The shift from the Fantom Opera network to the newly launched Sonic chain is not just a technological shift but also demonstrates the critical role that tokenomics plays in a project’s long-term viability. Sonic Labs, the newly rebranded Fantom team, is spearheading this transition by introducing the Sonic chain and the S token, designed to replace the existing FTM token on a 1:1 basis. However, this migration goes beyond a simple rebranding. It also represents a strategic recalibration of the economic framework underpinning the network. The launch of the S token, coupled with a series of governance proposals, aims to incentivize user engagement, bolster network security, and drive broader adoption in this new stage of the Sonic ecosystem.
Effective tokenomics ensures that the equilibrium between token supply and demand is maintained to sustain liquidity, encourage network participation, and support the network’s expansion. For Sonic, this entails deploying a structured token distribution strategy, implementing well-defined vesting schedules, and offering targeted incentives to attract and retain a robust user base.
This migration underscores the importance of aligning the interests of all network participants through native tokens, which are essential for preserving the blockchain's security and sustainability. By closely examining how these governance proposals will shape Sonic’s tokenomics, we can gain valuable insights into the potential impact of this transition on the network's future trajectory and its positioning within the broader crypto landscape.
In this analysis, we will explore the core components of Sonic’s tokenomics and compare them with other notable token migrations in the industry. This comparison will illuminate the significance of this transition and highlight the opportunities it presents for the Fantom community and beyond.
Fantom to Sonic Transition
In March 2024, the Fantom Foundation unveiled a significant advancement in its blockchain strategy by introducing the Sonic chain, a new high-throughput Layer-1 blockchain designed to be a complete replacement of the original Fantom Opera Network. Managed by the newly established Sonic Labs, this transition represents a critical juncture for the Sonic ecosystem. It aims to migrate the existing community from the Opera network to the Sonic chain through a seamless 1:1 token swap, exchanging FTM tokens for the newly introduced S tokens.
Sonic is engineered to meet the escalating demands of the digital economy by providing one of the fastest settlement layers for digital assets, boasting a targeted throughput exceeding 10,000 transactions per second (TPS) and achieving finality within one second. This leap in performance is further enhanced by a secure gateway to Ethereum, allowing Sonic to directly access Ethereum’s vast liquidity, user base, and established protocols. By incorporating a native gateway, Sonic ensures enhanced security for bridged assets while enabling frictionless interaction with the Ethereum network.
As Sonic Labs initiates the rollout of the new chain, the Opera network will remain operational, with the Sonic Foundation continuing to maintain its validators. This continued support ensures the stability and functionality of the existing network, providing a safety net for users throughout the transition period. However, the strategic focus will pivot towards accelerating the growth and adoption of the Sonic chain. To facilitate this, the Sonic Foundation has committed substantial resources, including up to 200 million FTM from its treasury, to fund key initiatives such as marketing, business development, migration grants, and other incentives designed to fast-track the adoption of the Sonic ecosystem.
Several key technological advancements define the Sonic network:
- Virtual Machine): Sonic features an upgraded virtual machine that significantly accelerates the execution of smart contracts while maintaining full compatibility with the EVM. This ensures that developers can migrate their existing apps to Sonic effortlessly without rewriting code, thereby fostering a smooth transition process.
- Database Storage: Sonic’s database storage introduces live pruning, an advanced data management system that allows validators to discard historical data that is no longer needed while remaining online to prevent operational disruptions. This innovation is crucial in maintaining the network’s efficiency and scalability as it expands.
- Consensus Mechanism: Sonic’s consensus algorithm has been fine-tuned to deliver secure and reliable transaction processing and block production, further reinforcing the network’s robustness.
The Sonic network is designed to empower a wide spectrum of users, from small Web3 teams to global enterprises. By offering the tools and infrastructure necessary to build, scale, and succeed, Sonic positions itself as a leading platform for blockchain innovation. The combination of its formidable Layer-1 capabilities and seamless Ethereum connectivity distinguishes Sonic as a unique force in the blockchain industry, poised to support the next generation of decentralized applications and their communities.
Governance Proposals and Votes
Vote 1: Simple FTM-to-S Transition
Central to the successful launch of the Sonic blockchain is the introduction of the S token, which will effectively replace the existing FTM token. As of 2024, this transition holds considerable significance, with the FTM token maintaining a circulating market cap of $1 billion.
At the genesis of the Sonic network, a total supply of 3.175 billion S tokens will be minted, precisely mirroring the current supply of FTM. This careful alignment ensures a smooth transition for all FTM holders, who can exchange their tokens for S tokens via a dedicated web interface. Additionally, S tokens will be made available for purchase on decentralized and key centralized exchanges, enhancing accessibility for new participants in the Sonic ecosystem.
The S token is designed to serve as the bedrock of the Sonic ecosystem, fulfilling multiple critical roles, including transaction fees, staking, validator operation, and governance participation. Furthermore, the S token will be pivotal in Sonic’s gateway to Ethereum, enabling secure and efficient cross-chain interactions.
The transition plan from FTM to S tokens will initially allow for bi-directional swaps, allowing users to move freely between the two tokens. This adaptability is crucial in ensuring that current Opera network participants can experience the benefits of the Sonic chain without the immediate pressure of making a permanent switch. However, after a transitional period, the migration is expected to become one-way, with FTM tokens converting exclusively to S tokens. The duration of this transitional period will be determined based on community feedback and governance decisions, ensuring that the migration process is both responsive and adaptive to user needs.
While the Sonic chain represents the future of the Fantom ecosystem, the Opera network will continue to operate in the near term. Sonic Operations Ltd has committed to maintaining validator support on the Opera network, providing a stable environment for users who choose not to migrate immediately. However, as the superior performance and enhanced features of the Sonic chain become increasingly evident, it is anticipated that a full migration of the Opera ecosystem to Sonic will eventually occur.
Network Fees and Future Minting
Sonic’s economic model aims to balance immediate utility with long-term value preservation. Network fees generated through user interactions will provide additional earnings for validators, distributed proportionately among staked tokens.
Comparable Token Migrations
The transition from FTM to S tokens is part of a broader trend in the cryptocurrency space, where blockchain projects are evolving through token migrations to enhance their networks’ capabilities, security, and user experience. One example of a similar migration is Polygon’s recent upgrade from the MATIC token to the POL token. This offers insights into what may be expected with the FTM to S token transition.
In its effort to advance the Polygon ecosystem, Polygon Labs introduced the POL token as the next-generation protocol token. This upgrade is designed to bolster the network’s scalability, security, and utility by enabling validators to participate in multiple chains simultaneously and assume multiple roles within each chain. This multi-chain validation model represents a significant leap forward, offering validators increased efficiency and earning potential while ensuring robust security across the ecosystem.
