What is Chainflip?

Chainflip is an Automated Market Maker (AMM) that allows users to exchange native assets on any chain (including BTC, ETH, DOT, EVM, etc.) with very low slippage. It combines the advantages of Uniswap and other CEXs, providing composability and unlocking non-EVM chains. It supports asset exchanges between any chains without the need for wrapping tokens or using specialized wallet software.

Project Background

Chainflip is backed by a strong team of over 30 professionals from Australia and Europe. In May 2022, it completed a financing round of $10 million, bringing its total fundraising to over $16 million. Investors include Framework Ventures, Blockchain Capital, Pantera, Coinbase Ventures, Delphi Digital, EGO Capital, and more.

Chainflip Founder — Simon

Simon, founder and CEO of Chainflip Labs, is a data privacy advocate and a long-term cryptocurrency enthusiast. He previously founded and served as a board member of the Oxen Foundation and created the secure messaging application Session based on the Signal protocol. The entire team has extensive experience in crypto, with over 60% of the employees being developers.

Co-Founder Chris McCabe

Chris McCabe, co-founder of Chainflip, is also the COO of Oxen and Session App. He served as the operations director for Loki and worked as a blockchain educator and consultant between 2016 and 2018.

Chainflip CTO — Tom Nash

Tom Nash, a graduate of Lancaster University with a degree in Computer Software Engineering, is the co-founder and CTO of Flex DApps. Known by the code name Xcessive Overlord, he has experience in software architecture, Solidity, IPFS, and Web3.js.

Advantages of Chainflip

Chainflip is unique in its native chain interactions, decentralization, JIT AMM, and vault setup. It offers an experience as smooth as operating a CEX, making seamless asset cross-chain transfers easy for users.

Cross-Chain Liquidity Protocol

As an AMM, Chainflip allows users to exchange native assets on any chain with very low slippage, combining the advantages of Uniswap and other CEXs. Unlike CEXs, which connect chains through wallets deployed on each chain, all core data of activities in Chainflip’s protocol are realized through the database State Chain, not a centralized database.

The basis for Chainflip’s support of any native asset interaction is the existence of a liquidity native asset pool (called a Vault) on that chain. Common DEXs and CEXs rely on Ethereum smart contracts for security, whereas Chainflip relies on a vault system. Each supported chain has a Vault, forming a functional, decentralized settlement layer for cross-chain asset conversion. The advantages of native cross-chain include:

• No need for additional downloads or third-party software, with simple and convenient operation.
• Efficient handling of large cross-chain transactions with better compatibility, moving as much computation off-chain as possible to reduce user Gas consumption.
• Independent execution environments, mostly automated by the validators network, supporting different blockchain networks with parameters and rules optimized and automated according to the core protocol.

Source: https://docs.chainflip.io/concepts/system-overview

Decentralization

Currently, 90% of transactions are completed on Ethereum, which poses a problem: most transactions are done through wrapping. Chainflip aims to provide better decentralization by allowing users to trade without wrapping tokens. Each supported chain in Chainflip has a Vault, requiring 150 validator nodes, each with its own set of private keys to participate in the consensus of the state chain and generate TSS key generation and signing secrets.

Chainflip’s security relies not on a single institution but on the key computation of the Vault, with a security ratio mechanism to prevent collusion-based economic attacks. As long as 2/3 of the system nodes are not controlled, the funds are relatively safe. Chainflip also relies on a scalable signing scheme to keep the vault system as simple and reliable as possible.

JIT (Just In Time) AMM

The core design of Chainflip is the JIT (Just In Time) AMM, which differs significantly from traditional AMM standards. The key function of JIT AMM is to support market makers in providing one-sided liquidity at any price movement. Additionally, in the aspect of Miner Extractable Value (MEV), Chainflip does not allow users to be preempted by robots searching for MEV. Instead, it naturally incentivizes liquidity providers to compete with each other, benefiting users. Simply put, when users need to trade, they deposit funds, and market makers will pledge the target asset to quote, with the best price being executed.

In the following figure, two market makers are competing for liquidity fees from a trade, assuming a user wants to exchange USDC for BTC. These market makers have Bitcoin on the native chain, and the user pays with USDC on the Ethereum chain. Therefore, the user first provides their Bitcoin address to Chainflip, allowing these market makers to obtain part of the orders in advance. The verification rules differ for each chain on Chainflip, for example, Ethereum network transactions are considered final after 6 block confirmations. Market makers can also benefit from this arrangement.

This design ensures the core part of the process: the user pays USDC on the Ethereum chain and receives Bitcoin on the Bitcoin chain, maintaining anonymity and privacy throughout.

