainly driven by its transaction throughput, 30 transactions per second (TPS), coupled with low fees, as shown below.
Figure 2 – Fantom’s Average Transaction Fee
Source: 21Shares, Fantom Explorer
Offering faster settlement than Ethereum (1-2 seconds) along with its EVM compatibility, meaning that developers can migrate their applications seamlessly from Ethereum, made Fantom grow to attract a total of over 179M unique addresses. At the peak of Fantom’s activity, it had almost $8B in TVL, as shown below.
Figure 3 – Fantom’s Total Value Locked
Source: 21Shares, DeFiLlama
However, Fantom’s TVL took a deep dive in April 2022 and has been sluggish ever since, suffering from several headwinds including the Terra Luna and FTX collapse in 2022 and the Multichain bridge hack in 2023.
On July 7, 2023, Multichain cross-chain bridge protocol experienced a significant security breach, resulting in unusually large and unauthorized withdrawals. The exploit led to losses exceeding $125M, with nearly $120M of that total coming from Multichain’s Fantom bridge. On its part, Fantom learned from its hard-learned lesson and has been working on a decentralized solution for that problem, which we’ll explore later in this report.
While the hack did not permanently cripple Fantom, the FTM token price fell by around 10-15% in the immediate aftermath, causing the TVL to drop by 30%, as users flocked away from the ecosystem.
Why is Fantom up by ~250% over the past year?
Figure 4 – Fantom’s Price Performance
Source: 21Shares, CoinGecko
The anticipation for the new Sonic upgrade has catalyzed investors to start preparing for the new iteration of the network, which will upend blockchain’s capabilities by offering improvements across performance, scalability, and efficiency.
So, What is Sonic?
In December 2023, Fantom launched Sonic Labs, an incubator aimed at empowering developers to create innovative dApps with enhanced performance, in preparation for the launch of the Sonic mainnet, slated for December 2024.
On the token side, $FTM will turn into $S following the mainnet deployment later in the year. Users will be able to swap both tokens at a rate of 1:1.
On a technological level, the rebranding aims to replace the old Opera blockchain with Sonic, which is focused on significantly increasing the network’s speed and settlement time, in addition to making it more decentralized. It also offers an attractive environment that tempts developers to migrate from competing ecosystems. While Opera will remain operational in the short term, Sonic’s compelling rewards and advanced features are poised to catalyze a mass migration, ultimately establishing it as Fantom’s new dominant network, which will then be known as Sonic.
Namely, it would accomplish these goals through the following areas:
Key Enhancements
• Transaction Speed: close to 2,000 transactions per second, almost a 100x improvement from its old benchmark.
• Transaction Finality: expected to occur in under 700 ms, rivaling high-throughput blockchains like Solana and catering to a broader segment of high-velocity applications.
• Storage Optimization: 65% reduction in node storage requirements, promoting network decentralization as it democratizes access to participating in the blockchain’s security by reducing the hardware requirements.
Improved Security and Developer Incentives
• Sonic Gateway: a decentralized bridge connecting Ethereum and Sonic, utilizing both networks’ validators to eliminate single points of failure. It also features a 14-day fail-safe mechanism, allowing users to recover assets on Ethereum if the gateway fails. The new L2 network will address previous security vulnerabilities that were associated with the previous multibridge hack.
• Gas Monetization: up to 90% of gas fees from qualifying dApps will be allocated back to their developers. This encourages applications with high usage to consider migrating from other ecosystems to generate more revenue via this gas-rebate program.
o For transactions related to applications that aren’t eligible under this model: 50% of fees will be burned with 45% distributed to validators, and 5% allocated to the ecosystem vault.
The new developer incentive program has already catalyzed a surge in application deployments on Fantom. Recent data indicates a significant uptick in the number of active developers on the platform, reaching new heights, as seen in Figure 5.