The transition from MATIC to POL was engineered to be straightforward and is expected to occur on September 4, 2024. Token holders send their MATIC tokens to an upgraded smart contract that automatically returns the equivalent amount of POL, similar to the FTM-to-S transition. Sonic Labs has the benefit of watching Polygon’s transition unfold first and can collect data like participation percentage, chain performance, and more to ensure its own token transition does not incur any issues.
Vote 2: Airdrop Mechanics and Incentives
The second governance proposal focuses on an airdrop and incentives strategy (Sonic Boom) designed to best incentivize stakeholders' transition from the Opera network to the Sonic chain. This strategy would reward both the Opera chain's current users and new Sonic ecosystem participants.
Initially proposed in June 2024, this strategy outlines the minting of 6% of the total S token supply specifically allocated for future airdrops. These airdrops are scheduled to occur six months after the Sonic network's launch, with the objective of fostering increased engagement and liquidity across both the existing and new platforms.
To maximize the airdrop's impact on user engagement and adoption, the tokens will be distributed as ERC-1155 NFT tokens (fNFTs). These fNFTs, containing S tokens, can be traded on secondary marketplaces like PaintSwap, providing an additional layer of flexibility and liquidity to the airdrop process.
Upon claiming an fNFT, recipients will gain immediate access to 25% of the allocated S tokens, with the remaining 75% vesting over a specified period. The vesting schedule is crafted to encourage long-term participation; faster vesting options result in fewer unlocked tokens, while unvested tokens will be burned to manage supply and prevent inflation.
Incentive Structure and Vesting Model
The airdrop is strategically structured to enhance activity, application revenue, and gas fee generation within the Sonic ecosystem. By targeting key user groups—liquidity providers, validators, and bridge users—the proposal seeks to reward those who have historically contributed to the network's growth while incentivizing new users to engage with Sonic.
The airdrop and incentive structure incorporates a sophisticated linear decay model, which governs the vesting of tokens and integrates burn mechanisms to mitigate inflationary pressures. This approach is designed to create a balanced token economy where supply and demand are meticulously managed to sustain the token’s value over time.
To achieve these objectives, Sonic Labs will leverage its resources to onboard top facilitators, ensuring the successful execution of the airdrop. The allocation of the airdrop will be distributed across various user categories, including:
- Liquidity Providers (LPs): Active participants in various Opera apps.
- Validators and Delegators: Contributors to network validation efforts.
- Multichain Bridge Users: Wallets impacted by the Opera Multichain bridge.
- Liquid Staked Token Holders: Including holders of sFTMx, beFTM, and ankrFTM.
- NFT Holders and Marketplace Users: Participants engaged in the creation and trading of NFTs on Opera.
- Miscellaneous Protocol Participants: Users involved in various other Opera protocols.
Additionally, the strategy will target new users to drive Total Value Locked (TVL), transaction volume, and ecosystem development for early Sonic applications. These incentives will be tailored to liquidity providers on Sonic, staking participants, validators, verified contract deployers, and other strategic contributors.
The vesting schedules within the airdrop model are meticulously designed to align with the network’s growth trajectory and liquidity requirements. Key considerations include:
- Growth Alignment: Ensuring that token supply meets the anticipated demand at launch, preventing significant price fluctuations.
- Liquidity Management: Coordinating vesting schedules with market liquidity to stabilize token prices and minimize the impact of buy and sell orders.
- Investor Considerations: Balancing the vesting periods for fundraising tranches to reduce sell pressure from early investors seeking quick returns.
Vote 3: Ongoing Funding
The third governance proposal focuses on the strategic minting and burning of S tokens, which is crucial to driving the Sonic network's long-term growth and sustainability. To support the network's ongoing growth, new S tokens will continue to be minted into the future, with 1.5% of the total supply (47,625,000 S tokens) to be minted annually over six years. To mitigate inflation and protect token value, any unused tokens from this initiative will be burned, ensuring that all newly minted tokens directly contribute to network expansion and ecosystem development.
The newly minted S tokens will exclusively support Sonic Labs's growth initiatives. These initiatives include securing partnerships with leading Web2 and Web3 entities, fostering innovation across various blockchain sectors, and executing comprehensive audience growth programs.
Through these efforts, Sonic aims to attract new users, bolster its ecosystem, and position itself as a leading platform in the blockchain space.
To support this growth, the proposal introduces two key programs:
- Sonic Spark: This program offers grants to Web3 innovators working in DeFi, gaming, SocialFi, NFTs, decentralized physical infrastructure (DePIN), and other emerging applications.
Grant recipients will receive funding, liquidity, and additional support from partners like Google Cloud and Alchemy, along with access to essential tools, auditing services, and remote procedure calls (RPCs).
- Sonic University: Designed to nurture the next generation of blockchain developers, Sonic University provides resources, knowledge, and guidance to students at select universities.
The program includes hackathons and other initiatives aimed at integrating students into the Sonic community, with participating universities receiving grants from Sonic and Google Cloud to operate Sonic validators.
Gradual Token Introduction and Burn Mechanism
The proposal introduces a linear minting process to maintain the stability of the S token’s value and prevent market disruption. Tokens will be gradually introduced on a block-by-block basis, as governed by the chain’s “SFC” contract, starting at least six months after the Sonic network’s launch. This controlled approach ensures that the S token's fully diluted valuation (FDV) remains stable while supporting the network’s long-term growth objectives.
A critical aspect of this proposal is the burn mechanism. Token burning involves permanently removing tokens from circulation, typically by destroying them through a smart contract or transferring them to an inaccessible wallet. The primary goal of this practice is to reduce the overall token supply, thereby potentially increasing the token’s price, assuming demand remains constant. However, this mechanism has both benefits and drawbacks that must be carefully considered.
Benefits and Drawbacks of Token Burns
Token burns offer several notable benefits that can enhance a cryptocurrency's value and perception. One primary advantage is the potential to increase the token’s price by reducing the circulating supply. This scarcity can improve market sentiment and reward existing holders as the value of their tokens appreciates.
Additionally, the perception of a shrinking supply can attract new buyers, boosting important metrics such as market capitalization and TVL. By discouraging the selling of tokens, burns can reduce token velocity, making buy pressure more effective in raising the token’s price.
However, token burns also come with significant drawbacks. One debated issue is that many token holders are not active ecosystem users; they hold tokens purely as speculative assets, contributing little to the network's utility or growth. This creates a free rider problem, where burning tokens benefits all holders indiscriminately, paid for by the activity of the real users.
Vote 4: Validator Rewards and Gas Monetization
The fourth governance proposal introduces a comprehensive set of changes to enhance the value for validators and stakeholders as the Fantom Opera chain transitions to the new Sonic network. Approved in July 2024, this proposal addresses key aspects of staking rewards, liquid staking, Gas Monetization, and the management of the Ecosystem Vault. Collectively, these changes are designed to optimize DeFi activity, secure the network, and ensure the long-term sustainability of the Sonic ecosystem.
Migration of Validator Rewards
A major component of this proposal involves reallocating FTM staking rewards from the Opera network to Sonic. With the launch of Sonic, all Opera validator and staker rewards will migrate to the new network, which will feature a target block reward rate of approximately 3.5%.
