Many blockchains today are growing in two distinct ways: on the one hand, chains that want to be EVM compatible to gain composability with ethereum and to leverage the liquidity already established. On the other hand, there are chains with more specific applications that want to grow and scale different use cases.
In any case, it is reasonable to think that liquidity will likely be more fragmented than in the past, this is why we have seen the rise of many types of wrapped / pegged and synthetic assets due to the lack of fully functional cross-chain AMMs in the market.
The Problem Facing The Crypto Community
The crypto community has been trying to achieve low-friction cross-chain exchange for a considerable amount of time. Several projects claim to have solved the problem; however, the user experience does not match the expectations for such a product. To capture decent liquidity and volume the solution must offer a better experience than what centralized exchanges are offering at the moment. The rise of Uniswap further reaffirms the need and desire of the community for low friction cross-chain exchange services. However, Uniswap is limited because it is restricted to the Ethereum blockchain. Ethereum and all ERC-20 tokens only make up a small portion of the overall crypto volume.
What Is Chainflip?
Chainflip is a decentralized protocol supporting the cross-chain swaps of cryptocurrencies without the involvement of a third party or intermediary. Chainflip gives users the seamless experience of Uniswap but without the limitation of the Ethereum blockchain, allowing users to swap ETH for BTC, DOT, or SOL directly. In addition, Chainflip eliminates the need for wrapped tokens or other trade-offs involved in current cross-chain platforms.
Chainflip’s proof-of-stake blockchain is called the State Chain. The protocol’s multi-chain nature ensures that it can support almost any decentralized transaction network as long as it supports certain basic security guarantees. Balances and swaps are tracked on the State Chain, meaning users will have to pay the transaction fee only for the blockchains that they interact with, instead of paying for smart contract execution on ethereum. For example, if a user sends BTC and receives DOT, the user only pays a basic transaction fee for the BTC transaction and one fee for the DOT transaction.
The $ FLIP Token
The $ FLIP token is Chainflip’s native token, used by the validators to secure the network. The protocol charges between 0.10% to 0.20% of every transaction to buy and burn the $ FLIP token. Token holders benefit from the protocol’s usage: the greater the volume on the platform, the greater the number of $ FLIP tokens burnt, benefiting equally all token holders. In addition, $ FLIP tokens will be distributed to validators, rewarding them for the security they are providing to the assets stored in the platform.
The State Chain
The State Chain is the protocol’s standalone blockchain built using Polkadot’s framework called Substrate and acts as Chainflip’s coordination mechanism. The State Chain contains all the data regarding vaults, liquidity pools and transactions, as well as defining the set of rules by which validators must manage such information.
- A cross-chain V3 style AMM that supports several blockchains and transaction types, including L2s.
- Users do not require any special software or custom wallet.
- Chainflip is built on a standalone Proof-of-Stake blockchain leveraging a Polkadot framework called substrate.
- FLIP tokens are bought and burnt every time a swap takes place, capturing value for any token holder regardless of the amount they hold.
- The FLIP token will initially be an ERC-20 token, but could eventually be supported on other blockchain standards in the future.
- USDC acts as the base pair for every asset listed on Chainflip’s AMM.
Chainflip aims to solve several issues faced by the community at large. Using Chainflip, users will be able to swap cryptocurrencies from different blockchains seamlessly and in an entirely trustless manner; everything users need is a web browser, an internet connection, and a compatible destination address.
DeFi has now expanded beyond Ethereum, with more projects exploring other chains for different reasons. It is now more important than ever to build protocols that allow interoperability between these ecosystems in a simple and decentralized way. Chainflip is aiming to be the cornerstone for programmable cross-chain liquidity, leveraging an efficient UNI V3 style AMM that will give users competitive prices and LP’s a possibility to get native yield on a variety of L1 and L2 blockchains.