How can defichain be described in one sentence

What are the benefits of #NativeDeFi?

What are the benefits of #NativeDeFi?

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CakeDefi Quiz Answers Today

What are the benefits of #NativeDeFi?

Cakedefi Defichain Quiz Answers : Lean & Earn DFI

Q1. How can DeFiChain be described in one sentence?

Answer : DeFiChain is a blockchain dedicated to Native Decentralized Finance for Bitcoin.

Q2. What is Decentralized Finance?

Answer : Decentralized Finance are all types of financial applications without the need of a third party intermediary like a bank

Q3. What are the benefits of #NativeDeFi?

Answer : Native DeFi is more secure than non-Native DeFi because the consensus happens directly on the native blockchain layer, instead of getting compiled and running through a virtual machine like on Ethereum.

Q4. What are the main ways to earn incredibly high yields with DeFiChain?

Answer : Staking and Liquidity Mining offer great and easy ways for anyone to earn block rewards with over 50% yearly returns.

Q5. What is DeFiChain’s Decentralized Exchange?

Answer : DeFiChain’s decentralized exchange is the cornerstone of most decentralized financial applications in the DeFiChain ecosystem, enabling trading, liquidity mining and more

How can DeFiChain be described in one sentence?

How can DeFiChain be described in one sentence?

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CakeDefi Quiz Answers Today

How can DeFiChain be described in one sentence?

Cakedefi Defichain Quiz Answers : Lean & Earn DFI

Q1. How can DeFiChain be described in one sentence?

Answer : DeFiChain is a blockchain dedicated to Native Decentralized Finance for Bitcoin.

Q2. What is Decentralized Finance?

Answer : Decentralized Finance are all types of financial applications without the need of a third party intermediary like a bank

Q3. What are the benefits of #NativeDeFi?

Answer : Native DeFi is more secure than non-Native DeFi because the consensus happens directly on the native blockchain layer, instead of getting compiled and running through a virtual machine like on Ethereum.

Q4. What are the main ways to earn incredibly high yields with DeFiChain?

Answer : Staking and Liquidity Mining offer great and easy ways for anyone to earn block rewards with over 50% yearly returns.

Q5. What is DeFiChain’s Decentralized Exchange?

Answer : DeFiChain’s decentralized exchange is the cornerstone of most decentralized financial applications in the DeFiChain ecosystem, enabling trading, liquidity mining and more

UYpcoming Giveaway Rs.25 Cash back on Mobikwik Recharge and Bill Payment

CakeDefi Quiz Answers Today

Cakedefi Defichain Quiz Answers : Lean & Earn DFI

Q1. How can DeFiChain be described in one sentence?

Answer : DeFiChain is a blockchain dedicated to Native Decentralized Finance for Bitcoin.

Q2. What is Decentralized Finance?

Answer : Decentralized Finance are all types of financial applications without the need of a third party intermediary like a bank

Q3. What are the benefits of #NativeDeFi?

Answer : Native DeFi is more secure than non-Native DeFi because the consensus happens directly on the native blockchain layer, instead of getting compiled and running through a virtual machine like on Ethereum.

Q4. What are the main ways to earn incredibly high yields with DeFiChain?

Answer : Staking and Liquidity Mining offer great and easy ways for anyone to earn block rewards with over 50% yearly returns.

Q5. What is DeFiChain’s Decentralized Exchange?

Answer : DeFiChain’s decentralized exchange is the cornerstone of most decentralized financial applications in the DeFiChain ecosystem, enabling trading, liquidity mining and more

Last Updated on July 5, 2022 by Tony Jay 4 Comments

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White paper

Abstract: The DeFiChain Foundation is developing DeFiChain, a blockchain specifically dedicated to decentralized financial applications. By focusing on the functionality of the blockchain and dedicating it specifically to decentralized finance, DeFiChain provides unparalleled high transaction throughput, reduced risk of errors, and intelligent feature development specifically for the fulfillment of financial services on the blockchain.

This Document is not a Prospectus

This document does not constitute nor imply a prospectus of any sort. No wording contained herein should be construed as a solicitation for investment. Accordingly, this whitepaper does not pertain in any way to an offering of securities in any jurisdiction worldwide whatsoever. Rather, this whitepaper constitutes a technical description of the functionality of the Cake products and the development and distribution of DeFiChain.