This migration is critical to ensuring that the Sonic network can operate without inflation for the first four years, leveraging the remaining FTM block rewards to sustain this target annual percentage rate (APR). During this period, no new tokens will be minted, preserving the value of the S token and providing a stable foundation for validators and stakers.
To further streamline the staking process, the proposal reduces the staking lock-up period to a hard period of 14 days, with a seven-day un-delegation period. This change is intended to enhance liquidity, making it easier for validators and stakers to participate in the network while still maintaining competitive reward rates. By targeting a 3.5% return when approximately 50% of the network is staked, the proposal aligns staking incentives with the overall health and growth of the Sonic network.
Liquid Staking and DeFi Integration
One of the standout features of this proposal is the new emphasis placed on Liquid Staking Tokens (LSTs), which are expected to significantly boost DeFi activity within the Sonic ecosystem. By allowing stakers to tokenize their staked assets, LSTs provide additional liquidity and yield opportunities, reducing the opportunity costs associated with traditional staking. This increases the TVL within the network and enhances the composability of Sonic’s DeFi ecosystem, enabling the integration of LSTs into various applications such as lending, borrowing, and liquidity pairs.
The migration plan aims to tap into a potential $750 million LST ecosystem, capitalizing on the 48% staked supply that characterized the Opera network. By addressing the restrictive staking terms that previously limited the growth of LSTs—comprising less than 4% of the total staked supply—the new staking mechanism positions Sonic to capture a larger share of the DeFi market, similar to more established networks like Ethereum, where LSTs represent a much higher percentage of the staked supply.
Gas Monetization (GasM) Program
In addition to both validator rewards and LSTs, the proposal also introduces a revamped Gas Monetization (GasM) strategy designed to incentivize protocol developers better while maintaining a balanced approach to transaction fees. Under the new model, protocols participating in the GasM program will receive up to 90% of the gas fees generated by their transactions, with the remaining 10% allocated to validators. For transactions outside the program, 50% of the fees will be burned, 45% will be distributed to validators, and 5% will be allocated to the Ecosystem Vault.
Analysis of the Fantom-to-Sonic Transition
The four governance proposals introduced for the Sonic network collectively establish a robust and sustainable foundation for its ecosystem. Each proposal addresses a different aspect of the network’s transition and development, creating a cohesive strategy to ensure Sonic's long-term success.
Together, these proposals create a synergistic framework that aligns the interests of all stakeholders—users, developers, validators, and investors—while driving growth and innovation within the Sonic ecosystem. This approach ensures that all participants are incentivized to contribute to the network’s success, fostering a vibrant and sustainable community around the Sonic chain.
It’s crucial to recognize that not all tokenomics models achieve this balance. Poorly designed models can disproportionately favor project teams and early investors at the expense of retail participants, often resulting in a low float/high FDV scenario. Such models introduce significant risks for retail investors, who may become exit liquidity for early stakeholders once tokens are publicly traded.
In many cases, low float/high FDV tokens lead to continuous market dumping by early investors and team members, suppressing market prices and limiting growth potential for retail investors. The disparity between the circulating market cap and the fully diluted market cap often signals an impending influx of tokens, which can further depress prices and erode investor confidence.
In contrast, Sonic’s governance proposals are meticulously designed to avoid these common pitfalls. The careful management of token supply through controlled minting and burning, coupled with a fair distribution model that incentivizes long-term participation, creates a more equitable and sustainable ecosystem. This approach protects retail investors from the negative effects of high FDV and continuous market dumping, ensuring that all participants can share in the network’s success. Through these measures, Sonic aims to build a resilient and inclusive blockchain platform capable of thriving in the competitive landscape of next-generation high-throughput chains.
Conclusion
The transition from the Fantom Opera network to the Sonic chain represents a pivotal moment for the ecosystem, ushering in a new technological paradigm as well as a strategic overhaul of its economic foundation. Sonic Labs and the proposals thus far aim to construct a robust framework designed to enhance scalability, security, and user engagement through the introduction of the S token and a series of carefully planned governance proposals.
This migration is more than just a token swap; it’s a deliberate shift towards a more sustainable and inclusive blockchain platform. The new tokenomics model, underpinned by controlled minting and strategic burning, aims to align the interests of all stakeholders while avoiding common pitfalls seen in other networks. By fostering long-term participation and ensuring a balanced distribution of rewards, Sonic is poised to challenge newcomers like Aptos and Monad as well as the stalwarts like Ethereum and Solana.
Disclaimer: This report was commissioned by Sonic Labs. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
The shift from the Fantom Opera network to the newly launched Sonic chain is not just a technological shift but also demonstrates the critical role that tokenomics plays in a project’s long-term viability. Sonic Labs, the newly rebranded Fantom team, is spearheading this transition by introducing the Sonic chain and the S token, designed to replace the existing FTM token on a 1:1 basis. However, this migration goes beyond a simple rebranding. It also represents a strategic recalibration of the economic framework underpinning the network. The launch of the S token, coupled with a series of governance proposals, aims to incentivize user engagement, bolster network security, and drive broader adoption in this new stage of the Sonic ecosystem.
Effective tokenomics ensures that the equilibrium between token supply and demand is maintained to sustain liquidity, encourage network participation, and support the network’s expansion. For Sonic, this entails deploying a structured token distribution strategy, implementing well-defined vesting schedules, and offering targeted incentives to attract and retain a robust user base.
This migration underscores the importance of aligning the interests of all network participants through native tokens, which are essential for preserving the blockchain's security and sustainability. By closely examining how these governance proposals will shape Sonic’s tokenomics, we can gain valuable insights into the potential impact of this transition on the network's future trajectory and its positioning within the broader crypto landscape.
In this analysis, we will explore the core components of Sonic’s tokenomics and compare them with other notable token migrations in the industry. This comparison will illuminate the significance of this transition and highlight the opportunities it presents for the Fantom community and beyond.
Fantom to Sonic Transition
In March 2024, the Fantom Foundation unveiled a significant advancement in its blockchain strategy by introducing the Sonic chain, a new high-throughput Layer-1 blockchain designed to be a complete replacement of the original Fantom Opera Network. Managed by the newly established Sonic Labs, this transition represents a critical juncture for the Sonic ecosystem. It aims to migrate the existing community from the Opera network to the Sonic chain through a seamless 1:1 token swap, exchanging FTM tokens for the newly introduced S tokens.
Sonic is engineered to meet the escalating demands of the digital economy by providing one of the fastest settlement layers for digital assets, boasting a targeted throughput exceeding 10,000 transactions per second (TPS) and achieving finality within one second. This leap in performance is further enhanced by a secure gateway to Ethereum, allowing Sonic to directly access Ethereum’s vast liquidity, user base, and established protocols. By incorporating a native gateway, Sonic ensures enhanced security for bridged assets while enabling frictionless interaction with the Ethereum network.