Figure 5 – Fantom Full Time Developers
Source: 21Shares, DeFiLlama
The amount of commits on the network, a concept referring to how many changes a particular app deployment has undergone, has also increased significantly since the announcement in May. In fact, the number of commits has reached a new high – a figure that is almost double the peak of 2021.
Figure 6 – Fantom Commits
Source: 21Shares, DeFiLlama
Both metrics are crucial, as developer activity often precedes wider adoption. As more developers build on a network, they create new use cases and applications, driving user growth and enhancing the blockchain’s overall utility and value proposition.
DeFi Ecosystem Boost
Introduction of a canonical USDC version. Fantom, in partnership with Circle and Wormhole, introduced USDC.e, a bridged version of the widely trusted USDC stablecoin. This strategic move enhances the ecosystem’s security by providing a reliable, trust-minimized bridging solution for the stablecoin. It also mitigates the depegging risks associated with lesser-known stables, addressing vulnerabilities exposed by incidents like the Multichain hack where compromised collateral led to a severe devaluation of bridged assets.
The integration of UDSC.e also lends credibility to the ecosystem, catalyzing a network effect. As high-quality protocols and assets deploy on the platform, it’s likely to attract other reputable DeFi projects, creating a virtuous cycle of ecosystem growth and adoption.
Since Sonic’s announcement in May, Fantom’s ecosystem has shown signs of revival. DEX trading volume has nearly doubled from its lows, despite only $7M in USDC.e being bridged so far. This uptick suggests growing interest, even as the wider DeFi ecosystem on Fantom has yet to emerge.
Figure 7 – Fantom DEX Volume
Source: 21Shares, Dune
The network’s financial landscape isn’t only receiving a boost via its enhanced stablecoin integration, but also through a series of innovative primitives proposed by Andre, the network’s co-founder, to help the blockchain stand out. His most remarkable proposal revolves around introducing credit scores:
• These are being developed on the back of a system that extracts, transforms, and integrates data across blockchains. So far, the foundation has processed over 54B transactions to create a wallet-scoring model without KYC or personal data.
• The goal is to tap into the $11T unsecured lending market, bringing products like payday and personal loans to the DeFi space, while supporting underbanked populations who lack access to conventional credit histories and help in decreasing interest rates.
However, Andre also has been sitting on multiple other primitives including:
• Advanced Oracle: an improved mechanism for robust validation of external data, enabling applications to seamlessly integrate diverse off-chain information sources while minimizing on-chain storage requirements and associated costs.
• Protection markets: an on-chain insurance framework that provides coverage for diverse claims. This system leverages collateralized vaults, strategically deploying assets into yield-generating strategies to create a robust and self-sustaining protection marketplace.
• Leveraged Spot Market: allowing users to deposit arbitrary margin assets to gain access to leveraged investments directly on-chain without relying on centralized parties – all whilst enjoying the trust-minimal aspect of smart-contracts for automatic risk management.
• FX-Swap: a DEX inspired by Curve Finance’s trading model which is optimized for low volatility correlated assets focused on tokenized fiat currencies.
Where is Fantom/Sonic going?
Sonic’s impending launch presents a compelling opportunity for growth, despite current market conditions. The platform’s strategic alignment with Ethereum through the Sonic Gateway, coupled with substantial financial resources ($500M in treasury) and innovative incentive programs, positions it for potential resurgence:
• Sonic Boom: A tiered airdrop program rewarding applications based on their ecosystem contributions. Exclusive protocols receive enhanced allocations.
• Sonic Gems: Users can earn points towards a 190,500,000 $S token airdrop, with 37.5% allocated to Sonic Gem holders.
This leads us to believe that Sonic will likely be able to attract a growing number of developers from across the Ethereum ecosystem. It will be driven by offering enhanced revenue opportunities while contributing to a superior network with high transaction throughput and user-friendly features. For instance, Sonic’s native account abstraction can help onboard new entrants to the blockchain ecosystem.
