Once viewed as a potential rival to Ethereum (ETH 0.13%) when it launched several years ago, Fantom (FTM 0.73%) has had a hugely disappointing 2022. Fantom is down more than 92% for the year and trades for less than $0.20. But things appear to be turning around for Fantom, which just got one of its high-profile founders back in November. Fantom is up about 15% in the past 30 days, and momentum seems to be building for this crypto to turn things around in 2023.
Granted, a lot of the recent price increase is based on hope and speculation, predicated on the return of Andre Cronje, who has been compared to Bitcoin (BTC 0.14%) founder Satoshi Nakamoto (a pseudonym) for his influence on the crypto market. Just having Cronje back on board has done a lot to reassure investors that Fantom is not going away anytime soon. And there are at least two other reasons Fantom could be set up for a strong 2023.
Underlying financial strength
Given that Fantom has easily been one of the worst-performing cryptos in the market this year, investors might assume that it’s in pretty gruesome financial condition. However, Fantom has made it very clear that it has no exposure to failed crypto exchange FTX (FTT -1.70%), and that it has the financial resources to wait out the crypto winter.
At the end of November, Fantom released a detailed description of its financial records showing that it has $340 million worth of digital assets on hand, including $100 million in stablecoins, $100 million in crypto assets, $50 million in non-crypto assets, and approximately $90 million worth of Fantom tokens. Talk about a war chest!
On top of all that, Fantom also announced that it had 30 years of runway before this money would run out. This calculation was based on an annual burn rate of $7 million, and the ability to generate steady annual income on those $340 million worth of digital assets. Right now, says Fantom, it is cash flow positive. It is generating $10 million annually, primarily through the use of different decentralized finance (DeFi) protocols.
DeFi to unlock Fantom’s long-term value
That brings us to the main reason Fantom is set up for a potential rebound in 2023: It appears to be focusing on DeFi as a long-term way to unlock the value of the Fantom blockchain. DeFi is one of the most important market sectors in the blockchain and crypto world, and an area where Fantom has already shown significant strength. As Andre Cronje pointed out recently, Fantom would not exist without DeFi.
This doubling down on DeFi should be reassuring to investors, since Fantom is not attempting to transform into something that it is not. If, for example, Fantom suddenly announced that it was getting into non-fungible tokens (NFTs) or Web3 gaming or the metaverse, that would have sent up a lot of red flags. But Fantom is getting back a big-name DeFi pioneer, and he’s ready to unlock DeFi for Fantom. Focusing on what you do best makes a lot of sense from a long-term business perspective.
Questions and concerns about Fantom
The big question, though, is what this embrace of DeFi will look like for Fantom. I don’t think Fantom will attempt to be all things to all people. Unlike other blockchains that attempt to offer everything that Ethereum does, Fantom will primarily focus on DeFi. In short, it will no longer attempt to be an “Ethereum-killer.”
Instead, I think Fantom will evolve over time to focus much more on smart contracts, digital assets, and really clever ways to generate yield on those digital assets. Fantom could begin to look much more like Yearn.Finance (YFI 0.18%) or SushiSwap (SUSHI 2.84%), which were two of the DeFi crypto projects that Andre Cronje worked on before Fantom. Yearn.Finance is a collection of DeFi protocols that can be used to offer a comprehensive suite of DeFi offerings, while SushiSwap is a decentralized exchange for trading cryptocurrencies.
While the future suddenly looks promising again, it’s still hard to trust Fantom after a horrible 2022. It appears that investors have abandoned Fantom after a brief, spectacular run when it spiked from $0.02 in January 2021 to nearly $3.50 in January 2022. I’m definitely putting Fantom on my watch list for 2023, but I cannot recommend this crypto until I see firm, concrete evidence that it has really turned the corner.
Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and yearn.finance. The Motley Fool has a disclosure policy.