As Sonic Labs initiates the rollout of the new chain, the Opera network will remain operational, with the Sonic Foundation continuing to maintain its validators. This continued support ensures the stability and functionality of the existing network, providing a safety net for users throughout the transition period. However, the strategic focus will pivot towards accelerating the growth and adoption of the Sonic chain. To facilitate this, the Sonic Foundation has committed substantial resources, including up to 200 million FTM from its treasury, to fund key initiatives such as marketing, business development, migration grants, and other incentives designed to fast-track the adoption of the Sonic ecosystem.
Several key technological advancements define the Sonic network:
- Virtual Machine): Sonic features an upgraded virtual machine that significantly accelerates the execution of smart contracts while maintaining full compatibility with the EVM. This ensures that developers can migrate their existing apps to Sonic effortlessly without rewriting code, thereby fostering a smooth transition process.
- Database Storage: Sonic’s database storage introduces live pruning, an advanced data management system that allows validators to discard historical data that is no longer needed while remaining online to prevent operational disruptions. This innovation is crucial in maintaining the network’s efficiency and scalability as it expands.
- Consensus Mechanism: Sonic’s consensus algorithm has been fine-tuned to deliver secure and reliable transaction processing and block production, further reinforcing the network’s robustness.
The Sonic network is designed to empower a wide spectrum of users, from small Web3 teams to global enterprises. By offering the tools and infrastructure necessary to build, scale, and succeed, Sonic positions itself as a leading platform for blockchain innovation. The combination of its formidable Layer-1 capabilities and seamless Ethereum connectivity distinguishes Sonic as a unique force in the blockchain industry, poised to support the next generation of decentralized applications and their communities.
Governance Proposals and Votes
Vote 1: Simple FTM-to-S Transition
Central to the successful launch of the Sonic blockchain is the introduction of the S token, which will effectively replace the existing FTM token. As of 2024, this transition holds considerable significance, with the FTM token maintaining a circulating market cap of $1 billion.
At the genesis of the Sonic network, a total supply of 3.175 billion S tokens will be minted, precisely mirroring the current supply of FTM. This careful alignment ensures a smooth transition for all FTM holders, who can exchange their tokens for S tokens via a dedicated web interface. Additionally, S tokens will be made available for purchase on decentralized and key centralized exchanges, enhancing accessibility for new participants in the Sonic ecosystem.
The S token is designed to serve as the bedrock of the Sonic ecosystem, fulfilling multiple critical roles, including transaction fees, staking, validator operation, and governance participation. Furthermore, the S token will be pivotal in Sonic’s gateway to Ethereum, enabling secure and efficient cross-chain interactions.
The transition plan from FTM to S tokens will initially allow for bi-directional swaps, allowing users to move freely between the two tokens. This adaptability is crucial in ensuring that current Opera network participants can experience the benefits of the Sonic chain without the immediate pressure of making a permanent switch. However, after a transitional period, the migration is expected to become one-way, with FTM tokens converting exclusively to S tokens. The duration of this transitional period will be determined based on community feedback and governance decisions, ensuring that the migration process is both responsive and adaptive to user needs.
While the Sonic chain represents the future of the Fantom ecosystem, the Opera network will continue to operate in the near term. Sonic Operations Ltd has committed to maintaining validator support on the Opera network, providing a stable environment for users who choose not to migrate immediately. However, as the superior performance and enhanced features of the Sonic chain become increasingly evident, it is anticipated that a full migration of the Opera ecosystem to Sonic will eventually occur.
Network Fees and Future Minting
Sonic’s economic model aims to balance immediate utility with long-term value preservation. Network fees generated through user interactions will provide additional earnings for validators, distributed proportionately among staked tokens.
Comparable Token Migrations
The transition from FTM to S tokens is part of a broader trend in the cryptocurrency space, where blockchain projects are evolving through token migrations to enhance their networks’ capabilities, security, and user experience. One example of a similar migration is Polygon’s recent upgrade from the MATIC token to the POL token. This offers insights into what may be expected with the FTM to S token transition.
In its effort to advance the Polygon ecosystem, Polygon Labs introduced the POL token as the next-generation protocol token. This upgrade is designed to bolster the network’s scalability, security, and utility by enabling validators to participate in multiple chains simultaneously and assume multiple roles within each chain. This multi-chain validation model represents a significant leap forward, offering validators increased efficiency and earning potential while ensuring robust security across the ecosystem.
The transition from MATIC to POL was engineered to be straightforward and is expected to occur on September 4, 2024. Token holders send their MATIC tokens to an upgraded smart contract that automatically returns the equivalent amount of POL, similar to the FTM-to-S transition. Sonic Labs has the benefit of watching Polygon’s transition unfold first and can collect data like participation percentage, chain performance, and more to ensure its own token transition does not incur any issues.
Vote 2: Airdrop Mechanics and Incentives
The second governance proposal focuses on an airdrop and incentives strategy (Sonic Boom) designed to best incentivize stakeholders' transition from the Opera network to the Sonic chain. This strategy would reward both the Opera chain's current users and new Sonic ecosystem participants.
Initially proposed in June 2024, this strategy outlines the minting of 6% of the total S token supply specifically allocated for future airdrops. These airdrops are scheduled to occur six months after the Sonic network's launch, with the objective of fostering increased engagement and liquidity across both the existing and new platforms.
To maximize the airdrop's impact on user engagement and adoption, the tokens will be distributed as ERC-1155 NFT tokens (fNFTs). These fNFTs, containing S tokens, can be traded on secondary marketplaces like PaintSwap, providing an additional layer of flexibility and liquidity to the airdrop process.
Upon claiming an fNFT, recipients will gain immediate access to 25% of the allocated S tokens, with the remaining 75% vesting over a specified period. The vesting schedule is crafted to encourage long-term participation; faster vesting options result in fewer unlocked tokens, while unvested tokens will be burned to manage supply and prevent inflation.
Incentive Structure and Vesting Model
The airdrop is strategically structured to enhance activity, application revenue, and gas fee generation within the Sonic ecosystem. By targeting key user groups—liquidity providers, validators, and bridge users—the proposal seeks to reward those who have historically contributed to the network's growth while incentivizing new users to engage with Sonic.
The airdrop and incentive structure incorporates a sophisticated linear decay model, which governs the vesting of tokens and integrates burn mechanisms to mitigate inflationary pressures. This approach is designed to create a balanced token economy where supply and demand are meticulously managed to sustain the token’s value over time.
To achieve these objectives, Sonic Labs will leverage its resources to onboard top facilitators, ensuring the successful execution of the airdrop. The allocation of the airdrop will be distributed across various user categories, including:
- Liquidity Providers (LPs): Active participants in various Opera apps.
- Validators and Delegators: Contributors to network validation efforts.
- Multichain Bridge Users: Wallets impacted by the Opera Multichain bridge.