Finally, Fantom’s user base is currently exceeding the average of approximately 35K recorded over the past year, as depicted below. Thus, we expect the network to continue its growth trajectory over the next few months going into the upgrade.
Figure 8 – Fantom Active Wallet Addresses
Source: 21Shares, Dune
What should investors expect?
For investors looking to gain exposure to the longer tail of the cryptoasset ecosystem and capitalize on the latest developments, 21Shares offers the following Fantom ETP on the European market. This investment product provides a regulated way to capture growth opportunities within this rapidly evolving sector.
The potential transition timeline for 21Shares’ ETP is currently being discussed with 21Shares’ service providers. Investors in this ETP would not need to take any action and would be informed in line with the applicable exchange regulations via official notice prior to the change. We’ve prepared an FAQ for investors wishing to learn more about this upgrade and what it means for our product, so stay tuned.
Figure 9 – 21Shares Fantom ETP
Source: Bloomberg, Data as of September 30, 2024.
Avg. Daily Spread YTD: refers to the best daily average bid/ask spread this year across European exchanges.
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
Recent market movements reinforce the investment case for crypto index investing and we believe that now is the time to build a long crypto exposure via the Nasdaq Crypto Index (NCI) (or to boarden the exposure vs. a single asset Bitcoin ETF position).
Here are some commentaries from our Research:
• NCI surges +18% last week (Nov 3 to 10) while Bitcoin was up +15%: driven by market optimism following Trump’s election and a 25 bps rate cut by the Federal Reserve
• Bitcoin breaks new highs: Closed the week above $80k for the first time, leading a market rally
• Outperformance across NCI constituents:
o Smart contract platforms led gains:
Cardano: +72.6%
Avalanche: +31.4%
Ethereum: +27.2%
Solana: +25.4%
o All constituents (except LTC) outperformed Bitcoin’s gains, see below for last week:
• BTC Dominance tested 60% and retraced: Historically, this has either signaled the end of Bitcoin outperformance or the start of a powerful Altseason
• Strong performance outlook: Momentum in NCI’s broad diversification positions it well for potential long-term gains as macro and regulatory conditions improve
Nasdaq Crypto Index – Constituents performance Nov 3 – Nov 10:
Evolution of Bitcoin dominance:
Why consider Nasdaq Crypto Index (NCI) now?
• Diversification beyond Bitcoin: Capture both Bitcoin’s strength and the upside potential of emerging crypto assets in one allocation.
• Positioning for Altseason: NCI provides targeted exposure to key market segments poised to benefit from broader market growth.
Den börshandlade fondens TER (total cost ratio) uppgår till 0,40 % p.a. HSBC Global SukukUCITSETF C är den enda ETF som följer FTSE IdealRatings Sukuk-index. ETFen replikerar resultatet för det underliggande indexet genom samplingsteknik (köper ett urval av de mest relevanta indexbeståndsdelarna). Ränteintäkterna (kupongerna) i ETFen ackumuleras och återinvesteras.
HSBC Global SukukUCITSETF C är en mycket liten ETF med tillgångar på 1 miljoner GBP under förvaltning. Denna ETF lanserades den 7 september 2023 och har sin hemvist i Irland.
Investeringsmål
Fonden strävar efter att tillhandahålla regelbunden inkomst- och kapitaltillväxt genom att så nära som möjligt följa utvecklingen av FTSE IdealRatings Sukuk Index (totalavkastning) (indexet), samtidigt som sharia-principerna respekteras.
Investeringspolicy
Indexet består av globala islamiska räntebärande värdepapper, även känd som Sukuk. Fonden investerar i, eller får exponering mot US-dollar denominerade, Sukuk av investeringsgrad som är sharia-kompatibla och utfärdade på de globala marknaderna, som alla är indexbeståndsdelar. Indexets valuta är USD och avkastningen är osäkrad. Fonden förvaltas passivt och använder en investeringsteknik som kallas optimering, som syftar till att minimera skillnaden i avkastning mellan fonden och indexet genom att ta hänsyn till tracking error och handelskostnader vid konstruktion av en portfölj.
