By Severin
TL;DR
Chainflip enables native cross-chain value transfer with higher degrees of decentralization, security, and composability.
The $FLIP token will likely remain inflationary in the short term, as we expect buybacks and burns from trading volume to be insufficient to make $FLIP deflationary over this timeframe.
Chainflip offers better product experience and design compared to Thorchain, but Thorchain’s first-mover advantage, brand awareness and market share are also important competitive strengths. We therefore predict it will be difficult for Chainflip to fully displace Thorchain in the near term.
Chainflip has a market cap of about $90M and a fully diluted market cap of $460M. Thorchain has a market cap of $2.1B and a fully diluted market cap of $3B. From a comparable valuation perspective, $FLIP still has close to 8x imaginable upside. However, Thorchain’s market cap is supported by $68B in total transaction volume and recent average daily volume exceeding $100M, while Chainflip has yet to generate any transactions.
Overall, we remain cautiously optimistic on $FLIP’s trajectory and will pay close attention to whether Chainflip’s mainnet launch incentives can drive a substantial increase in trading volume.
Chainflip — A Decentralized Cross-Chain Liquidity Network
Native Cross-Chain Value Transfer
Unlike cross-chain solutions that use wrapped assets or require assets to be minted/burned during the process, Chainflip has chosen to enable native cross-chain value transfer. This means there is a native liquidity pool on each chain supported by Chainflip, forming a cross-chain settlement layer to meet users’ needs for transferring assets across chains. The advantages of native cross-chain value transfer are:
Value transfer is chain-agnostic and wallet-agnostic. Chainflip supports users performing value transfer across any chain using ordinary wallets.
Value transfer does not involve wrapped assets, synthetic assets or other ancillary assets. Users only need to submit a regular transaction to swap, without facing any other asset risks after the swap is completed.
Chainflip does not require additional deployment or execution of other protocols on specific chains. It has higher compatibility and versatility, and aims to put as many computations off-chain as possible to reduce users’ gas consumption.
Chainflip’s native cross-chain value transfer can lower the barrier for users, reduce risk exposures, and provide a better user experience.
source：https://docs.chainflip.io
Decentralization
Compared to other solutions, another major advantage of Chainflip is its higher degree of decentralization. Chainflip’s validation network consists of up to 150 validator nodes. The validators maintain network security, participate in consensus, monitor external chain events, and collectively control the funds in system. Becoming a validator does not require any permission. Users only need to stake enough $FLIP and win the auction with the highest bid. The core idea behind Chainflip is to use MPC (multi-party computation), specifically TSS (threshold signature scheme), to create an aggregate key held by the permissionless network of 150 validators. All operations and state changes in Chainflip require consent from over 2/3 of the nodes to ensure higher security. Compared to the cross-chain value exchange of centralized exchanges and partially centralized cross-chain bridges, users do not need to worry about centralized exchange misconduct risks or cross-chain bridge centralized server misconduct risks. By achieving a higher degree of decentralization, Chainflip avoids single points of failure and misconduct risks from individual nodes, thereby significantly improving overall system security.
source：https://docs.chainflip.io
JIT AMM
The cross-chain value transfer calculations are performed by the Just In Time AMM (JIT AMM) on Chainflip’s substrate-based state chain. JIT AMM is built on Uni V3, with the difference being that JIT AMM is not a set of smart contracts across different chains, but rather performs virtual computations solely on the state chain for value transfers. Chainflip’s ledger and computation functions are stripped away to the state chain, while settlement relies on vaults set up by Chainflip across chains. This workflow greatly reduces the complexity of performing cross-chain value exchange calculations, ledgering, and settlement across chains, effectively lowering gas costs for users. Moreover, Chainflip’s state chain can also support more customization needs of JIT AMM. For example, Chainflip allows LPs to place timely, dynamic limit orders in response to incoming orders, preventing MEV bots from front running via LP competition, improving capital efficiency for LPs, and allowing users to get better market prices at lower slippage.
source：https://docs.chainflip.io
Composability
Compared to existing cross-chain bridges, Chainflip also has better composability. Developers can easily integrate Chainflip’s native cross-chain value transfer functionality into existing protocols or products using the Chainflip SDK. Just as Uniswap’s Swap feature is widely integrated into DeFi use cases, higher composability will bring more use cases to Chainflip. With the current explosion of high composability use cases represented by fully on-chain games, as application Lego blocks continue to stack, it will inevitably stimulate demand for underlying cross-chain asset liquidity. However, the current situation is increasingly severe liquidity fragmentation between L1s and L2s. Native cross-chain solutions like Chainflip may become an essential embedded feature for multi-chain projects.
Team Background
Chainflip’s team consists of 26 experienced global talents. Simon Harman is Chainflip’s founder and CEO, and also a board member of the Oxen Foundation. Prior to Chainflip, Simon led teams building products including Session, a messenger app based on the Signal protocol. CTO Martin was previously a founder of Covariant Labs and CTO & CSO of Finoa. The Chainflip team has extensive crypto background experience, with nearly 60% as developers, forming a high-quality overall team composition.