- Liquid Staked Token Holders: Including holders of sFTMx, beFTM, and ankrFTM.
- NFT Holders and Marketplace Users: Participants engaged in the creation and trading of NFTs on Opera.
- Miscellaneous Protocol Participants: Users involved in various other Opera protocols.
Additionally, the strategy will target new users to drive Total Value Locked (TVL), transaction volume, and ecosystem development for early Sonic applications. These incentives will be tailored to liquidity providers on Sonic, staking participants, validators, verified contract deployers, and other strategic contributors.
The vesting schedules within the airdrop model are meticulously designed to align with the network’s growth trajectory and liquidity requirements. Key considerations include:
- Growth Alignment: Ensuring that token supply meets the anticipated demand at launch, preventing significant price fluctuations.
- Liquidity Management: Coordinating vesting schedules with market liquidity to stabilize token prices and minimize the impact of buy and sell orders.
- Investor Considerations: Balancing the vesting periods for fundraising tranches to reduce sell pressure from early investors seeking quick returns.
Vote 3: Ongoing Funding
The third governance proposal focuses on the strategic minting and burning of S tokens, which is crucial to driving the Sonic network's long-term growth and sustainability. To support the network's ongoing growth, new S tokens will continue to be minted into the future, with 1.5% of the total supply (47,625,000 S tokens) to be minted annually over six years. To mitigate inflation and protect token value, any unused tokens from this initiative will be burned, ensuring that all newly minted tokens directly contribute to network expansion and ecosystem development.
The newly minted S tokens will exclusively support Sonic Labs's growth initiatives. These initiatives include securing partnerships with leading Web2 and Web3 entities, fostering innovation across various blockchain sectors, and executing comprehensive audience growth programs.
Through these efforts, Sonic aims to attract new users, bolster its ecosystem, and position itself as a leading platform in the blockchain space.
To support this growth, the proposal introduces two key programs:
- Sonic Spark: This program offers grants to Web3 innovators working in DeFi, gaming, SocialFi, NFTs, decentralized physical infrastructure (DePIN), and other emerging applications.
Grant recipients will receive funding, liquidity, and additional support from partners like Google Cloud and Alchemy, along with access to essential tools, auditing services, and remote procedure calls (RPCs).
- Sonic University: Designed to nurture the next generation of blockchain developers, Sonic University provides resources, knowledge, and guidance to students at select universities.
The program includes hackathons and other initiatives aimed at integrating students into the Sonic community, with participating universities receiving grants from Sonic and Google Cloud to operate Sonic validators.
Gradual Token Introduction and Burn Mechanism
The proposal introduces a linear minting process to maintain the stability of the S token’s value and prevent market disruption. Tokens will be gradually introduced on a block-by-block basis, as governed by the chain’s “SFC” contract, starting at least six months after the Sonic network’s launch. This controlled approach ensures that the S token's fully diluted valuation (FDV) remains stable while supporting the network’s long-term growth objectives.
A critical aspect of this proposal is the burn mechanism. Token burning involves permanently removing tokens from circulation, typically by destroying them through a smart contract or transferring them to an inaccessible wallet. The primary goal of this practice is to reduce the overall token supply, thereby potentially increasing the token’s price, assuming demand remains constant. However, this mechanism has both benefits and drawbacks that must be carefully considered.
Benefits and Drawbacks of Token Burns
Token burns offer several notable benefits that can enhance a cryptocurrency's value and perception. One primary advantage is the potential to increase the token’s price by reducing the circulating supply. This scarcity can improve market sentiment and reward existing holders as the value of their tokens appreciates.
Additionally, the perception of a shrinking supply can attract new buyers, boosting important metrics such as market capitalization and TVL. By discouraging the selling of tokens, burns can reduce token velocity, making buy pressure more effective in raising the token’s price.
However, token burns also come with significant drawbacks. One debated issue is that many token holders are not active ecosystem users; they hold tokens purely as speculative assets, contributing little to the network's utility or growth. This creates a free rider problem, where burning tokens benefits all holders indiscriminately, paid for by the activity of the real users.
Vote 4: Validator Rewards and Gas Monetization
The fourth governance proposal introduces a comprehensive set of changes to enhance the value for validators and stakeholders as the Fantom Opera chain transitions to the new Sonic network. Approved in July 2024, this proposal addresses key aspects of staking rewards, liquid staking, Gas Monetization, and the management of the Ecosystem Vault. Collectively, these changes are designed to optimize DeFi activity, secure the network, and ensure the long-term sustainability of the Sonic ecosystem.
Migration of Validator Rewards
A major component of this proposal involves reallocating FTM staking rewards from the Opera network to Sonic. With the launch of Sonic, all Opera validator and staker rewards will migrate to the new network, which will feature a target block reward rate of approximately 3.5%.
This migration is critical to ensuring that the Sonic network can operate without inflation for the first four years, leveraging the remaining FTM block rewards to sustain this target annual percentage rate (APR). During this period, no new tokens will be minted, preserving the value of the S token and providing a stable foundation for validators and stakers.
To further streamline the staking process, the proposal reduces the staking lock-up period to a hard period of 14 days, with a seven-day un-delegation period. This change is intended to enhance liquidity, making it easier for validators and stakers to participate in the network while still maintaining competitive reward rates. By targeting a 3.5% return when approximately 50% of the network is staked, the proposal aligns staking incentives with the overall health and growth of the Sonic network.
Liquid Staking and DeFi Integration
One of the standout features of this proposal is the new emphasis placed on Liquid Staking Tokens (LSTs), which are expected to significantly boost DeFi activity within the Sonic ecosystem. By allowing stakers to tokenize their staked assets, LSTs provide additional liquidity and yield opportunities, reducing the opportunity costs associated with traditional staking. This increases the TVL within the network and enhances the composability of Sonic’s DeFi ecosystem, enabling the integration of LSTs into various applications such as lending, borrowing, and liquidity pairs.
The migration plan aims to tap into a potential $750 million LST ecosystem, capitalizing on the 48% staked supply that characterized the Opera network. By addressing the restrictive staking terms that previously limited the growth of LSTs—comprising less than 4% of the total staked supply—the new staking mechanism positions Sonic to capture a larger share of the DeFi market, similar to more established networks like Ethereum, where LSTs represent a much higher percentage of the staked supply.
Gas Monetization (GasM) Program
In addition to both validator rewards and LSTs, the proposal also introduces a revamped Gas Monetization (GasM) strategy designed to incentivize protocol developers better while maintaining a balanced approach to transaction fees. Under the new model, protocols participating in the GasM program will receive up to 90% of the gas fees generated by their transactions, with the remaining 10% allocated to validators. For transactions outside the program, 50% of the fees will be burned, 45% will be distributed to validators, and 5% will be allocated to the Ecosystem Vault.
Analysis of the Fantom-to-Sonic Transition
The four governance proposals introduced for the Sonic network collectively establish a robust and sustainable foundation for its ecosystem. Each proposal addresses a different aspect of the network’s transition and development, creating a cohesive strategy to ensure Sonic's long-term success.