Fonden kommer endast att investera i Sukuk som uppfyller sharia-efterlevnadsprinciperna som tolkats eller godkänts av shariakommittén. Fonden kan investera upp till 10 % av sina tillgångar i kontanter och penningmarknadsinstrument upp till 10 % av sina tillgångar i Shariah-kompatibla fonder för effektiv portföljförvaltning. Kreditbetygen för investeringarna kan variera från tid till annan men kommer att vara minst Investment Grade.
One week after the US elections, bitcoin has been hitting new all-time highs. This price action reflects the fact that the results were an ideal outcome for bitcoin and other crypto assets—with both a pro-crypto president and Congress set to take the reins of the US government in January.
The support for crypto was overwhelming. There were 268 Congressional candidates and 19 candidates for the Senate that were elected and are considered pro-crypto, according to Stand with Crypto. This included the election of 50 of 58 candidates supported by the crypto industry.
But with change coming in 2025, what can investors take away from last week’s results? I think there are three things we know with certainty.
Crypto will continue to be a political force: The election outcome might be the strongest signal we have seen that crypto is an asset class here to stay given the pro-crypto stance of President-elect Trump and many newly elected policymakers. Trump has supported big and bold ideas in this space, including supporting the US holding bitcoin on its balance sheet and the creation of a crypto advisory council to create supportive rules for the industry.
But this election will have an impact far beyond last week’s results. The engagement from the crypto community and industry in this election will reverberate into the next elections and those that follow, as policymakers are now grasping that—like the internet—crypto is a technology that should not be caught up in partisan politics. There were already signs of bipartisan support for the industry this year, but with such a definitive victory for pro-crypto candidates, both Democrat and Republican, the idea that Congress should try and stop this technology from being incubated in the US has faded away.
The “generational shift” is happening: While there has been more support for crypto from Republicans than Democrats, I think this is a short-term dynamic that will not persist over time. What might be more important is the generational shift taking place, as younger generations of politicians embrace crypto while older generations remain skeptical. It’s not surprising that the most vocal critics of crypto tend to be relatively older, including Sen. Elizabeth Warren (75), Sen. Sherrod Brown (72), and Rep. Brad Sherman (70), while those who are embracing this technology—regardless of party affiliation—are much younger, including incoming US senators Tim Sheehy (38), Ruben Gallego (44), and Bernie Moreno (57). Over time, this generational gap might even become a more important distinction than partisan lines on this issue.
It’s still early: Even with bitcoin’s rise over $82,000 this week, this is an asset class that is still in its early stages of adoption. Many investment advisors, wealth managers, and large institutional investors are still conducting their due diligence, and we think the political and regulatory environment next year will help them accelerate these efforts.
But we are still so early. And, given the cyclicality of this asset class, there is tremendous potential for this current environment being an excellent entry point. For example, one year after the 2016 and 2020 elections, bitcoin had returned 916% and 354%, respectively.
This performance tracks well with post-halving performance as well as favorable macro factors, such as lower interest rates in the US and economic stimulus in China increasing global liquidity and benefiting risk assets. These factors, along with the ongoing institutional adoption and a dramatically improving regulatory outlook in the US is setting crypto up for a very strong 2025.
Crypto is the election’s big winner
The new administration, together with a Congress more crypto-friendly than any other point in history, is poised to act quickly to ensure that the US maintains its leadership in digital assets. While there will be many uncertainties in the coming weeks and months regarding specific policies and personnel, we are clearly at an inflection point. Crypto has made its case to US policymakers and they have embraced it with open arms. This is a key factor setting 2025 up for what we believe will be an incredible year for this space.
For investors thinking about how to act based on the election results, we continue to advocate for taking a long-term view and getting diversified exposure to this asset class. We’ll continue to face uncertainty and volatility, but investors who maintain an extended horizon will benefit, just as they have in the past.