This Document is not a final technical specification

This document does not constitute nor imply a final technical specification of DeFiChain. Information presented on this whitepaper, technical or otherwise, is meant to outline the general idea of DeFiChain, its design and its use-cases and is subject to change with or without notice. For the latest up-to-date technical specification, check out the updates and documentations on the official website https://defichain.com.

Executive summary

The cryptocurrency industry is based on a simple premise: people should be fully in control of their finances. While it seems like a simple and obvious statement, the current systems are far from providing financial services that are truly under the control of the people who use them. The mission of DeFiChain is to give people (and in the future, machines, and devices) seamless access to decentralized financial services.

For that purpose, we are introducing DeFiChain, a dedicated blockchain specifically for decentralized finance (DeFi) https://defichain.com.

By dedicating the functionality of a blockchain specifically to decentralized finance, DeFiChain provides high transaction throughput, reduced risk of errors, and intelligent feature development specifically for the fulfillment of Satoshi’s original intent: To create a reliable alternative form of financial services built on top of Bitcoin.

Bitcoin, as described in the original Satoshi whitepaper, is designed as a form of digital cash, as a store and exchange of value. The evolution to Ethereum and smart contracts has allowed for tremendous new functionalities to be built on top of a blockchain, yet this development has come at a cost. The concept of one global operating system for everything has created a system that requires a complex codebase for smart contracts, slow throughput, and difficulty around the governance of the system.

DeFiChain approaches decentralized finance as a specific and critical segment of the blockchain community. DeFi is a dedicated blockchain that is optimized specifically for DeFi applications. DeFiChain is intentionally non-Turing-Complete and does not support any function, other than those needed for Decentralized Finance, resulting in a blockchain that provides higher throughput and better functionality specifically for dApps related to finance. The advantage of a non-Turing complete command set is that there is a much lower potential for coding errors of the type that have plagued Ethereum smart contracts such as with the DAO hack or the locked funds with Parity. While it is important that we have some smart contract languages that are Turing complete, in the area of finance, it is appropriate to restrict the capabilities of the language in favor of a more secure system with greatly-reduced attack vectors.

The Problem

Today, almost all financial services are run by banks. Investments, for example, by definition, is the use of capital to earn more capital. Investors use a bank to put their money into interest or dividend-making instruments in order to grow their wealth. The problems with financial services are increasingly becoming obvious to everyone: compounded costs due to middle(wo)men, slow transactions, delays for cross-border transactions, and inaccessibility to many sectors of the population. A myriad of fintech solutions have been brought in to improve the system, but fundamentally the underlying banking system is still in control, so fintech has brought only limited improvements.

Cryptocurrency and Decentralized Finance (DeFi) offer a way to start with a new system, circumventing the difficulties faced in changing the finance industry. While crypto has attracted billions in investments, decentralized financial services are lagging. When it comes to investment in cryptocurrency, crypto investors can buy and sell, but that’s it. The cryptocurrency itself cannot be invested in the same way fiat currency can be. Initial attempts to create peer-to-peer lending and asset tokenization so far have proven partial and unreliable, so investors have extremely limited options when it comes to an investment of their cryptoassets. The potential is enormous to provide financial services in crypto, the same way they are offered in fiat currency.

The Solution

DeFiChain is designed for investors in the cryptocurrency market who are looking to make their cryptocurrency work just like any other form of capital, such that they can ensure a return on investment in any market. DeFiChain is a dedicated non-Turing-complete blockchain, designed specifically for the decentralized finance (DeFi) industry. DeFi provides full functionality for this specific segment of the DLT community, sacrificing other types of functionality for simplicity, rapid throughput, and security.

The function set includes among others:

Timeline

Background/Industry

DeFi’s promises and challenges

Financial services today are providing an important service, but at a very high cost, and despite many fintech developments, the following underlying issues persist:

Fintech has been attempting to address these problems, with some success. Fintech solutions such as online international transfer services, savings, and investment apps, and mobile money for underserved markets have begun to improve the situation. However, the change is incremental, and is still built on top of a system that fundamentally requires the overhead of agents to provide trust. While some of the costs can be reduced, fundamentally, fintech can’t address the underlying issues of lack of transparency because it is dealing in the same financial instruments and going through the same major institutions as traditional finance.

