Many web3 protocols and projects offer tokens as the main vehicle for investment in them, and many investors buy and hold tokens for this reason. Protocol tokens (e.g. ETH) typically combine both utility and governance, meaning the same token is used as payment for use of the network, while also granting holders the right to vote on changes to the rules and operations of the network. In contrast, some web3 apps (e.g. games like Axie Infinity) today separate their utility token from their governance token. The former is the main token used (i.e. earned or spent) within the app, while the latter separately confers voting rights. In these situations, the governance token is often issued to investors as a means to represent their ownership in the project.

However, tokens that grant voting rights (whether protocol tokens or governance tokens) don’t automatically grant shareholder ownership rights as equity-based securities (which are secured by law) do. While token investors seem to put quite a lot of value on governance/voting rights, in contrast, equity investors typically place low financial value on governance/voting rights granted to equity shareholders.

The assumption held by token investors is that voting rights grant control and control is equivalent to ownership, so governance/voting rights makes owning a token similar to owning a stock. In many cases, due to the absence of regulatory clarity, this is a regulatory workaround to grant ownership in a potentially valuable project while avoiding registration or classification as a security. But in reality, voting rights give the appearance of ownership without granting any real ownership in the project and the real (financial) value generated by it. An investor might own the token, but not the project.

Governance tokens that only grant voting rights with no link to or influence over the distribution of real value don’t translate into financial value for the token, since any future financial value that might arise from a vote on how the protocol works (e.g. voting to distribute revenue from the treasury to token holders) would need to be heavily discounted based on the likelihood of that happening. In most cases, potential voting outcomes can’t be hardcoded into and automated by smart contracts because they weren’t conceived at the time of writing of the smart contract. This means project owners/developers (specifically the signers of the multisig wallet that controls the assets and parameters of a protocol/app) have the final say over compliance with and execution of a voting outcome, and when holders vote, they’re only signalling to the multisig signers what they would like to see happen. The importance of reputation might motivate multisig signers to comply with the vote, but it’s not guaranteed, since the mutisig signers have no legal responsibility to comply. An example of this problem is how Uniswap hasn’t enabled the “fee switch”, despite their token holders asking for it, because the developers are concerned about how regulators will view it. In the worst case scenario, multisig signers could decide to drain the token treasury for their own benefit, and where tokens are not regulated, legal redress might not be an option.

Does this mean that pure governance tokens that grant only voting rights are useless for investors who are looking for financial return? Ultimately, what matters to investors are the rights to financial returns if the project is successful and grows in value, i.e. a share of that value. This value can come in the form of price appreciation in the asset (token or equity) that the investor holds, or a revenue stream generated by the asset, derived from the revenues of the underlying business (similar to a dividend in equity). Do voting rights granted by a governance token give investors sufficient assurance of future value accrual via revenue share (or other mechanic) to justify investment today? Or do we need to define other yardsticks for value accrual to assess token investments? Should we require commitments from developers regarding future implementation of value accrual mechanics? And what would be reasonable commitments to ask for given regulatory uncertainty? What governance token design patterns are potential red flags?

We suggest that investors look out for credible value accrual mechanics built into the design of the governance token (or any token being considered for investment), such as:

1. Demand

Value accrual driven by pure demand for the token rather than anything else is possibly the broadest and most reliable driver of token value, provided that demand is based on real token utility instead of speculative demand (expectation that the price will go up). This typically applies to utility or protocol tokens (e.g. ETH), while governance tokens may not have the same kind of demand dynamics, and for apps (like games), governance token demand may be questionable. Some games build utility into the governance token as an asset required for the most valuable in-game upgrades which drives demand, so this makes the governance token function more like an additional utility token in addition to granting voting rights.

1. Encoding rights to financial value directly into the smart contract

This grants rights to financial value or the ability to influence distribution of financial value through the automatic execution of a smart contract. Legal rights typically require enforcement, but this replaces the need for legal rights to be enforced, because smart contract execution automates enforcement. Examples are CRV, where holders have the right to direct token issuance (right to treasury control), and GMX, where holders can stake the token to get a share of the cash flow/revenue that GMX generates (right to revenue share). In the latter case, a further advantage is that no new GMX tokens are minted to pay out earnings as the revenue generated is distributed in ETH. Note that this may be subject to its own regulatory risk.

