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Sifchain is a decentralized exchange (DEX) that takes the best features from existing liquidity pools and combines them for superior order execution. Although a major portion of DEXs comprises liquidity pool algorithms that are optimized for token swaps, Sifchain will change the formulas used for liquidity pool algorithms from the first principles of complexity theory to implement adaptive AMMs suitable for limit orders and token swaps.

Sifchain’s ultimate aim is to have cross-chain integration be as fundamental to new blockchains as a wallet or block explorer. So, DAOs will be able to use capital from any cryptocurrency in a coordinated way since all liquidity for cryptocurrencies will be available on-chain.

This article comprehensively explores Sifchain and how it works as a decentralized exchange that supports all cryptocurrencies.

What is Sifchain?

Sifchain is an omni-chain decentralized exchange that aims to build a fully communicating crypto trading ecosystem. Sifchain will allow the transfer, spot trading, and margin trading of assets from over twenty different blockchains by connecting their respective ecosystems and providing a high transaction processing infrastructure with the help of the Cosmos SDK.

Sifchain’s goal is to tackle one of blockchain’s biggest problems: isolated infrastructure with little interoperability. It allows users to trade and stake on the Sifchain DEX while bridging between Ethereum and Cosmos.

Sifchain plans to target between 20 and 25 different blockchains for cross-chain messaging. As a result, users who access data from multiple blockchains will have a smoother experience.

Sifchain is the first omni-chain DEX (decentralized exchange) and features several innovations over traditional markets. The project’s infrastructure is built around Continuous Liquidity Pools (i.e., CLP). The CLPs allow for transactions that are both more efficient and scalable than the current standard.

How Does Sifchain Work?

Sifchain is an application-specific blockchain. It is developed on the Cosmos SDK and facilitates cross-chain asset transfers using pegged versions of tokens originating from other blockchains. It also offers a decentralized exchange that efficiently uses the high transactional power of the Cosmos blockchain.

Peggy, Sifchain’s Cosmos-Ethereum bridge, allows token owners to lock their funds in exchange for freshly minted pegged tokens on the other chain, allowing them to transfer assets between the two networks (e.g., locking Rowan to get eRowan on Ethereum or locking ETH to get cETH on Cosmos).

With the addition of IBC and Peggy 2.0, Sifchain users will be able to move funds between EVM-compatible blockchains and other application-specific blockchains using the Cosmos SDK. This will significantly increase the number of blockchains that Sifchain can interact with.

Sifchain’s decentralized exchange’s goal is to create a hybrid system that draws from both traditional order books and decentralized liquidity pools. Limit orders can be submitted thanks to the order book’s more precise matching mechanism, and Sifchain can set the market fee structure based on the liquidity provided by the AMM.

By dynamically adjusting pool fees, Sifchain’s liquidity pools (LPs), or CLP, mitigate the effects of sudden demand spikes on the token price. With CLPs, LPs can provide asymmetric liquidity by providing only one token of a pair, such as Rowan or any other token, depending on the demand.

Rowan, Sifchain’s native token, is used as an intermediary in trade settlement, so CLPs are built using Rowan and another token, typically BTC or ETH (or at least a pegged version thereof running on Sifchain).

For instance, the price data for a cBTC/cETH exchange is derived from two different CLPs, one of which contains cBTC:ROWAN and the other cETH:ROWAN. By combining CLP and AMM mechanisms, Sifchain can establish prices without consulting external sources such as oracles.

In addition, the total value of external assets in CLPs acts as a function for determining the lower bound of Sifchain’s market cap, creating a 1:3 ratio between the market cap and TVL (since every CLP is required to include Rowan in the pool).

Unlike centralized exchanges, order books use a different mechanism to match orders. When token buyers place limit orders in Sifchain’s order book, they have to freeze the corresponding amount of funds until the price of the token in the CLP reaches the buyer’s desired purchase price.

The Unique Features of Sifchain

The Sifchain DEX offers an omni-chain solution with lower fees and higher LP rewards. Users can choose to invest in any of the more than 90 liquidity pools available on the DEX and receive at least 100% APR.

The Sifchain platform is very compatible with other DEXs and centralized exchanges. This increases liquidity across multiple chains and frees users from high transaction fees and complicated trading structures.

Their Cosmos SDK-based exchange allows for interoperability with other Cosmos Network blockchains such as Akash, Juno, and Terra. Users can quickly and cheaply trade their Cosmos assets for ERC-20 tokens on the platform, making it the only DEX of its kind built on the Cosmos blockchain.

By leveraging the Cosmos Software Development Kit, Sifchain will be 100 times more efficient than Ethereum-based DEXs, allowing users to execute swaps at lightning speeds.

User Roles on Sifchain

Sifchain is a complicated project with a long list of user roles that must be filled for the protocol to work as it was designed to. These roles include:

Validators

They receive block rewards for supporting the protocol. They are interested in ensuring that more transactions happen on the protocol so that they can make the most money from the fees.

Delegators

They earn rewards by delegating their funds to validators.

Swappers or Traders

They buy and sell tokens on the platforms to make profits.

Arbitrageurs

They make money by buying and selling assets at different prices on the Sifchain finance platform and another platform.

Liquidity Providers

Liquidity providers provide funds that are placed in pools. These funds are used for trading across different chains.

Developers

They build and release improved versions that meet the needs of users and investors.

Testers

They run tests on the protocol and offer constructive criticism and suggestions for enhancement.

Protocol Politicians

They are in charge of keeping an eye on the state of the protocol and key metrics like the number of transactions, the state of the liquidity pool, the fees, etc., so they can suggest changes that will improve the protocol.

Investors

The investors buy RWN tokens to gain voting rights in the network’s administration. The people in this group vote on whether or not to make suggested changes to the protocol.

Tokenomics

Rowan (Sifchain’s utility token) facilitates financial transactions on Sifchain’s DEX. It acts as an extra layer of verification and settlement for transactions involving assets on various blockchains.

Since Rowan is designed to be traded against another external asset in Sifchain’s continuous liquidity pools, users will always need to interact with Rowan if they want to trade on Sifchain’s decentralized exchange.

When transacting on Sifchain, traders must also pay a network fee in Rowan. Peggy lets users move their Rowans from Sifchain to the Ethereum Network, where they are converted into eRowans, which are identical to the original Rowans.

To participate as blockchain validators, agents on Sifchain must possess Rowan in their wallets, as this cryptocurrency is central to the network’s delegated Proof-of-Stake consensus mechanism. Staking their Rowan through validators allows other network participants to earn rewards from block settlements.

Sifchain’s DAO

Sifchain will implement decentralized governance with SifDAO, taking cues from YFI, Compound, and Synthetix. In conjunction with the public sale of Rowan, SifDAO will be entitled to a vested allocation of Rowan that will not come from the Sifchain team’s reserves.

To decide how SifDAO should spend this allocation, Rowan holders can cast a vote on the chain. The Sifchain core team backs SifDAO’s independence to find, fund, and carry out projects that it thinks will help Sifchain and Rowan.

The Sifchain core team’s responsibilities will be shared with SifDAO wherever possible to provide impartial support. SifDAO will slowly take over the work of the core team until it is the only one responsible for keeping Sifchain running.

In Conclusion

Although the Thorchain project inspired the development of Sifchain, it has added extra functionalities and brought unique features into the industry. For this reason, the project has become more ambitious and complex, and its implementation is expected to take a long time, possibly even years, depending on the severity of the bug testing.
However, the project is supported by popular names in the field and boasts a competent, experienced team at the helm of affairs. In addition, work has begun on the protocol, and it is taking shape.

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

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