The crypto community has been trying to achieve low friction cross-chain swaps for a considerable amount of time, with a solution seemingly around the corner but always just out of reach. A lot of the blockchain community thought Atomic swaps would solve the problem ever since they were presented to the community back in 2015. More recently, the popularity of Uniswap further highlighted the crypto community’s urgency and desire to utilize simple and low-friction services, demonstrating the value of instant liquidity through Constant function market makers CFMMs.
However, Uniswap is limited to Ethereum, and with multiple blockchains growing rapidly with a multitude of new tokens, It is imperative that Uniswap’s concept is extended beyond Ethereum and its ecosystem. A solution that has the capability to support Layer 1 transactions across multiple blockchains without requiring wrapped tokens, special software, collateral, or any unnecessary extra steps is something that this growing multi chain ecosystem needs.
What Is Chainflip?
Chainflip is a decentralized, trustless protocol supporting the native cross-chain exchange of cryptocurrencies without the involvement of a trusted intermediary. Chainflip gives users the permissionless experience of Uniswap, but without the limitation of being confined to the Ethereum blockchain. This means users can swap ETH for BTC, or DOT, or XTZ.
Chainflip runs on its own substrate-based Proof-of-Stake blockchain, the State chain, and can support any decentralized transaction network, so long as it meets certain security guarantees. Users have to only pay the transaction fee for the blockchain they interact with. How does this work? Let’s look at a quick example.
Suppose a user wants to send BTC and receive DOT, the user won’t need to hold any other asset, the DOT network fee and all swapping fees will will be deducted from the final output balance as the transaction goes through the swapping process, making the swap very practical from the users perspective, as no additional tokens or wallets are ever required.
How Does Chainflip Work?
Chainflip has a design and architecture fairly similar to a centralized exchange, connecting chains in the same way as centralized exchanges but without any central controller, and the orderbook replaced by an AMM. Chainflip deploys so-called ‘vaults’ on several chains to which users can deposit their funds when initiating a swap. These vaults are essentially giant multisig wallets controlled by the Validator network.
This allows Chainflip to run an AMM that is similar to Uniswap but with vaults that are jointly held on different blockchains. This means that validators can see balances across all supported blockchains and send and receive funds as defined by protocol rules and user quotes. Chainflip uses large multi signature wallets through several threshold signature schemes enabling the creation of vaults that are jointly controlled and run by Chainflip validators. This secures liquidity and allows all 150 Validators to jointly participate on each blockchain supported by the protocol. Every aspect of the protocol, ranging from liquidity provision, trade execution, liquidity security, and the interface, is decentralized and permissionless.
Which Platforms Are Chainflip’s Biggest Competitors?
When it comes to competitors, Chainflip does have a large number of competitors, especially in the crypto-to-crypto exchange market. However, ERC-20 DEXes only support ethereum compatible tokens and don’t cater to the market Chainflip is targeting. Other competitors including Sushiswap, Pancakeswap, Balancer, Uniswap, Curve, Bancor, 1Inch, DODO, Linkswap, Kyberswap, Loopring, Cosmos, Ren, Keep, and Polkadot either do not support multi-chain swapping or require some centralized custody solution like wrapped tokens. . THORchain is the only direct competitor to Chainflip that serves the same purpose and with a product on the market.
How Is Chainflip Different From THORchain?
There are several differences between Chainflip and THORchain. Unlike THORchain, Chainflip does not rely on a custom wallet such as Asgardex. As a result, Chainflip users are not required to pre-deposit funds to another wallet before making a swap. Another limitation of THORchain is its threshold signature scheme model which supports fewer nodes. Chainflip takes a different approach, utilizing EdDSA where possible while also leveraging features available in smart contract-based vaults.
The ECDSA signature performance when scaling the number of nodes can become a limiting factor, which reduces the amount of collateral and liquidity that can be stored in the system. As a result, Chainflip should scale better when it comes to liquidity and throughput. Chainflip also does not rely on FLIP tokens to pair assets on the AMM and instead utilizes USDC to maximize liquidity and composability in DeFi.
Chainflip hopes to solve several issues the crypto community has been facing for years now, allowing users to swap cryptocurrencies from different blockchains in a trustless environment. Everything the user needs is internet access, a browser, and a destination address. With DeFi’s scope expanding beyond just the Ethereum dapps, other chains like Polkadot, Cosmos, or Solana have started to deliver very promising projects with organic traction. This makes it imperative to allow users to access these ecosystems in a trustless environment without the presence of an intermediary.
Chainflip is positioning itself as more than just a cross-chain DEX. Chainflip is set to become the central gear for cross chain liquidity connecting all the major Dapps.
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