Sifchain Finance describes itself as “the world’s first omni-chain decentralized exchange” and aims to work across multiple blockchains for an efficient and smooth transfer of value.
Decentralized Exchanges (DEXs) have come a long way from basic interfaces, limited liquidity, and rudimentary algorithms. This is due to the new generation of DEXs, improving themselves from lessons learned in the past. These DeFi-based exchanges have done considerable business this year, even competing well against their centralized counterparts — something unimaginable back in the days of Etherdelta.
However, they still leave a lot to be desired. DEXs currently have issues with front-running, impermanent losses, and limited support to only one or two at most blockchains. These limit functionality, and thus, user choices. They are also some of the reasons people flock to centralized exchanges. Sifchain is aiming to rectify this.
The name ‘Sifchain’ comes from a powerful goddess character in Norse folklore. Its team comes from multicultural and diverse backgrounds, having experience in software development, business operations, marketing, legal affairs, and venture capitalism. They had also worked well with cryptocurrency exchanges and financial institutions alike.
It was launched in Q4 2020, through a public sale. Being in the early stages of development, Sifchain is an ambitious project to solve a long-standing problem of DEXs, as such, it is highly complex and carries a bit of risk for early investors. For this reason, the tokens awarded were relatively high, compared to similar projects.
The project’s importance can be gauged by the fact that multiple important and reputed funds and ventures have invested in it. They include NGC ventures, Alameda research (responsible for Serum and FTX), Genblock capital, AU21 capital and Master ventures, etc.
What is Sifchain Finance?
Sifchain Finance describes itself as “the world’s first omni-chain decentralized exchange”. It aims to work across multiple blockchains for an efficient and smooth transfer of value. According to the company’s documentation, it will extend support for the initial 25 top blockchains, such as Bitcoin, Ethereum, Binance Chain, Polkadot, and EOS. The rationale is that the majority of the activity occurs on these bigger chains.
The project is designed with Cosmos SDK, which has a significantly faster processing ability than most traditional smart contract platforms. Sifchain has chosen Cosmos to provide a high throughput system with faster processing times and lower fees. This will enable a performant interface for cross-chain operations through a two-way peg system.
Sifchain Finance will derive liquidity from coordinated deployments of capital from multiple cryptocurrencies through DAOs. It will also feature a hybrid order book. And with a mix of liquidity pools and full order book functionality, it will allow traders to place all kinds of trading functions, which they are generally familiar with such as limit orders, and others.
Sifchain Blockchain Basics
As noted earlier, Sifchain is powered through Cosmos SDK, which is a dual-layer network specifically designed for the cross-chain transmission of data, tokens, and other assets. The Sifchain project uses the Tendermint consensus algorithm and the proprietary Inter-blockchain Communication Protocol (IBC). This allows protection against front-running and chain-spamming attacks.
Smart contract platforms are generally susceptible to suppression attacks, in which a malicious actor intentionally sends multiple no-value transactions, in order to overwhelm the blockchain’s memory pool. The intention is to fill them up with useless but permitted transactions so that other proper transactions wouldn’t go through. Instead, the system will be forced to process an attacker’s profit-taking transaction first.
Furthermore, Sifchain Finance also protects against this kind of spamming by forcing validators to sort out transactions with the highest fees first, thereby, allowing users to force the system to prioritize valid and honest transactions first, making it very expensive for attackers to carry out such operations.
Sifchain Concept And Functioning
At its base level, Sifchain wants to provide it’s users with an experience similar to or exceeding that of the one currently provided by centralized exchanges. Besides offering multiple trading modes and order types, centralized exchanges also support a large number of blockchains. It must be noted that they use snapshots and only perform activity on the actual blockchains, at the time of deposits and withdrawals.
In terms of DEXs, this is much harder and more complex to accomplish. This is because the DEXs have to maintain precise coordination, and thus, activity across multiple blockchains, with requirements to maintain liquidity and permit accurate order-matching. Sifchian wants to rectify DEX’s lack of variety and cross-compatibility.
Once operational, Sifchain Finance will allow both spot and margin trading. The assets will be allowed to be listed permissionlessly, if their underlying blockchain is supported by the protocol. It will also feature different order types with conditional executions and provide protection against front-running. Sifchain DEX has the potential to reinvent decentralized trading, if the full set and features are successfully deployed, as provided in the documentation.
The protocol’s governance token is Rowan, which is used for voting on all governance matters. Rowan’s ticker is RWN and it’s emitted as a block reward for all validators, powering the network. It is also used for market marking, as in a two-way peg, one token must always be the Rowan (RWN) token carrying equivalent worth.
For settlement, the protocol must buy Rowan tokens continuously from the market, ensuring value accrual and constant demand.
Sifchain’s governance will be initially handled and controlled by the team, since the project is yet to be developed in full nor deployed completely. Afterward, it will be delegated to the community. When the project is up and running, it will ultimately be controlled and executed through the Rowan Decentralized Autonomous Organization (DAO).
Sifchain Finance Roles
Being a complex project, Sifchain has a large list of roles that different users must play for the protocol to function properly and efficiently.
Validators – receive block rewards for supporting the protocol. They have considerable interest in seeing the activity increase on the protocol to accumulate earnings through transaction fees.
Delegators – earn rewards by delegating their funds to validators by acquiring passive income, minus the validator’s cut.
Traders or Swappers – buy and sell tokens on the platforms with expectation of making profit.
Arbitrageurs – profit from differences in price of the same asset on the Sifchain finance and an external platform.
Liquidity Providers – provide funds to be placed in pools, to be used for token swapping and trading across chains.
Developers – create and deploy optimized versions of Sifchain finance, to comply with the investors and users expectations.
Testers – test code and provide useful feedback / improvement proposals to allow the protocol to evolve further.
Protocol Politicians – monitor the impact of policies and protocol parameters, submit improvement proposals after monitoring key factors such as transactions, liquidity pool states, fees generated, etc.
Investors – purchase RWN tokens and acquire rights to participate in the governance. They vote on the implementation of protocol improvement proposals.
Sifchain finance was clearly inspired by the Thorchain project, though it appears to have added certain additional functionalities and brings its own flavor to the mix. This makes the project more ambitious and highly complex, it’s implementation is likely to take significant amounts of time, even years with the bugs testing.
However, the project has the backing of some of the most famous names in the industry and features an experienced capable team to lead the way. Plus, the development has started and the protocol is taking shape. In fact, the team expects to have a great deal implemented by the first quarter of 2021.
The protocol is expected to attract significant usage and capital, once implemented. If successful, it could supercede the current generation of slow/limited functionality DEXs and acquire large portions of traffic from centralized exchange users, looking for better alternatives.