Operating Process
(Source: https://docs.chainflip.io/concepts/swaps-amm/just-in-time-amm-protocol)

Vault Design

A unique aspect of Chainflip is its Vault design. Vaults are methods of storing funds on specific blockchains controlled by the Chainflip protocol, available in various forms, each offering different functionalities and limitations. For example, on the Ethereum chain, various small assets use smart contract-based vault features to enhance security. Validator nodes between each vault ensure that asset exchanges are efficient and save on Gas costs for users. Chainflip relies on a scalable signing scheme to keep the vault system as simple and reliable as possible. Each Chainflip Vault requires simultaneous signatures from 100 of the 150 validator nodes to operate on the funds securely.

$FLIP Token Economy Model

$FLIP is a self-sustaining token designed by PowerHouse, ensuring the ecosystem’s decentralization, trustless mechanism, and security, while also providing rewards to validators. According to official data, the current circulating market value of $FLIP is $86.1 million, with an FDV valuation of $431 million. Although the total supply of $FLIP is 90 million, it inflates by 8% per year, with 7% allocated to core nodes and 1% to standby nodes.

$FLIP Supply Indicators (Source: https://chainflip.io/token)

$FLIP Token Distribution Rules

• Total Token Supply: 90,000,000 FLIP
• Private Sale: 25.94%, 34,181,497 FLIP (50% locked under Method A: fully unlocked after a 1-year lockup period, and 50% locked under Method B: 20% unlocked post-TGE, then linearly unlocked)
• Locked Vault: 20.37%, 26,833,686 FLIP, 48-month lockup period
• Team: 9.87%, 13,000,000 FLIP, mixed lockup but generally linearly unlocked within 3 years
• Liquidity: 3.8%, 5,000,000 FLIP, immediately unlocked for LP
• Protocol Development: 3.19%, 4,200,000 FLIP, linearly unlocked over 1 year
• Airdrop: 3.61%, 4,750,000 FLIP, immediately unlocked post-TGE
• Public Sale: 1.57%, 2,066,314 FLIP, effective immediately post-TGE
• Estimated Validator Rewards: 51.79%, 68,228,270 FLIP, 84-month unlocking period
• Token Burn Mechanism: -20.12%, -26,510,829 FLIP, 84-month unlocking period

$FLIP is primarily used for vault collateral and incentives. Validators need to stake a significant amount of $FLIP in exchange for block rewards, and their stake also helps protect the overall security of the network. Additionally, $FLIP serves as collateral in validator auctions. Validators stake large amounts, and rewards obtained from blocks are automatically converted from USD fees to $FLIP by the DEX and then automatically destroyed within the protocol.

$FLIP Staking Verification

As seen on the official website, there are currently 186 qualified nodes with more than 19.11 million $FLIP locked, and the annual reward is over 7 million $FLIP. To become one of their node validators, one needs to visit the ‘ecosystem’ section on the official website, click on the first product ‘Staked FLIP,’ and enter the staking page to complete the staking of $FLIP. To purchase $FLIP, one can go to the Gate.io exchange.

Official Node Validation Data (Source: https://chainflip.io/ecosystem)

How to Acquire $FLIP Tokens?

To acquire $FLIP tokens, you can buy them through a cryptocurrency exchange. For instance, the well-reputed Gate.io exchange supports the purchase of $FLIP. You just need to create an account on Gate.io, complete the KYC process, and then you can directly purchase $FLIP tokens after depositing funds into your account.

Conclusion

Chainflip effectively resolves the barrier for new users in dealing with cryptocurrency wallets and other professional software. Using Chainflip is as simple as a single click, allowing users to experience smooth asset exchange operations, much like using a CEX. Currently, there are few projects involving native asset cross-chain DEXs, and transactions are mainly concentrated in the ETH/BTC trading pair. For Chainflip to reach or even surpass the trading volume of Uniswap, ongoing technological innovation, and enhanced security are necessary.

ThorChain and Chainflip are similar in that both facilitate cross-chain transactions on native chains and independently build their node networks. However, there are significant differences in their designs, especially regarding liquidity pools and security. In terms of decentralization, ThorChain is currently maintained by 104 validator nodes for on-chain vault security, while each Chainflip vault is composed of 150 validator nodes, indicating a higher security factor for Chainflip. Nonetheless, ThorChain’s first-mover advantage and its reputation should not be underestimated.

Comparing Chainflip with ThorChain, with ThorChain currently valued at 2.5 billion USD and Chainflip at 450 million USD, there is considerable room for growth for Chainflip. Future incentive plans by Chainflip are expected to significantly boost the value of $FLIP.