For this reason, many investors have begun moving parts of their investments into cryptocurrency. Cryptocurrency, by definition has full transparency that traditional systems simply cannot provide. Furthermore, the amount of administration and bureaucracy required is minimal. Most of the activities that were carried out by agents can be written into the code in decentralized financial systems. Of course, there is still some overhead in creating and maintaining the code, as well as maintenance of the networks, but the amount of bureaucracy is minimal, eliminating much of the cost of transacting on these systems.

Despite the promise of decentralized finance, the technology is still nascent, and there are many opportunities to create a richer and more robust decentralized finance environment. To date, investors in cryptocurrency have extremely limited investment options. Promises of peer-to-peer lending platforms, asset tokenization and other types of blockchains have either failed to deliver, been hacked, or delivered a pared-down version of the original promise.

Today, almost universally, cryptocurrency investors have only one way to earn money on their capital: rise of the cryptocurrency asset. While in the short term, this may be a good investment, it’s not how currency is designed to work. The investment of capital should provide a return on investment, and cryptocurrency is designed to be like any other form of currency. Investors today want the possibility to lend, invest, and receive returns on their cryptocurrency investments. Well-designed DeFi platforms should allow the development of a variety of safe and secure financial instruments for the investment of cryptocurrency.

The state of DeFi

The current state of Decentralized Finance (DeFi) is populated by general purpose blockchains, most of which provide Turing-complete command sets for the development of smart contracts on the chain. While appropriate for many programming languages, this dogmatic pursuit of Turing-complete smart contracts languages has resulted in a variety of problems when it comes to scalability, security and robustness of the blockchains.

The limitations of general-purpose blockchains for DeFi apps has opened up a market opportunity to serve this market. While cryptocurrency momentum has continued to rise, most of the current applications are still on Ethereum. Concerns about the network have already led some of the major projects to consider porting or working with alternative or additional blockchains.

DeFi’s current problems

Consequences in the DeFi Market

One of the many results is that the high risks get priced in to the underlying contracts leading to excessive costs for users, as can be seen when comparing rates from DeFi and non-DeFi examples. (For example 8% with decentralized DAI to 1.75% with centralized USDC (dated at the beginning of October 2019): https://deficompare.com/) Both coins represent 1 USD but the decentralized version ist 6.25% more expensive due to a priced in risk from the Ethereum contract.

The points described above are simply unacceptable for any type of financial transaction or investor. For that reason, it’s important to build dedicated services that will prevent such breaches, lower risks and thus cost. In the Blockchain world, having proper programming rules and reducing the attack vectors prevents this kind of attack.

Comparing existing DeFi alternatives

Bitcoin: Why Not?

Given our optimism on Bitcoin, the first question one might ask is why not develop DeFi using the Bitcoin Blockchain. While Bitcoin allows only basic smart contracts, some projects have begun developing workarounds. However, the transaction costs are restrictive on the Bitcoin chain, and we don’t believe it is going to be appropriate for the speed required for financial transactions. The Bitcoin chain is currently working as designed as a store of value. In our opinion, sticking to that single purpose is the best use of the chain and it is proven over the last decade. Adding financial services into the main chain adds unnecessary complexity and may cause side effects both for DeFi and for Bitcoin that are undesirable. Furthermore, it is not something we think that the Bitcoin governance is prepared to handle, and at some point, if DeFiChain requirements differed from those of the miners or developers on the Bitcoin chain, we would be subject to their decisions.

Turing-complete Solutions: Ethereum, EOS, Tron…

To date, a number of DeFi applications have been built on Ethereum, Tron, EOS and many other turing-complete chains. Since Ethereum has the biggest adoption it allowed the surfacing of issues that come with using a turing-complete blockchain for DeFi applications the fastest. The DAO hack was one of the first and most dramatic exposures of the vulnerability of using such a complex language. Anyone issuing a token on the network knows how difficult it is. Just to create and issue an ERC20 token can easily cost over 100,000 USD, considering the cost of smart contract auditing that is necessary for innovative solutions. Simply the fact that there’s an entire industry built around “smart contract audits” should be enough to illustrate the problem. Despite the fact that ERC20 is the industry standard, it’s still so easy to hack that it’s impossible to issue even a simple token without getting a high-cost professional auditor as well as a programmer.