1. Revenue sharing

Rights to treasury control or revenue share makes sense if that treasury control or revenue share is real and hardcoded in a smart contract. But many governance tokens only suggest that there may be treasury control or revenue share opportunity granted in future, without guarantee. If a project is saying that there may be revenue sharing in future, how sceptical should an investor be that this will happen, and how much should an investor discount this as a potential driver of token value (since it might not happen in future) and therefore as a rationale to invest? Here, the GMX approach of encoding this commitment in the smart contract is ideally what we should be looking for. If it isn’t done at the outset, investors may need to assess the project’s intention/commitment to do this later, bearing in mind that as the regulatory landscape changes, this may become easier or harder to do. Either way, it’s worth getting clarity on this when looking at token investments. In reality, very few web3 projects actually share revenue today, and if a protocol is actually useful, it could have meaningful demand drivers, which means it doesn’t need to share revenue to drive value accrual. But some DeFi protocols (like GMX and Curve) and apps (a hugely successful game can hit $1B ARR) can generate large amounts of revenue, and in these cases, revenue sharing is a meaningful driver of value accrual and essential to the success of the token, if credibly executed. In this case, token holders would probably demand revenue sharing and put it to a vote by the community, or else seek some kind of (legal or smart contract-based) commitment to revenue sharing in future, e.g. when revenue reaches a certain threshold. Remember, though, that this may not give investors any assurance if the voting right isn't actually real, i.e. voting doesn’t automatically trigger a revenue sharing process built into the smart contract. But can investors realistically press for or expect commitments given the regulatory uncertainty? If not, then sometimes making an equity (instead of token, or with token warrants) investment in the project may be a sensible option to consider, especially for projects where revenue generation is a key value driver.

1. Deflationary mechanics

What about buy and burn deflationary mechanics, which some projects use? Is it a reliable driver of token value, if projects periodically buy and burn some amount of the token to ensure deflation, reduce supply and increase price? If revenue generated by the project is being deployed in this way, it provides a link between revenue and token price. But depending on the percentage of revenue used for this, it may function more as a monetary policy and inflation management tool than a mechanic to drive value accrual. In general, we think the jury is still out on how effective this is, as one could argue that a project’s treasury could be put to better (value-creating) use than buying tokens from secondary markets to burn. More often, burning tokens through user activities might make more sense as a deflationary tool.

Token design and engineering is still a relatively new field, and as more token design experiments are done, we’ll learn more about which value accrual mechanics make sense and are sustainable across market cycles and how effective they are. Right now, revenue sharing protocols like GMX that encode financial rights directly into smart contracts and incentivise holding by sharing protocol fees without minting new tokens are bringing new ideas into the token design space, and it’ll be interesting to see if/how these ideas get adopted beyond DeFi to the app layer in web3 games, social and other non-DeFi spaces.

“Maybe it is a bad idea to stick all the applications into one global computer. Maybe it just makes sense to have a multi-chain future” — Do Kwon, Co-Founder Terraform Labs at Messari Mainnet 2021.

The future is going to be multi-chain, Ethereum scalability and fees have led to the rise of challenger blockchains. Competing layer 1 protocols such as Solana, Avalanche, Terra, and Fantom have eaten into Ethereum’s market share.

These challenger chains offer faster transaction time, much lower fees and more scalability than Ethereum. While Ethereum 2.0 will aim to solve some of Ethereum scalability issues, these challenger blockchains have reduced the dominance of Ethereum from being the go-to blockchain where most Dapps are built and with a lot of new Projects launching or migrating to these other blockchains, the multi-chain future is assured.

One of these challenger blockchains that is particularly exciting is Fantom.

Challenger Blockchains | Source: Defi Llama

Fantom

Fantom is a high performance, scalable, secure and directed acyclic graph(DAG) smart contract platform, designed to overcome the limitations of previous generation blockchain platforms.

The blockchain trilemma made previous generation blockchains to make trade-offs between the three components of the blockchain, scalability, security and decentralization.

Bitcoin for example was built with decentralization and security at its core, which makes it less suited to transactions that require fast confirmation and speed, transactions like data transfer, day to day payments, assets trading or other transactions that users and businesses rely on for their daily activities.

Fantom tackles these issues at its core, their novel technology consensus algorithm called Lachesis allows digital assets to operate at unprecedented speed and delivers impressive improvement over the other blockchains.

Unlike the other blockchains, fantom does not sacrifice decentralization or security for scalability.

Fantom revolutionary aBFT consensus mechanism(Lachesis) enables fantom to be faster and cheaper than previous blockchains while being extremely secure.

Fantom has an extremely talented team and it’s being currently led by Michael kong, who was previously the Chief Technology Officer(CTO) at Block8, a blockchain incubator. He also built one of the first detectors for vulnerabilities in a smart contract, as well as one of the first solidity decompilers.