Together, these proposals create a synergistic framework that aligns the interests of all stakeholders—users, developers, validators, and investors—while driving growth and innovation within the Sonic ecosystem. This approach ensures that all participants are incentivized to contribute to the network’s success, fostering a vibrant and sustainable community around the Sonic chain.
It’s crucial to recognize that not all tokenomics models achieve this balance. Poorly designed models can disproportionately favor project teams and early investors at the expense of retail participants, often resulting in a low float/high FDV scenario. Such models introduce significant risks for retail investors, who may become exit liquidity for early stakeholders once tokens are publicly traded.
In many cases, low float/high FDV tokens lead to continuous market dumping by early investors and team members, suppressing market prices and limiting growth potential for retail investors. The disparity between the circulating market cap and the fully diluted market cap often signals an impending influx of tokens, which can further depress prices and erode investor confidence.
In contrast, Sonic’s governance proposals are meticulously designed to avoid these common pitfalls. The careful management of token supply through controlled minting and burning, coupled with a fair distribution model that incentivizes long-term participation, creates a more equitable and sustainable ecosystem. This approach protects retail investors from the negative effects of high FDV and continuous market dumping, ensuring that all participants can share in the network’s success. Through these measures, Sonic aims to build a resilient and inclusive blockchain platform capable of thriving in the competitive landscape of next-generation high-throughput chains.
Conclusion
The transition from the Fantom Opera network to the Sonic chain represents a pivotal moment for the ecosystem, ushering in a new technological paradigm as well as a strategic overhaul of its economic foundation. Sonic Labs and the proposals thus far aim to construct a robust framework designed to enhance scalability, security, and user engagement through the introduction of the S token and a series of carefully planned governance proposals.
This migration is more than just a token swap; it’s a deliberate shift towards a more sustainable and inclusive blockchain platform. The new tokenomics model, underpinned by controlled minting and strategic burning, aims to align the interests of all stakeholders while avoiding common pitfalls seen in other networks. By fostering long-term participation and ensuring a balanced distribution of rewards, Sonic is poised to challenge newcomers like Aptos and Monad as well as the stalwarts like Ethereum and Solana.
Disclaimer: This report was commissioned by Sonic Labs. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
The shift from the Fantom Opera network to the newly launched Sonic chain is not just a technological shift but also demonstrates the critical role that tokenomics plays in a project’s long-term viability. Sonic Labs, the newly rebranded Fantom team, is spearheading this transition by introducing the Sonic chain and the S token, designed to replace the existing FTM token on a 1:1 basis. However, this migration goes beyond a simple rebranding. It also represents a strategic recalibration of the economic framework underpinning the network. The launch of the S token, coupled with a series of governance proposals, aims to incentivize user engagement, bolster network security, and drive broader adoption in this new stage of the Sonic ecosystem.
Effective tokenomics ensures that the equilibrium between token supply and demand is maintained to sustain liquidity, encourage network participation, and support the network’s expansion. For Sonic, this entails deploying a structured token distribution strategy, implementing well-defined vesting schedules, and offering targeted incentives to attract and retain a robust user base.
This migration underscores the importance of aligning the interests of all network participants through native tokens, which are essential for preserving the blockchain's security and sustainability. By closely examining how these governance proposals will shape Sonic’s tokenomics, we can gain valuable insights into the potential impact of this transition on the network's future trajectory and its positioning within the broader crypto landscape.
In this analysis, we will explore the core components of Sonic’s tokenomics and compare them with other notable token migrations in the industry. This comparison will illuminate the significance of this transition and highlight the opportunities it presents for the Fantom community and beyond.
Fantom to Sonic Transition
In March 2024, the Fantom Foundation unveiled a significant advancement in its blockchain strategy by introducing the Sonic chain, a new high-throughput Layer-1 blockchain designed to be a complete replacement of the original Fantom Opera Network. Managed by the newly established Sonic Labs, this transition represents a critical juncture for the Sonic ecosystem. It aims to migrate the existing community from the Opera network to the Sonic chain through a seamless 1:1 token swap, exchanging FTM tokens for the newly introduced S tokens.
Sonic is engineered to meet the escalating demands of the digital economy by providing one of the fastest settlement layers for digital assets, boasting a targeted throughput exceeding 10,000 transactions per second (TPS) and achieving finality within one second. This leap in performance is further enhanced by a secure gateway to Ethereum, allowing Sonic to directly access Ethereum’s vast liquidity, user base, and established protocols. By incorporating a native gateway, Sonic ensures enhanced security for bridged assets while enabling frictionless interaction with the Ethereum network.
As Sonic Labs initiates the rollout of the new chain, the Opera network will remain operational, with the Sonic Foundation continuing to maintain its validators. This continued support ensures the stability and functionality of the existing network, providing a safety net for users throughout the transition period. However, the strategic focus will pivot towards accelerating the growth and adoption of the Sonic chain. To facilitate this, the Sonic Foundation has committed substantial resources, including up to 200 million FTM from its treasury, to fund key initiatives such as marketing, business development, migration grants, and other incentives designed to fast-track the adoption of the Sonic ecosystem.
Several key technological advancements define the Sonic network:
- Virtual Machine): Sonic features an upgraded virtual machine that significantly accelerates the execution of smart contracts while maintaining full compatibility with the EVM. This ensures that developers can migrate their existing apps to Sonic effortlessly without rewriting code, thereby fostering a smooth transition process.
- Database Storage: Sonic’s database storage introduces live pruning, an advanced data management system that allows validators to discard historical data that is no longer needed while remaining online to prevent operational disruptions. This innovation is crucial in maintaining the network’s efficiency and scalability as it expands.
- Consensus Mechanism: Sonic’s consensus algorithm has been fine-tuned to deliver secure and reliable transaction processing and block production, further reinforcing the network’s robustness.
The Sonic network is designed to empower a wide spectrum of users, from small Web3 teams to global enterprises. By offering the tools and infrastructure necessary to build, scale, and succeed, Sonic positions itself as a leading platform for blockchain innovation. The combination of its formidable Layer-1 capabilities and seamless Ethereum connectivity distinguishes Sonic as a unique force in the blockchain industry, poised to support the next generation of decentralized applications and their communities.
Governance Proposals and Votes
Vote 1: Simple FTM-to-S Transition
Central to the successful launch of the Sonic blockchain is the introduction of the S token, which will effectively replace the existing FTM token. As of 2024, this transition holds considerable significance, with the FTM token maintaining a circulating market cap of $1 billion.
At the genesis of the Sonic network, a total supply of 3.175 billion S tokens will be minted, precisely mirroring the current supply of FTM. This careful alignment ensures a smooth transition for all FTM holders, who can exchange their tokens for S tokens via a dedicated web interface. Additionally, S tokens will be made available for purchase on decentralized and key centralized exchanges, enhancing accessibility for new participants in the Sonic ecosystem.
