Friday, July 12, 2024

How Fantom and Optimism’s DeFi and DApp development directly affects FTM and OP price action

The price action of Optimism (OP) and Fantom (FTM) tokens have been quite identical since the last quarter of 2022. The difference is that volatility is slightly higher for OP, which surged 240% year-to-date, compared to the 180% gains seen in FTM.

The Fantom Foundation has made several improvements since Q4 2022, which have catalyzed an uptrend in the token’s price. However, Fantom’s ecosystem remains primitive while its competitors expanded to support new use cases.

On the other hand, Optimism has shown robust community and decentralized application (DApp) development thanks to the loyalty of Ethereum developers and the Optimism Foundation’s effective strategy in aligning token incentives with governance.

OP/USD (orange) and FTM/USD (blue) price chart. Source: TradingView

Fantom’s ecosystem development stalls

The Fantom ecosystem received an adverse blow in early 2022 due to the departure of leading DeFi architect Andre Cronje. The blockchain’s ecosystem development stalled after Cronje’s departure. At the same time, Fantom’s competitors, like Polygon (MATIC), Cosmos (ATOM), Arbitrum and Optimism, continued to host various popular applications.

Cronje rejoined Fantom development efforts in November, however, it appears it was too late by then. The lack of sustainable yields in a bear market has restricted liquidity inflows to Fantom.

Fantom TVL over time. Source: DefiLlama

The Fantom community also aimed to improve the quality of decentralized applications on the blockchain through an ecosystem development fund built by reducing the portion of burnt fees from 20% to 5% in December. While the number of smart contracts created on Fantom has spiked significantly since Q3 2022, the quality of DApps still needs to improve compared to its competitors.

Number of smart contracts created on Fantom. Source: Dune

The 30-day activity billboard from Nansen shows that top dApp activity on Fantom was limited to simple swaps, which is discouraging as other activities like derivatives trading, social media platforms and NFT trading are prospering on competing chains like Arbitrum, Polygon, and Optimism.

The most used DApps on Fantom between Jan. 20 and Feb. 20 was XEN Crypto, a free mint Ponzi scheme-like application. The application first appeared on Ethereum in October, with a lot of excitement in the first few days of launch. However, the hype subsided after the mint became unprofitable as many users crowded the platform.

Top Fantom dApps by usage in the last 30 days. Source: Nansen

Optimism developers find success with new use cases

At the same time, Optimism has successfully attracted liquidity and activity to its ecosystem after launching the Optimism token and accompanying airdrop campaigns. In April, the Optimism team stated there would be a “season of airdrops” and launched an Optimism Quest campaign.

The layer-2 network saw increased usage from users for collecting its nonfungible tokens, which would likely make them eligible for the airdrop. The Quests ended in January, following which there was a steep decline in activity. However, DeFi liquidity remained sticky.

The total liquidity on Optimism. Source: DefiLlama

Moreover, the activity on Optimism is quite diverse. The list of most used decentralized applications on Optimism includes yield platform Pool Together, derivatives platforms Synthetix and Perpetual Protocol and leading lending platform Aave.

Optimism also hosts a decentralized blogging platform, Mirror, which allows content writers to issue their articles as NFTs. The platform has gained significant usage, with 2.7 million hits on its website.

Top Optimism dApps by usage in the last 30 days. Source: Nansen

On Feb. 24, the largest U.S. exchange, Coinbase, announced its layer-2 blockchain, which uses the same technological design as Optimism. The announcement added that the exchange is closely working with the Optimism Collective with a vision to connect blockchains built on the same technological stack, collectively known as the Optimism ecosystem. This could possibly be the beginning of a big step for Optimism where other businesses follow Coinbase into joining and enhancing Optimism’s liquidity and activity.

Comparing the tokenomics of FTM and OP

One drawback of the Optimism token is that it is only a governance token and doesn’t entitle users to real yields in gas fees. The OP tokens’ supply will inflate at 2% per year, along with investor and team unlocks that begin in April.

However, the Optimism team has incentivized participation in governance, which improves the protocol’s governance and also aligns incentives with its intended use, i.e., higher voter participation.

Optimism’s governance has proved more efficient than competitors like Uniswap (UNI) and Compound (COMP) in promoting decentralization. The layer-2 network’s ecosystem is also expanding by supporting diverse applications. Optimism also stands to benefit from Arbitrum’s native token launch, which will likely add fuel to the layer-2 token narrative, pushing the OP token’s price higher.

Related: Vitalik shows support for Optimism’s governance structure and OP gas proposal

For Fantom, despite implementing a burn feature in its protocol, the real yield of the platform is still negative, around -0.93%. The blockchain’s fees and liquidity must improve considerably to enhance the value of FTM. Otherwise, it risks becoming irrelevant alongside many other layer-1 protocols in the market.

Technically, FTM can see more upside while it holds support above $0.38 and target the $0.95 support and resistance area. A breakdown below $0.38 could see it dropping toward $0.19.

FTM/USD weekly chart. Source: TradingView

For OP, its price surged above its previous peak of $2.30, which will now act as a support for further upside as it experiences a price discovery. On the flipside, a breakdown below this level could see the token’s price drop toward $1.30.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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