Fantom Is Too Cheap Based on the Value Locked in its Defi Apps

Fantom (CCC:FTM-USD) is an impressive cryptocurrency that looks significantly undervalued. This is based on the amount of its Total Value Locked (TVL) from decentralized finance (DeFi) programs on its platform. As a result, based on my calculations, FTM could be worth over twice its present price.

The Fantom (FTM) crypto logo on a black background

Source: shutterstock.com/ARTEMENKO VALENTYN

In fact, Fantom has fallen so far it has reached a point of consolidation. For example, after reaching a peak of $3.164 on Nov. 8, the price of FTM fell to $1.26 on Dec. 14.

However, by the end of 2021, it moved higher again to $2.58 per coin. But as of Jan. 25, it was trading at $2.38. So, despite its highly volatile route, Fantom is actually making a comeback from its lows.

Fantom’s Standout Features

Fantom is a very unique cryptocurrency. Unlike the multitude of cryptos built using blockchain technology to validate transactions, it uses a different method. Its validation technology is built on a “directed acyclic graph,” or DAG process.

This is a decision-tree-like data modeling process that avoids the use of blocks. Its main utility is that transactions can be validated on a simultaneous basis.

DAG technology has its pros and cons, discussed in this in-depth article by Cointelegraph. But one of the main things I have learned about Fantom is that it is very popular with developers of DeFi apps.

One of the reasons for this was that the Fantom Foundation, the sponsoring organization for FTM, put together a fund for developers. It was designed to encourage developers to write Defi apps for the platform.

One of the conditions of the assistance the fund provides is that the app’s Total Value Locked (TVL) has to be at least $5 million. In other words, the DeFi apps have to produce at least $5 million in smart contracts tied up in FTM applications.

What Fantom Is Worth

Fantom has picked up a great deal of TVL. For example, DefiLlama now reports that its TVL was $10.96 billion as of Jan. 25. This is a very large amount of TVL.

For example, it represents a very high amount of value compared to its market capitalization. Fantom’s market cap is $6.05 billion, ranking it the 25th largest market cap in the crypto universe according to Coinmarketcap.

Therefore, the ratio between its market cap and the TVL associated with the crypto’s DeFi apps is 0.55. This is substantially lower than other major DeFi apps.

For example, Ethereum (CCC:ETH-USD) has a market value of $293 billion, but its TVL according to DefiLlama is $117.7 billion. This brings its market cap/TVL multiple to 2.49 times. That is 4.5 times the 0.55 multiple for Fantom crypto.

In addition, Solana (CCC:SOL-USD) has a market cap of $29.5 billion, compared to its TVL of $7.87 billion. That gives it a market cap/TVL multiple of 3.75 times. This is 6.8 times the ratio of Fantom.

Finally, Polygon (CCC:MATIC-USD) has a market cap/TVL multiple of 2.6x (i.e., $11.7 billion/$4.49 billion). Algorand (CCC:ALGO-USD) has a market cap/TVL ratio of 78 times.

We can consider the ALGO ratio an outlier. On average, it looks likea normalized market cap/TVL multiple should be at least 2.2 times. This implies that FTM is worth at least four times its present valuation (i.e., 2.2x/0.55= 4.)

What to Do With FTM

The point is that FTM is worth significantly more than its present price. We can probably say that at a minimum, it is at least 50% undervalued — i.e., it should be able to double in the next 12 months or so.

That seems like a real possibility, assuming its TVL stays this high over the next 12 months. Even if it doesn’t, it’s apparent that Fantom is set to rise over the next year.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


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