The S token is designed to serve as the bedrock of the Sonic ecosystem, fulfilling multiple critical roles, including transaction fees, staking, validator operation, and governance participation. Furthermore, the S token will be pivotal in Sonic’s gateway to Ethereum, enabling secure and efficient cross-chain interactions.
The transition plan from FTM to S tokens will initially allow for bi-directional swaps, allowing users to move freely between the two tokens. This adaptability is crucial in ensuring that current Opera network participants can experience the benefits of the Sonic chain without the immediate pressure of making a permanent switch. However, after a transitional period, the migration is expected to become one-way, with FTM tokens converting exclusively to S tokens. The duration of this transitional period will be determined based on community feedback and governance decisions, ensuring that the migration process is both responsive and adaptive to user needs.
While the Sonic chain represents the future of the Fantom ecosystem, the Opera network will continue to operate in the near term. Sonic Operations Ltd has committed to maintaining validator support on the Opera network, providing a stable environment for users who choose not to migrate immediately. However, as the superior performance and enhanced features of the Sonic chain become increasingly evident, it is anticipated that a full migration of the Opera ecosystem to Sonic will eventually occur.
Network Fees and Future Minting
Sonic’s economic model aims to balance immediate utility with long-term value preservation. Network fees generated through user interactions will provide additional earnings for validators, distributed proportionately among staked tokens.
Comparable Token Migrations
The transition from FTM to S tokens is part of a broader trend in the cryptocurrency space, where blockchain projects are evolving through token migrations to enhance their networks’ capabilities, security, and user experience. One example of a similar migration is Polygon’s recent upgrade from the MATIC token to the POL token. This offers insights into what may be expected with the FTM to S token transition.
In its effort to advance the Polygon ecosystem, Polygon Labs introduced the POL token as the next-generation protocol token. This upgrade is designed to bolster the network’s scalability, security, and utility by enabling validators to participate in multiple chains simultaneously and assume multiple roles within each chain. This multi-chain validation model represents a significant leap forward, offering validators increased efficiency and earning potential while ensuring robust security across the ecosystem.
The transition from MATIC to POL was engineered to be straightforward and is expected to occur on September 4, 2024. Token holders send their MATIC tokens to an upgraded smart contract that automatically returns the equivalent amount of POL, similar to the FTM-to-S transition. Sonic Labs has the benefit of watching Polygon’s transition unfold first and can collect data like participation percentage, chain performance, and more to ensure its own token transition does not incur any issues.
Vote 2: Airdrop Mechanics and Incentives
The second governance proposal focuses on an airdrop and incentives strategy (Sonic Boom) designed to best incentivize stakeholders' transition from the Opera network to the Sonic chain. This strategy would reward both the Opera chain's current users and new Sonic ecosystem participants.
Initially proposed in June 2024, this strategy outlines the minting of 6% of the total S token supply specifically allocated for future airdrops. These airdrops are scheduled to occur six months after the Sonic network's launch, with the objective of fostering increased engagement and liquidity across both the existing and new platforms.
To maximize the airdrop's impact on user engagement and adoption, the tokens will be distributed as ERC-1155 NFT tokens (fNFTs). These fNFTs, containing S tokens, can be traded on secondary marketplaces like PaintSwap, providing an additional layer of flexibility and liquidity to the airdrop process.
Upon claiming an fNFT, recipients will gain immediate access to 25% of the allocated S tokens, with the remaining 75% vesting over a specified period. The vesting schedule is crafted to encourage long-term participation; faster vesting options result in fewer unlocked tokens, while unvested tokens will be burned to manage supply and prevent inflation.
Incentive Structure and Vesting Model
The airdrop is strategically structured to enhance activity, application revenue, and gas fee generation within the Sonic ecosystem. By targeting key user groups—liquidity providers, validators, and bridge users—the proposal seeks to reward those who have historically contributed to the network's growth while incentivizing new users to engage with Sonic.
The airdrop and incentive structure incorporates a sophisticated linear decay model, which governs the vesting of tokens and integrates burn mechanisms to mitigate inflationary pressures. This approach is designed to create a balanced token economy where supply and demand are meticulously managed to sustain the token’s value over time.
To achieve these objectives, Sonic Labs will leverage its resources to onboard top facilitators, ensuring the successful execution of the airdrop. The allocation of the airdrop will be distributed across various user categories, including:
- Liquidity Providers (LPs): Active participants in various Opera apps.
- Validators and Delegators: Contributors to network validation efforts.
- Multichain Bridge Users: Wallets impacted by the Opera Multichain bridge.
- Liquid Staked Token Holders: Including holders of sFTMx, beFTM, and ankrFTM.
- NFT Holders and Marketplace Users: Participants engaged in the creation and trading of NFTs on Opera.
- Miscellaneous Protocol Participants: Users involved in various other Opera protocols.
Additionally, the strategy will target new users to drive Total Value Locked (TVL), transaction volume, and ecosystem development for early Sonic applications. These incentives will be tailored to liquidity providers on Sonic, staking participants, validators, verified contract deployers, and other strategic contributors.
The vesting schedules within the airdrop model are meticulously designed to align with the network’s growth trajectory and liquidity requirements. Key considerations include:
- Growth Alignment: Ensuring that token supply meets the anticipated demand at launch, preventing significant price fluctuations.
- Liquidity Management: Coordinating vesting schedules with market liquidity to stabilize token prices and minimize the impact of buy and sell orders.
- Investor Considerations: Balancing the vesting periods for fundraising tranches to reduce sell pressure from early investors seeking quick returns.
Vote 3: Ongoing Funding
The third governance proposal focuses on the strategic minting and burning of S tokens, which is crucial to driving the Sonic network's long-term growth and sustainability. To support the network's ongoing growth, new S tokens will continue to be minted into the future, with 1.5% of the total supply (47,625,000 S tokens) to be minted annually over six years. To mitigate inflation and protect token value, any unused tokens from this initiative will be burned, ensuring that all newly minted tokens directly contribute to network expansion and ecosystem development.
The newly minted S tokens will exclusively support Sonic Labs's growth initiatives. These initiatives include securing partnerships with leading Web2 and Web3 entities, fostering innovation across various blockchain sectors, and executing comprehensive audience growth programs.
Through these efforts, Sonic aims to attract new users, bolster its ecosystem, and position itself as a leading platform in the blockchain space.
To support this growth, the proposal introduces two key programs:
- Sonic Spark: This program offers grants to Web3 innovators working in DeFi, gaming, SocialFi, NFTs, decentralized physical infrastructure (DePIN), and other emerging applications.
Grant recipients will receive funding, liquidity, and additional support from partners like Google Cloud and Alchemy, along with access to essential tools, auditing services, and remote procedure calls (RPCs).
- Sonic University: Designed to nurture the next generation of blockchain developers, Sonic University provides resources, knowledge, and guidance to students at select universities.