The second problem stays mostly within Ethereum, which is the network’s usage being already close to maximum capacity. It simply does not seem feasible to use the network for all of the decentralized finance applications. Ethereum’s market cap is a tenth of that of Bitcoin. If the system is already near capacity, it’s hard to see how it can manage the capacity of becoming a true DeFi network for the rest of the ecosystem. Something Vitalik Buterin has acknowledged in an interview: https://beincrypto.com/ethereum-founders-admit-never-designed-scalability/.

DeFiChain Solution

Staying in the Bitcoin Ecosystem

The cryptocurrency market as a whole is difficult to predict. Most of the coins have become valueless, and it remains to be seen how the system will sustain itself after cash runs out from many of the major ICOs.

Despite this, our outlook on Bitcoin specifically is extremely optimistic. Over the last year, through market volatility, including instability in traditional financial markets, Bitcoin has retained its value, demonstrated its impermeability to attack and hackers, and gained increasing respect from traditional financial players.

Bitcoin is increasingly being seen as a store of value, and it is perceived as the standard by which other cryptocurrencies are measured. While people’s portfolios vary widely, Bitcoin remains the standard currency that almost every crypto investor holds as a major part of their holdings. The tremendous community and ecosystem around Bitcoin bode well for its long-term viability as a store of value.

For that reason, creating decentralized financial services around Bitcoin represents a tremendous opportunity that has yet been untapped, partially because of the difficulty of creating smart contracts that work with the Bitcoin network, and partially because of the fractalization of the development community to many side projects. We believe this tendency of the development community to jump on the newest developments has drawn attention away from the real story: Bitcoin is here to stay. Thus, we believe, building a DeFi Blockchain on top of Bitcoin would bring the best out of both worlds: Bitcoin’s stability and immutability and DeFi-chain’s scalability and functionality.

Building on Top of Bitcoin

One of the major challenges in new blockchains is creating the robust immutability available after a critical mass of users and blocks secure the chain. To provide immediate security and immutability of the blockchain, DeFiChain will be anchoring itself to the bitcoin blockchain. Every few minutes, DeFiChain saves its most recent Merkle tree to the Bitcoin blockchain, similar to how Rootstock (Turing Complete Smart contracts secured by Bitcoin https://www.rsk.co/) is planning on connecting to Bitcoin. In this fashion, the most recent chain is always fully secure and immutable, and can be checked against the most recent record anchored to Bitcoin. Over time, DeFiChain will space out the anchors at larger intervals. This anchoring mechanism ensures provably immutable records from day one and defends against attacks, hackers and vulnerabilities that can cause concern in emerging chains.

At the same time DeFiChain keeps its own consensus mechanism and function set, allowing for all those characteristics that Bitcoin does not inherently have. This is achieved by DeFiChain being a dedicated non-Turing-complete blockchain, designed specifically for the decentralized finance (DeFi) industry built on top of Bitcoin. DeFiChain provides full functionality for this specific segment of the DLT community, sacrificing other types of functionality for simplicity, rapid throughput and security. DeFiChain utilizes a completely decentralized Proof-of-Stake mechanism allowing for:

Unlike Ethereum or other turing-complete blockchains, DeFiChain is not a general-purpose blockchain, and commands outside the basic set of functions are not allowed. Limiting the allowed commands on purpose provides a dramatically reduced attack surface for smart contracts, eliminating the obvious breaches that are made possible when programmers need to design complex coding for these functions. The details of these will be described in the next section.

Benefits of DeFiChain: Summary

Initial dAppSets

This chapter provides an overview of each of these functions and the following chapter covers the technical details in how this is achieved.

Decentralized Lending

Decentralized lending allows individuals and groups to borrow and lend without the intervention of a bank. Through collateralized systems, decentralized lending on Ethereum reached over a quarter of a billion dollars in 2018.