Tokenomics
On November 23, 2022, Chainflip announced its mainnet launch and issuance of the $FLIP token. $FLIP was quickly embraced by the market, with the current price around $5, representing nearly a 2.7x increase over the $1.83 ICO price.
$FLIP is the native ERC-20 token of Chainflip, with an initial supply of 90M following a dynamic token supply model. Currently, Chainflip expects 8% annual token inflation to incentivize validators. Additionally, Chainflip’s trading fees will be used to buyback and burn $FLIP, making $FLIP potentially deflationary. $FLIP is mainly empowered by being used for staking validation and capturing protocol value.
source：https://coinmarketcap.com/currencies/chainflip/
$FLIP Staking for Validation
Similar to most validation networks, since the 150 Chainflip nodes will control all system funds and operations, nodes must stake enough $FLIP as slashing penalty collateral before participating in validation to prevent misconduct. Nodes staking more $FLIP have a higher chance of becoming authoritative validator nodes and earning additional validation rewards. It is currently expected that 7% annual token rewards will be evenly distributed among authoritative validator nodes. Regular backup validator nodes will also receive 1% annual token rewards proportional to their staked $FLIP. Therefore, it is clear that $FLIP staking quantities can significantly impact validation rewards for validators, which amplifies nodes demand to hold and stake $FLIP tokens. Chainflip also expects $FLIP staking rates to account for 37–66% of total supply, as substantial token staking helps maintain token price stability and reduce market selling pressure.
source：https://docs.chainflip.io/concepts/token-economics/incentive-design-emission-and-burning
$FLIP Value Capture
For every token swap made through Chainflip, Chainflip charges a 0.1% fee, collected in USDC, which is used to purchase and burn $FLIP tokens. Similarly, gas fees on the state chain are also used to buyback and burn $FLIP. Chainflip aims to reflect the protocol’s generated value dynamically into $FLIP price through token buyback and burn, rewarding $FLIP holders and enhancing $FLIP’s value capture capabilities. Of course, since $FLIP itself has token inflation, Chainflip needs sufficient daily transaction volume for its buybacks and burns to drive $FLIP price appreciation.
Future Prospects
Potential Market
With the continuous launch of numerous L1s and L2s, the liquidity fragmentation issue across chains is becoming increasingly severe. According to DeFiLlama data, there are currently 71 chains with TVL above $10M. The rise of Rollup-as-a-Service and application chains will further exacerbate liquidity fragmentation. Traditional cross-chain bridges, which suffer frequent hacking incidents, are no longer users’ first choice for addressing cross-chain liquidity needs. Native cross-chain token swap solutions represented by Thorchain and Chainflip may become mainstream. The total value locked across current cross-chain bridges is around $12B, while Thorchain’s TVL is only about $300M, indicating native cross-chain token swap solutions still have tens of times room for growth.
Comparison with Thorchain
Overall, Chainflip’s market positioning is quite similar to Thorchain, but there are some differences in product experience and design:
Product experience: Thorchain requires a specific multi-chain wallet, while Chainflip only needs an ordinary on-chain wallet, making for more convenient user experience. Of course, Thorchain is also working on wallet compatibility to gradually close the experience gap.
Decentralization: Thorchain currently has 104 nodes securing its on-chain vaults, while Chainflip’s decentralized validation network consists of 150 nodes. In terms of node count, Chainflip has relatively higher decentralization, but there is no significant gap between them.
source：https://thorchain.net/dashboard & https://scan.chainflip.io/
3. Product design: Thorchain relies on $RUNE as an intermediary asset for both pool formation and swaps, while Chainflip does not depend on any specific token. As a result, Chainflip’s pools and swap process are not exposed to risks associated with a particular token, making it relatively more secure.
In summary, Chainflip currently has slightly better user experience, decentralization, and security compared to Thorchain, but Thorchain’s first-mover advantage, brand awareness and market share are also important competitive strengths. Therefore, we predict it will be difficult for Chainflip to fully displace Thorchain in the short term. It is more likely, as stated in Thorchain’s official tweet, that Chainflip and Thorchain will jointly erode cross-chain bridges’ market share over time.
source：https://twitter.com/THORChain
Currently, ChainFlip has a market cap of about $90M and a fully diluted market cap of $460M. Thorchain has a market cap of $2.1B and a fully diluted market cap of $3B. From a comparable valuation perspective, $FLIP still has close to 8x imaginable upside. However, Thorchain’s market cap is supported by $68B in total transaction volume and recent average daily volume exceeding $100M, while ChainFlip has yet to generate any transactions. Therefore, overall, we remain cautiously optimistic on $FLIP’s trajectory and will pay close attention to whether ChainFlip’s mainnet launch incentives can drive a substantial increase in trading volume.
Reference
https://docs.chainflip.io
https://medium.com/@TheDeFISaint/chainflips-approach-to-cross-chain-composability-the-jit-amm-revolution-794bb1054ba7
https://blog.chainflip.io/just-in-time-jit/
https://www.techflowpost.com/article/detail_14648.html
MT Capital
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