The program includes hackathons and other initiatives aimed at integrating students into the Sonic community, with participating universities receiving grants from Sonic and Google Cloud to operate Sonic validators.
Gradual Token Introduction and Burn Mechanism
The proposal introduces a linear minting process to maintain the stability of the S token’s value and prevent market disruption. Tokens will be gradually introduced on a block-by-block basis, as governed by the chain’s “SFC” contract, starting at least six months after the Sonic network’s launch. This controlled approach ensures that the S token's fully diluted valuation (FDV) remains stable while supporting the network’s long-term growth objectives.
A critical aspect of this proposal is the burn mechanism. Token burning involves permanently removing tokens from circulation, typically by destroying them through a smart contract or transferring them to an inaccessible wallet. The primary goal of this practice is to reduce the overall token supply, thereby potentially increasing the token’s price, assuming demand remains constant. However, this mechanism has both benefits and drawbacks that must be carefully considered.
Benefits and Drawbacks of Token Burns
Token burns offer several notable benefits that can enhance a cryptocurrency's value and perception. One primary advantage is the potential to increase the token’s price by reducing the circulating supply. This scarcity can improve market sentiment and reward existing holders as the value of their tokens appreciates.
Additionally, the perception of a shrinking supply can attract new buyers, boosting important metrics such as market capitalization and TVL. By discouraging the selling of tokens, burns can reduce token velocity, making buy pressure more effective in raising the token’s price.
However, token burns also come with significant drawbacks. One debated issue is that many token holders are not active ecosystem users; they hold tokens purely as speculative assets, contributing little to the network's utility or growth. This creates a free rider problem, where burning tokens benefits all holders indiscriminately, paid for by the activity of the real users.
Vote 4: Validator Rewards and Gas Monetization
The fourth governance proposal introduces a comprehensive set of changes to enhance the value for validators and stakeholders as the Fantom Opera chain transitions to the new Sonic network. Approved in July 2024, this proposal addresses key aspects of staking rewards, liquid staking, Gas Monetization, and the management of the Ecosystem Vault. Collectively, these changes are designed to optimize DeFi activity, secure the network, and ensure the long-term sustainability of the Sonic ecosystem.
Migration of Validator Rewards
A major component of this proposal involves reallocating FTM staking rewards from the Opera network to Sonic. With the launch of Sonic, all Opera validator and staker rewards will migrate to the new network, which will feature a target block reward rate of approximately 3.5%.
This migration is critical to ensuring that the Sonic network can operate without inflation for the first four years, leveraging the remaining FTM block rewards to sustain this target annual percentage rate (APR). During this period, no new tokens will be minted, preserving the value of the S token and providing a stable foundation for validators and stakers.
To further streamline the staking process, the proposal reduces the staking lock-up period to a hard period of 14 days, with a seven-day un-delegation period. This change is intended to enhance liquidity, making it easier for validators and stakers to participate in the network while still maintaining competitive reward rates. By targeting a 3.5% return when approximately 50% of the network is staked, the proposal aligns staking incentives with the overall health and growth of the Sonic network.
Liquid Staking and DeFi Integration
One of the standout features of this proposal is the new emphasis placed on Liquid Staking Tokens (LSTs), which are expected to significantly boost DeFi activity within the Sonic ecosystem. By allowing stakers to tokenize their staked assets, LSTs provide additional liquidity and yield opportunities, reducing the opportunity costs associated with traditional staking. This increases the TVL within the network and enhances the composability of Sonic’s DeFi ecosystem, enabling the integration of LSTs into various applications such as lending, borrowing, and liquidity pairs.
The migration plan aims to tap into a potential $750 million LST ecosystem, capitalizing on the 48% staked supply that characterized the Opera network. By addressing the restrictive staking terms that previously limited the growth of LSTs—comprising less than 4% of the total staked supply—the new staking mechanism positions Sonic to capture a larger share of the DeFi market, similar to more established networks like Ethereum, where LSTs represent a much higher percentage of the staked supply.
Gas Monetization (GasM) Program
In addition to both validator rewards and LSTs, the proposal also introduces a revamped Gas Monetization (GasM) strategy designed to incentivize protocol developers better while maintaining a balanced approach to transaction fees. Under the new model, protocols participating in the GasM program will receive up to 90% of the gas fees generated by their transactions, with the remaining 10% allocated to validators. For transactions outside the program, 50% of the fees will be burned, 45% will be distributed to validators, and 5% will be allocated to the Ecosystem Vault.
Analysis of the Fantom-to-Sonic Transition
The four governance proposals introduced for the Sonic network collectively establish a robust and sustainable foundation for its ecosystem. Each proposal addresses a different aspect of the network’s transition and development, creating a cohesive strategy to ensure Sonic's long-term success.
Together, these proposals create a synergistic framework that aligns the interests of all stakeholders—users, developers, validators, and investors—while driving growth and innovation within the Sonic ecosystem. This approach ensures that all participants are incentivized to contribute to the network’s success, fostering a vibrant and sustainable community around the Sonic chain.
It’s crucial to recognize that not all tokenomics models achieve this balance. Poorly designed models can disproportionately favor project teams and early investors at the expense of retail participants, often resulting in a low float/high FDV scenario. Such models introduce significant risks for retail investors, who may become exit liquidity for early stakeholders once tokens are publicly traded.
In many cases, low float/high FDV tokens lead to continuous market dumping by early investors and team members, suppressing market prices and limiting growth potential for retail investors. The disparity between the circulating market cap and the fully diluted market cap often signals an impending influx of tokens, which can further depress prices and erode investor confidence.
In contrast, Sonic’s governance proposals are meticulously designed to avoid these common pitfalls. The careful management of token supply through controlled minting and burning, coupled with a fair distribution model that incentivizes long-term participation, creates a more equitable and sustainable ecosystem. This approach protects retail investors from the negative effects of high FDV and continuous market dumping, ensuring that all participants can share in the network’s success. Through these measures, Sonic aims to build a resilient and inclusive blockchain platform capable of thriving in the competitive landscape of next-generation high-throughput chains.
Conclusion
The transition from the Fantom Opera network to the Sonic chain represents a pivotal moment for the ecosystem, ushering in a new technological paradigm as well as a strategic overhaul of its economic foundation. Sonic Labs and the proposals thus far aim to construct a robust framework designed to enhance scalability, security, and user engagement through the introduction of the S token and a series of carefully planned governance proposals.
This migration is more than just a token swap; it’s a deliberate shift towards a more sustainable and inclusive blockchain platform. The new tokenomics model, underpinned by controlled minting and strategic burning, aims to align the interests of all stakeholders while avoiding common pitfalls seen in other networks. By fostering long-term participation and ensuring a balanced distribution of rewards, Sonic is poised to challenge newcomers like Aptos and Monad as well as the stalwarts like Ethereum and Solana.
Disclaimer: This report was commissioned by Sonic Labs. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.
