Before we begin, this is an opinion piece and just my personal views on Fantom. Who I am does not matter. I am just one of you, regular retail hiding behind a pseudonymous internet personality, who enjoys messing around in crypto.
Fantom has been the home to many of us since the last bullrun with its reputation of being the people’s chain given how affordable transactions have been and how it seemed to always lack VC funding/involvement. Recently, CEO Michael Kong gave us an update on the long awaited Sonic upgrade that we have all been looking forward to and the community reaction has been mixed.
And more recently his interview on Ijaz’s channel.
Two notable aspects of the Sonic upgrade are 1. its delay for several months to develop a canonical bridge and 2. its shift from being merely an upgrade for Fantom as an L1 chain to becoming an Ethereum L2. I believe these factors have significantly contributed to the recent price decline and merit further exploration.
Part One: The delay
Depending on how you view this current bullrun that we are in can change the way you see the delay.
An idea being thrown around, especially by TA traders, is that this bullrun might be shorter than previous runs. One contributing reason is that this time, BTC has broke all-time high before the halving, this has not happened before for the past 3 halvings. The previous halving took place in May 2020 and BTC broke its previous ATH that cycle in Dec 2020, a good 7 months post-halving. In the current cycle, we have yet to even reach the halving and Bitcoin is already past its previous cycle’s ATH. Hence the opinion that we are already deeper into the cycle than we realise. If we truly are deep into the cycle, then a delay in launch would mean a delay in reaping the benefits of crypto hype.
Opposing view point: If you have been in a bullrun before, you would also have realised that altcoins tend to really run in the later end of the cycle. I am also of the opinion that we are still fairly early in the current cycle. Solana was launched in April 2020 and reached a high of $4.95 in Aug 2020 before downtrending to a low of $1.03 in Dec 2020
All this happened before it went on to pump during the altcoin season.
It went on to run to a peak of $260.5 in Nov 2021, 18 months after the halving. Solana was undoubtedly one of the best performers that cycle, but the general trend of the market moved the same way.
The point I am trying to make is that we are still very early and I doubt that a few months delay will significantly harm the Sonic launch. There is a strong possibility that we aren’t even close to altseason. If this holds true, then a later launch might be more beneficial as you would then be able to capitalise on the hype when more new users have entered the space.
Part Two: Becoming an Eth L2 (Update as of 31/3 Andre describes this as being an L1 still but with L2 bridge security)
I think this harms branding in the short-term. The whole advantage of being an L1 is there you get compared to other alt-L1s. We could easily draw comparisons to Solana, Cardano, BSC, AVAX, etc. Now that we know for sure that Sonic will be an L2, there’s an artificial psychological ceiling that we have imposed on ourselves. We are now comparing ourselves to the likes of Optimism, Arbitrum or at best, Polygon. It seems almost as though the direction the Fantom Foundation is taking, is to become something akin to what Polygon is doing where they can launch multiple chains that can plug into Eth and use Eth as a security layer. For perspective, Polygon ranks 20 on Coingecko at 9bil market cap compared to AVAX/Cardano at 11 and 10 respectively, over 20bil.
Unlike Solana which is almost directly competing with Ethereum, being an L2 almost feels like admitting that you would never beat Ethereum. And I think this perspective shift is what has let down a lot of previous Fantom believers. In all honesty, I think this is already a truth that we all know deep down which is why you hardly ever see https://marketcapof.com/ comparisons of Fantom against Eth.
To make matters worse here, Eth and some of its older L2 governance tokens have not been doing too well either:
My personal thoughts on Ethereum and L2s is that L2s are extracting value away from Ethereum. Yes they do use Eth for gas but in a way they are cheaper transactions as well. And when speculating on an L2, how would you go about doing that? Would you just be holding Eth or would you buy their governance token like OP or ARB or MNT or MATIC or METIS, you get the point.
Argument for becoming an L2
There’s no doubt that Fantom has been struggling to bring in liquidity. TVL of a measly 87mil at the start of the year to 128mil nearing the end of the quarter versus Solana over tripling its own TVL to 4.9bil. Even Base, Coinbase’s L2 has over doubled its TVL, from 400mil to 1.1bil.