Another notable member of the Fantom team is Andre Cronje, Andre Cronje is a very well known and respected developer in the Defi space, he is the developer of Yearn finance and is currently serving as the Defi Architect for fantom.

The remainder of the team is made up of very talented and experienced members across sectors such as finance, cryptography, mathematics, business development and other related disciplines.

Fantom novel Technology is what makes it stand out.

Technology

Fantom has two technologies at its core

• Lachesis Protocol, The core consensus layer.

• Fantom Opera, The application development layer.

Lachesis.

Lachesis | Fantom Whitepaper

On every blockchain, a consensus mechanism is used for the network to reach a mutual agreement and understanding of each transaction’s validity and confirmation.

Satoshi Nakamoto in 2009, introduced the first protocol known as Proof of Work(POW). The proof of work consensus mechanism requires each miner in the network to use immense computing power to compete to solve a mathematical equation to prove a transaction is valid. This method of consensus requires and consume a lot of energy and is usually slow.

Since then there have been developments in blockchain consensus mechanisms, one of which is Asynchronous Byzantine fault tolerance(aBFT).

Asynchronous Byzantine fault tolerance(aBFT) is currently the highest standard of consensus algorithms on the blockchain. It solves the blockchain Trilemma of decentralization, security and scalability.

Fantom Lachesis is built on this technology.

Lachesis is a DAG(Directed acyclic graph)-based aBFT consensus algorithm that offers tangible improvements over both Classical and Nakamoto models.

Lachesis is asynchronous, leaderless, and final while also being Byzantine Fault Tolerant.

Lachesis is:

1. Asynchronous: Participants have the freedom to process commands at different times.

2. Leaderless: No participant plays a “special” role.

3. Byzantine Fault-Tolerant: Supports one-third of faulty nodes, including malicious behavior.

4. Final: Lachesis’s output can be used immediately. There is no need to wait for block confirmations; transactions are confirmed in 1–2 seconds.

Lachesis overcomes the limitation of previous consensus algorithms, and enable anyone to build decentralized, fast and secure applications.

It is on this technology, that Fantom Opera is built.

Fantom Opera

Opera | Source : Fantom Whitepaper

Opera is a secure and fast environment to build decentralized applications. It is fully permissionless and open-source. Powered by Fantom’s aBFT consensus algorithm, it leverages its speed and fast finality and is used to build real-world applications with no risks of congestion or long confirmation times.

The Fantom Opera mainnet is compatible with the Ethereum Virtual Machine (EVM) and provides full smart contracts support through Solidity.

Fantom Opera has leaderless proof of stake(POS), fast finality thanks to the Lachesis aBFT consensus mechanism, and being EVM compatible, which allow developers to write, deploy, and run smart contracts as they would on Ethereum, but on top of a faster consensus mechanism.

This enables fantom to be super fast, decentralized and scalable.

Fantom Token (FTM)

FTM is the native token of the fantom network and like other Layer 1’s it is primarily used for.

• Securing the network, The FTM token is used to secure the network via a proof of stake(POS) system. To participate, validator nodes need to hold a minimum of 1,000,000 FTM, and stakers need to lock up their FTM, in return, both are rewarded with fees accrued.

• Payments, FTM is used to pay for transaction fees, gas fees and other fees on the fantom network.

• Onchain governance.

Tokenomics.

Fantom has a total of 3.175 Billion tokens, the whole supply of the tokens including those reserved for staking were minted at launch.

• 40 % Private / Public sale

• 15 % to advisors with a 3 months lock-up.

• 10 % team, with a vesting period.

• 31.4 % staking rewards, to be distributed daily till 2024.

• 3.6 % strategic reserve.

Tokens Distribution | Source: Messari

Tokens liquid supply schedule | Source: Messari

Fantom Ecosystem

Fantom Ecosystem | Source: Fantom daily

Since the launch of Opera mainnet, The fantom ecosystem has grown exponentially, fantom went from $247.2M TVL in may to $5.6B in November.

Fantom TVL May 17,2021 | Source: Defi Llama

Fantom TVL November 02, 2021 |Source: Defi Llama

Fantom opera being EVM compatible has made it very easy for developers to deploy their products on the fantom mainnet, and this has led to an influx of new protocols into the ecosystem.

Fantom like the other layer 1’s also started an incentive program to encourage developers to build on Fantom, at the current market rate, the Fantom incentive bounty stands at over $1B.

