In-depth study of the efficient cross-chain exchange protocol ChainflipIn-depth study of Chainflip's efficient cross-chain exchange protocol
Author: CoinList, Translation: LianGuaixiaozou
Editor’s note: Coinlist will launch the Chainflip community sale on August 31, 2023, at 17:00 UTC.
Chainflip is a decentralized, trustless protocol that allows for seamless value transfer between any type of blockchain, including BTC, EVM, and substrate networks.
We sat down with the Chainflip team to learn more about their real-world problem-solving solutions, how they differ from other cross-chain networks, their target use cases, the utility of the FLIP token, and their recent partnerships.
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Let’s take a closer look.
1. First of all, what is Chainflip? What real-world problems does it solve?
Chainflip is a native cross-chain AMM designed to provide users with unparalleled pricing, speed, and accessibility to assets with the highest trading volume in the industry. In terms of exchange, existing cross-chain bridges and infrastructure lack the speed and efficiency to compete with centralized exchanges, while gas costs are much higher. Centralized exchanges have been at the core of the industry from the beginning, despite the industry’s founding principles of decentralization and eliminating intermediaries.
Thanks to Chainflip’s unique architecture, on-chain swaps of native BTC-ETH (exchanges that can replace the dominance of centralized exchanges) become possible. To achieve this goal, Chainflip’s distinctive architecture combines advanced threshold signature schemes, a fully permissionless validator auction system, next-generation AMM design (JIT AMM), and universal support for any blockchain. Its unique deposit channel system makes it unbeatable in terms of gas costs, and its native cross-chain messaging support allows for immediate integration with thousands of protocols.
2. What is the inherent use case of the FLIP token?
The FLIP token itself is a protocol token that supports the security of the Chainflip state chain and liquidity provided by validators. To fund security, swappers are charged network fees, and the income generated is converted into FLIP tokens and removed from circulation. In addition, FLIP is also used to pay for other fees on the state chain, including liquidity updates, deposit channel operations, etc. Chainflip operates on the Appchain architecture, but the native token is issued as an ERC20 token on Ethereum.
3. Protocol design of Chainflip and its differences from other AMMs and cross-chain networks
Unlike many protocols you may be familiar with, Chainflip does not work like a traditional bridge, where assets are wrapped and expensive cross-chain messages need to be sent. There is no tail risk for users – once the swap is completed, you have the native assets in your wallet.
Most other cross-chain solutions do not have their own built-in DEX or AMM, which means the cost of exchanging assets across multiple chains will be significantly higher. Often, there is a lack of liquidity pools in smaller domains, which can severely impact the overall cost of cross-chain swaps. Chainflip combines these steps and ensures the highest pricing through JIT AMM.
There has been a lot of discussion in the industry recently about exchanges based on “intent” in order to minimize slippage on-chain. JIT AMM is a cutting-edge AMM design that we have been working on for 2 years. It combines an intent-based limit order system and a v3-type centralized AMM in the same pool. Without MEV, it is possible to obtain multiple types of liquidity in the same pool, maintaining complete decentralization and minimizing external gas costs. JIT AMM is the ultimate on-chain trading system for cross-chain exchanges. Market makers and LPs (liquidity providers) compete to provide the best possible prices for upcoming trades, which means that even for large trades, users can achieve minimal slippage.
4. What does the FROST signature scheme and operation principle achieve when unlocked/implemented by the protocol?
FROST is a threshold signature scheme based on Schnorr, which supports a large number of signers without affecting scalability. This scheme was first introduced in Chelsea Komlo and Ian Goldberg’s FROST 2020 paper. Our 150-node Chainflip testnet is able to generate a global 2/3 threshold signature every second, exceeding expectations and allowing for further optimization. This is achieved with very low memory and CPU requirements, resulting in low hardware costs.
This greatly surpasses all other TSS or MPC schemes of similar scale, similar to most conventional wallets on most blockchain types. This means that the fully decentralized Chainflip network can jointly control users’ liquidity and exchanges at any time, making the entire system more robust, secure, and flexible. To our knowledge, Chainflip is the only protocol that has used this system on a large scale in this way.
5. What role does a centralized exchange play in Web3? How will it evolve over time?
Since the end of 2020, the popularity and market share of decentralized exchanges have exploded, with Uniswap’s daily trading volume leading Coinbase throughout the year. The existence of centralized exchanges is always necessary, especially for fiat flows in and out of the ecosystem, but on-chain trading has become an increasingly important tool, making on-chain activities easier and more accessible.
Soon, all Web3 users will be able to manage and execute all activities related to their Web3 assets without involving any intermediaries, making self-custody and on-chain activities the default mode of operation for millions of existing daily users. Uniswap has made it clear that as long as on-chain trading options are at least comparable to traditional centralized experiences in terms of price, security, and convenience, users will readily adopt these solutions. By the end of 2022, the collapse of major centralized exchanges will prompt the ecosystem to adopt these decentralized systems, no longer trusting any single entity that can lock users out overnight.
With the improvement of cross-chain markets through protocols like Chainflip and aggregation services like Squid, OpenOcean, and Li.Fi, the future of the entire on-chain trading market seems to be better.
6. What are the projects or protocols that have already started integrating with Chainflip?
We are very excited about our collaboration with Squid. Squid’s cross-chain router will be integrated with Chainflip from the beginning. Squid itself is being rapidly adopted by the industry, and its collaboration with Chainflip will immediately provide:
· Native BTC – the best on-chain pricing on the largest cryptocurrency spot market
· Native ETH – the most widely traded non-stable asset in DeFi
· Native DOT – on-chain trading facilities for creating new markets like no other
· ERC20 FLIP – purchased and burned using network fees
· USDC on Ethereum – the most widely adopted DeFi stablecoin collateral (USDT and other stablecoins can also be exchanged, so no worries)
Once the exchange service is launched, we expect to see stable growth in trading volume as we integrate more and more industry services. We plan to expand the protocol, but at the time of protocol release, we decided to focus on the trading pairs and chains that have the greatest impact on the market as a whole. However, due to our excellent collaboration with Squid, users will be able to trade assets on all supported chains using Uniswap and other DEXs and freely combine them with the Chainflip launch assets. The same goes for Squid and its toolkit users!
· Binance Smart Chain
· Cosmos & IBC
The combined routing capabilities of these two protocols will allow us to compete with centralized exchanges from the start. But this is definitely not the end of the story. We have many other integrations and collaborations yet to be announced, including aggregators, wallets, liquidity providers, market makers, and other protocols, to maximize the asset coverage available to users, liquidity in our pools, cross-chain gas efficiency, and the addition of new chains to the protocol, and more.
7. What is the best way to participate in the Chainflip community?
Our Discord community is great. In the past two years, many excellent community members have been working with us side by side to build this protocol. With such a good atmosphere, you definitely should join us, run a validator on the testnet, and participate in our conversations.
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