A Deep Dive into Chainflip: The Efficient Cross-Chain Swapping Protocol

Adopters • Aug 16, 2023

Two weeks ago, we announced the Chainflip Community Sale, taking place on August 31st, 2023 at 17:00 UTC.

Chainflip is a decentralized, trustless protocol that allows for seamless value transfer between any blockchain type — including BTC, EVM, and substrate networks.

We sat down with the Chainflip team to learn more about the real world problems they solve, how they differ from other cross-chain networks, target use cases, FLIP token utility, and recent collaborations.

Let’s dive in.

1. To begin, what is Chainflip and what real-world problem does it solve?

Chainflip is a native cross-chain AMM aiming to offer users unbeaten pricing, speed, and access to the industry’s most traded assets. For swaps, existing cross-chain bridges and infrastructure lack the competitiveness of centralized exchanges in speed and efficiency, whilst costing much more in gas. The centralized exchange has been at the heart of the industry since the beginning, even though that industry has been built on the principles of decentralization and eliminating the middleman.

Thanks to Chainflip’s unique architecture, native BTC-ETH swaps become possible on-chain at rates that could displace the centralized exchange’s dominance. To achieve this, Chainflip’s unique architecture combines cutting edge threshold signature schemes, a fully permissionless validator auction system, next-generation AMM design (JIT AMM), and generalized support possible for any blockchain. Its unique deposit channel system makes it unbeatable on gas, and its native cross-chain messaging support makes it immediately composable with thousands of protocols.

2. What are the inherent use cases of the FLIP token?

The FLIP token itself is the protocol token which drives the security of the Chainflip State Chain and the liquidity stored by the Validators. To fund this security, a network fee is charged to swappers and the proceeds are converted to FLIP and removed from circulation. In addition, FLIP is used to pay for extrinsics on the State Chain, which includes liquidity updates, deposit channel operations, and many more. Chainflip runs on Appchain architecture, but the native token is issued as an ERC20 token on Ethereum.

Unlike a lot of the protocols you probably already know, Chainflip doesn’t work like a traditional bridge, doesn’t have wrapped assets, and doesn’t cost a lot to send expensive cross-chain messages. There’s no tail-risk for users — once you swap, that’s it — you have native assets in your wallet.

Most other cross-chain solutions don’t have their own built-in DEX or AMM, meaning greatly increased costs of swapping between assets on multiple chains. Often, what remains are very low liquidity pools on the smaller domains which can severely impact the total costs of the cross-chain swap. Chainflip combines these steps and ensures maximum pricing through the JIT AMM.

There’s been a lot of talk in the industry lately about “intent” based swaps to minimize slippage on-chain. The JIT AMM is a cutting edge AMM design that we’ve been working on for 2 years which combines both a intent-based limit order system with a v3 style concentrated AMM in the same pool. With no MEV, access to multiple liquidity types in the same pool, remaining fully decentralized, and minimizing external gas costs, the JIT AMM is the ultimate on-chain trading system for cross-chain swaps. Market makers and LPs compete to offer the best price possible on incoming swaps, meaning that users get minimal slippage, even on huge trades.

4. Could you speak more about the FROST signature scheme and how it works? What does this unlock/enable for the protocol?

FROST is a Schnorr based Threshold Signature Scheme that allows very large numbers of signers without compromising scalability. First described in Chelsea Komlo and Ian Goldberg’s FROST 2020 paper, this scheme has exceeded expectations with our 150 node Chainflip Testnet able pump out a full-scale 2/3rds threshold signing ceremony every second, with further optimizations possible. This is achieved using very minimal memory and CPU requirements, meaning hardware costs are kept low too.

This greatly surpasses all other TSS or MPC schemes at this scale that can be used to arbitrarily sign transactions and messages as if it were a regular wallet on the vast majority of blockchain types. This means that the fully decentralized Chainflip network has joint control over the liquidity and swaps of users at all times, making the whole system more robust, secure, and resilient. To our knowledge, Chainflip is the only protocol using the system in this way at scale to date.

5. What are your thoughts on the role decentralized exchanges play in Web3, and how this will evolve over time?

Decentralized exchanges have exploded in popularity and market share since late 2020, with Uniswap consistently exceeding Coinbase’s daily volume throughout this year. There will always be a need for centralized exchanges, especially for fiat flows in and out of the ecosystem, but on-chain trading has become an increasingly important tool in making on-chain activity easier and more accessible.

Soon, all Web3 users will be able to manage and perform all activities with their Web3 assets without touching any middleman businesses, making self-custody and on-chain activity the default mode of operation for the millions of existing daily users. Uniswap has clearly demonstrated that as soon as an on-chain trading option is at least comparable in price, safety, and convenience to the usual centralized experience, users readily adopt those solutions.The collapse of major centralized exchanges at the end of 2022 encouraged the ecosystem to adopt these decentralized systems, rather than trust monolithic businesses that can lock users out overnight.

As cross-chain markets improve through protocols like Chainflip and aggregator services like Squid, OpenOcean, Li.Fi, and many more, the future is looking ever better for the on-chain trading markets as a whole.

6. What other projects or protocols have started integrating with Chainflip?

As a great segue, we’re really excited by our collaboration with Squid, whose cross-chain router will feature mutual integration with Chainflip from day one. Squid itself is being rapidly adopted across the industry, and in collaboration with Chainflip, will also offer on day one:

Native BTC - best on-chain pricing on the largest spot market in crypto
Native ETH - most widely-traded non-stable asset in DeFi
Native DOT - no comparable on-chain trading facilities to create new markets
ERC20 FLIP - Required to implement the network fee buy-and-burn strategy
USDC on Ethereum - most widely adopted DeFi stablecoin collateral (USDT and other stables will also be swappable, don’t worry)

When swaps go live, we expect to see steady growth of swap volume as we are integrated into more and more services across the industry. We plan to expand the protocol, but for launch, we have decided to focus on the pairs and chains that will make the biggest impact on the overall market; but, thanks to our amazing collaboration with Squid, users will be able to trade assets on all these other chains with Uniswap and other DEXs, in any combination with the listed Chainflip launch assets. This will also be true for users of Squid and their widget!

Ethereum
Base
Arbitrum
Optimism
Avalanche
Polygon
Binance Smart Chain
Fantom
Moonbeam
Celo
Kava
Filecoin
Cosmos & IBC

The combined routing power of the two protocols will put us in the running to become seriously competitive with the centralized exchanges from day one. But that’s certainly not the end of the story. We also have plenty of other yet-to-be-announced integrations and collaborations lined up with aggregators, wallets, liquidity providers, market makers, and other protocols to maximize the asset coverage available to users, liquidity in our pools, gas efficiency across chains, new chain additions to the protocol, and many more.

7. What is the best way to get involved with the Chainflip community?

Our Discord community is absolutely amazing, with many of our best members having hung out with us for the past 2 years while we build this protocol, so definitely come join the vibes, run a validator on the testnet, and join the conversation.

We’ve also been running a range of Galxe campaigns during the registration period to maximize the opportunity for Priority Queue spots among users of Chainflip and our partners. Last week, we ran the Squid Swapping Campaign, while this week we’re running the OpenOcean campaign. That closes on Monday the 21st, so make sure you complete it to attain Priority Queue raffle entries!

To register for Chainflip Community Sale on CoinList, click here »

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