Fantom has an impressive number of protocols built across the ecosystem in Defi, NFTs, tools and wallets.

Top Fantom Projects | Source: Fantom Daily.

Fantom has also had an exponential adaptation, as it has gone from an average of 378,000 daily transactions in may to over 800,000 daily transactions in October.

Fantom Daily transactions | Source: Fantom Explorer

Fantom keeps growing, and with an exceptional user experience, fast and scalable Defi experience and a $1B war chest to drive ecosystem growth.

Fantom Enterprise

The fantom team also offer Blockchain as a service(BaaS) using their innovative Lachesis consensus to enterprises, this enables businesses to build scalable, fast and efficient use cases.

Fantom already has an impressive list of enterprise partners they are working with including Travala and Royal star Pharma.

Competitive landscape

The multi-chain future war is on,** **and while the other layer 1’s like Solana which has the backing of FTX, Binance Smart Chain(Bsc) which has the backing of Binance, Fantom has shown it can stand to the test.

Fantom low barrier to entry, fast transactions, low fees and active ecosystem development has made it stand out and with an Incentive of over $1B for ecosystem growth, fantom will keep growing.

Fantom also outperformed all the layer 1’s on returns this year.

Fantom against other layer 1s | Source: Messari

Final thoughts

Enterprise Focus

The worldwide market for enterprise block technology and related services will grow to over $13.2B by 2024, fantom is in a unique position to capture a significant share of this market, and with superior technology, enterprises and businesses can build multiple use cases on it.

Superior Technology

Fantom Lechesis consensus is superior to most of the other technologies used on the other layer 1’s, being fast, scalable and with bank-grade security gives it a competitive advantage over its competitors.

Incentives

The other layer 1’s like Avalanche, Bsc and harmony use incentives to build out their ecosystem, and with over $1B incentives ecosystem fund, fantom is in a unique position to bring even more amazing protocols to its ecosystem.

Fantom growth this year has been exponential, and with its superior technology, enterprise play and amazing builders like Andre Cronje backing it, Fantom will keep growing, and Fantom will have a say in the Multichain future.

**“**Frog nation, #occupydefi” if you are active on crypto Twitter you will have come across this hashtags over the past few weeks.

The team behind it is the Abracadabra money team, the team behind $Spell, the token launched in May, and has already crossed a billion dollar market cap and entered the top 100 crypto’s based on market cap.

Abracadabra money, along with OlympusDAO( ohm) and Wonderland(Time) are the new upstarts leading the “DeFi 2.0” narrative.

• Background of Abracadabra Money and why it is important.

• What is Abracadabra money ?

• How is Abracadabra money innovative ?

• What are the tokens in Abracadabra money protocol ?

• The tokenomics of Spell?

• What is Abracadabra money, future plans and partnerships ?

This article will provide you with the answers to these questions.

Background

Stablecoins are one of the most important inventions of crypto, stablecoins made it possible to onboard new people into crypto.

The leading stablecoins and the most adopted stablecoins (USDT and USDC) are facing a lot of issues from overzealous regulators, and they are also centralized.

The basic premise of crypto is decentralization, moving forward we need a true decentralized stablecoin and Abracadabra Money is working on giving us a true decentralized stablecoin.

What is Abracadabra Money ?

Previously when you stake your crypto for this example we are going to use USDT into an Interest earning protocol like yearn, you won’t be able to use it, as it is illiquid and it’s just sitting there, so you have capital but can’t use it.

More recently when you deposit crypto into a vault, you receive a representative token, like a receipt, for example if you deposit USDT into yearns vault, you will receive (yvUSDT), this representative tokens are called interest bearing liquid-staking tokens(ibTokens).

Interest bearing liquid- staking tokens(Ibtokens) are tokens that offer you the ability to deposit and earn interest on your crypto, whilst being able to utilize the Ibtoken itself, to earn more yield.

Abracadabra.Money** **is a lending platform that uses interest-bearing tokens(ibTKNs) as collateral to borrow a USD pegged stablecoin(Magic Internet Money-MIM) that can be used as any other traditional stablecoin.

Abracadabra supercharges your Defi journey by letting capital that previously can’t be put to further use, be used in different creative ways.

How does it Work ?

Teju has $10,000 USDT and she wants to deposit into a yearn vault and earn interest, but she also doesn’t want to lock up her capital and want to maximize her yield, this is what Teju will do with the magic of Abracadabra to generate more yield.

• Deposit $10,000 into a yearn vault and get her yvUSDT ibtokens.

• Teju now has yvUSDT which has a current value of $10,000.