I can imagine some of us viewed the Fantom Opera network as an EVM-chain but better. And the idea of improving transaction speeds beyond Solana levels while maintaining EVM-compatibility allowed us to draw comparisons directly to Solana and even allowed us to dream for Solana-level market caps.
Giving up the alt-L1 race has been disappointing to community members who saw Fantom as the next Solana. Almost as though we are conceding to the Eth-supremacy vision in an attempt to get a slice of the 52b TVL pie.
But I do think this is a rational decision. Getting a cut of Ethereum’s massive TVL would be a lot easier and sustainable than relying on short term liquidity attracting events like the Solidly fiasco in 2021, relying on Andre launching new DeFi primitives and incentivising airdrops to top X amount of dapps.
Being Eth-adjacent would also be friendlier for existing Eth ecosystem dapps to launch on Sonic. It would also make it easier for liquidity to migrate over from other L2s and Eth. This is key to bringing liquidity back to Fantom, especially when you take into context the Multichain incident. Now more than ever, creating a native bridge that you can trust is the only way to reliably bring in liquidity to Fantom.
Additionally, Michael has also mentioned in his recent interview on Ijaz’s youtube channel https://youtu.be/KdGUFoYjnZQ?si=W4Blx08p9XwQqhp1&t=1764 that the new chain’s token will function similarly to the current FTM, where it can be used for transaction fees, validating transactions, governance, etc. This seems to function fairly similarly to an alt-L1 in which case the new chain would only be similar to other L2s in that it would be bridgeable to and from Ethereum. The utility of the new token versus other L2 tokens which seem to only be used for governance is striking to me, they’re basically unfunny meme coins in my eyes. Newer L2 tokens are trying to incentivise holding through offering rewards such as airdrops but they don’t come close to the utility that the new Sonic token (name and ticker TBA) will have.
In an ultimately zero-sum market, I also have to question if there even is any difference between an L2 doing value extraction from Ethereum versus being an alt-L1 like Solana basically doing the same. I don’t think that the line between Layer 1s and Layer 2s is all that distinct at all apart from name.
Below is a thread by Qiao, who I believe offers valuable insights into the crypto space from a business and user perspective, rather than a technical one:
EDIT: Andre corrects the viewpoint that Fantom will become an L2:
With all his replies on X, my understanding of Fantom Sonic is that it will be like how FTM exists as an ERC20 on Ethereum and also on Fantom Opera. With this said, I think it then brings in the next question on how the economics on Opera will work in a post-Sonic era which I will explore in a subsequent post.
Conclusion
So where do we go from here? Are we bullish or are we bearish? I personally remain cautiously optimistic. From a technical perspective, I think Fantom Sonic will arguably be one of the most competitive Ethereum Layer 2s in terms of user experience and might also provide an attractive playground for all the talent in the Ethereum ecosystem to come work on.
With regards to all of us envisioning Fantom as the next Solana, I think we need to take a step back and rethink what that would mean. What makes Solana attract so many new users? I think Sonic is still capable of giving users an on-chain experience similar to or even better than Solana with high throughput and no chain downtimes, with the added security of Ethereum without expensive gas fees. The only thing standing in our way now is the psychological resistance of being an L2 vs an L1, something which I think will be shattered with time.
(Also probably worth mentioning, Michael Kong has brought up this idea of Fantom becoming an Eth L2 for a long time now. So this isn’t necessarily a shocking revelation but I think it’s something that the community hasn’t seriously thought about till now which is why I think it’s worth discussing)
EDIT: I think at this point as Andre has been clarifying things on X that Fantom Sonic can continue to be viewed as an alt-L1 but will have L2 bridge security to Ethereum. Apologies for the confusion on my end. Overall this still doesn’t necessarily change my stance as I remain of the opinion that the L2 vs L1 differentiation will go away with time. As we continue to get more clarity with how Fantom Sonic will look like when launched, I’m also starting to think about what the future economy on Fantom will look like. What will happen to the existing economy we have built up on Opera? I think these questions merit exploration, which I will get to in a subsequent post.