• Teju took her $10,000 yvUSDT to Abracadabra.

• Teju chooses how much risk she is willing to take, and because Teju is a true Ape, she will mint 90 percent of her collateral and thereby get $9000 MIM.

• Teju will be paying an interest rate of 0.8%. The collateral determines your interest rate.

• Teju can swap her MIM in the MIM3pool into USDT.

• Teju can return the borrowed MIM plus interest at any time and get back her collateral.

Teju has about $9000 to play with, she can either buy other tokens, deposit to increase her yield, or do a lot other of creative stuffs with it and the best part of it is, as long as Teju control her collateral ratio and risk, there is little danger of her getting liquidated.

Abracadabra money enables you to put to use capital that wouldn’t have been put to use otherwise.

Abracadabra money has two tokens, MIM and Spell.

MIM (Magic Internet Money)

MIM

Magic internet money(MIM) is a stablecoin that is backed by interest bearing tokens.

For a user to borrow MIM they need to deposit an interest bearing token.

The peg of MIM to the USD is maintained using arbitrage.

MIM aims to be a true decentralized, multichain stablecoin.

For a truly decentralized internet we need true decentralized stable coins, the current market leaders USDT and USDC are very centralized and constantly coming under scrutiny by regulators.

The other alternative DAI by MakerDAO, has become more reliant on USDC, a centralized stablecoin.

Squirrel, one of the Abracadabra team members, has this to say about DAI “DAI has become a very unattractive stablecoin. We were fans when it was Ethereum-collateralized, but at this stage, DAI is 60% collateralized by USDC. A supposedly decentralized stablecoin that is primarily collateralized by a centralized stablecoin, it’s ridiculous”

1 DAI is currently backed by:

USDC — $0.45

ETH — $0.36

WBTC — $0.08

PAX — $0.06

The rest of the coins represent $0.05 of the total backing.

MIM is already a multi-chain stablecoin, by leveraging Anyswap cross chain protocol, users can already transfer their MIM across chains.

New MIM tokens are minted by a multisign, deposited in the kashi markets smart contracts, and then injected into circulation only after the user deposits the collaterals.

MIM is in a unique position to capture the market, it’s the first collateralized stable coin and Along with UST, the two leading decentralized stablecoins, and we need true decentralized stablecoins moving forward.

Top stablecoins | Source: Thedefiant.io

SPELL TOKEN

Spell

SPELL

SPELL token is the governance and incentive token of the abracadabra protocol.

It is used to incentivize users to provide liquidity into Abracadabra in order to earn yield.

It also grants holders voting rights and governance to change the platform parameters such as future collateral options, liquidation fees, and Total value locked (TVL).

Single side stakers of spell also get to share from the fees generated by the protocol, spell stakers receive up to 75% of the interest payments of the protocols loans via SPELL tokens that are rewarded to the stakers.

Tokenomics

Initially there was a total supply of 420 Billion, but it was reduced by 50 percent by performing a unique token burn event. Therefore Spell has a Max supply of 210 Billion.

Spell token Distribution | Source: Abracadabra.Money

SPELL tokens are distributed as follows:

• 63% will be used to incentivize Liquidity providers and other liquidity mining programs.

• 7% was distributed at IDO

• 30% of the total supply was allocated to team members and has a 4 years vesting schedule.

Team tokens Vesting Schedule

SPELL currently has a circulating supply of 59.23 Billion.

SPELL has surged to over a Billion dollars market cap and they are already generating more revenue than MakerDAO, despite MakerDAO having a bigger market cap.

SPELL generated $2,366,00 in fees last week, while MakerDAO generated $1,192,921.

SPELL VS MKR | Source: byebyedai

Roadmap And Future plans

The abracadabra money team are constantly building and they are coming after DAI and the other centralized stablecoins, Stablecoins like USDT, USDC and BUSD comprise of about $133 Billion in circulation and with the regulators constantly haggling USDT and USDC in particular, there is a big addressable market for MIM, and demand for decentralized stablecoins will only increase, recently Abracadabra team are planning to Partner with the Terra team(UST), in order to compete together against centralized stablecoins.

MIM meets UST

Summary

The frog nation community and the “DeFi 2.0” crowds are also behind SPELL and MIM, and they are building a powerful community and the demand for decentralized stablecoins will only increase, The team builds fast, have a great community and the future looks bright for Abracadabra money.

I will leave you with a spell book.

Cast a SPELL

Disclaimer:* This article is intended for educational and informational purposes only, and should not be construed as investment or financial advice.*