All of these systems are based on Ethereum, meaning they are addressing only 15% of the market based on market capitalization. The DeFi platform will be addressing the entire 100% of the market by leading with Bitcoin, but also including the entire market through wrapping and pooling as described below.

The major decentralized lending platforms (Compound, Dharma, dYdX, and Maker) provide lending at rates ranging from 0.5% through 6%. Because everything is managed through smart contracts, the overhead of banks is eliminated, and the platforms are able to provide much better rates than banks. As these types of decentralized lending services become safer, it’s likely the market will also see an increase in peer-to-peer lending opportunities through dedicated applications.

The power of decentralized lending lies in the market efficiencies available by eliminating the middlemen and administration involved in lending. Furthermore, with investors concerned about minimal or even negative interest rates, decentralized lending protects the investors from that potentiality, providing market rate interest while giving borrowers better rates than they can get in the existing financial markets. Given the magnitude of credit and the role it plays in the economy as a whole, decentralized lending offers the potential for many more initiatives to borrow money based on open markets and favorable conditions. Easier access to lending translates into a faster-growing economy.

Initial implementations of decentralized lending are fully collateralized, and because of the volatility of cryptocurrency, most platforms require double or more collateral on loans. This allows people to take loans based on cryptocurrency they hold. They can manage their cash flow problems without having to sell their crypto holdings, and meanwhile get favorable conditions on the loan.

Decentralized Wrapping of Tokens

Wrapping allows the utilization of any digital asset such that the underlying asset is maintained, but it can transact on a different blockchain. DeFiChain provides a decentralized wrapping mechanism which allows the owner of the crytpoasset to maintain pegging to the asset and utilize a trustless wrapping mechanism that does not rely on any third party as a guarantor of the wrapping or asset. The wrapped tokens can be easily exchanged for their original value on their respective blockchain. Creating a wrapped token on DeFiChain is a rewarded activity, such that there is incentive for cryptocurrency holders to create wrapped tokens on the DeFi network as a form of rewarded decentralized financial investment.

Wrapping is a key capability of DeFi due to the need for interoperability of different types of cryptocurrencies and assets. To date, there are no interoperability standards between different currencies, and the only way to interoperate between currencies is by using wrapping or collateralization, which has to be provided by a third party. The entire point of decentralization is that people do not need to trust an authority, yet, today that is the main way that investors can interoperate between Bitcoin and Ethereum without converting from one coin to the other. The Polkadot protocol provides a platform for the development of interoperable apps, but not specifically for DeFi. As a new protocol, it is yet to be seen how it will be leveraged.

Without wrapping, holders would need to convert their cryptoasset to the DeFi currency in order to use the services offered. Obviously, for most investors, that’s unacceptable. The investor has put their money into Bitcoin, or Ethereum, or whatever else, because that is the currency they want to hold. The main purpose of DeFiChain is to enable financial transactions in any type of crypto asset, such that people can use the assets and coins they hold, as currency for investment in other types of financial vehicles. The decentralized wrapping function is crucial in allowing people to hold any asset and perform investments in another currency. So, for example, someone holding Bitcoin could make a loan to someone who wants to borrow ETH, or someone who wants to hedge against the cryptocurrency they have could do so using a wrapping function to use some of their assets to purchase options in other types of assets.

Decentralized Pricing Oracles

Participating as an oracle allows earning of tokens based on the accuracy of the oracles. The built-in oracle function will allow smart contracts to determine the number of oracles, consensus percentage, and the parameters for rewarding oracles for the data they provide.

Oracles are eventually meant to be decentralized. However, DeFiChain will be launched with a few appointed trusted pricing oracles that periodically submit pricing data from trusted source onto DeFiChain.

Decentralized Exchanges

Transferable Debts and Receivables

DeFiChain will offer a set of calls to work with transferable debts and receivables. In the centralized finance world, debts and accounts receivable can only be managed through financial institutions that handle loans. The lack of transparency of these transferable debts was one of the factors leading to the financial crisis of 2008.

For small and medium enterprises, this can be a particularly powerful tool. For example, Jane’s widget factory supplies widgets to a large car manufacturer, but the car manufacturer pays for those widgets on a basis of invoice +60. Meanwhile, Jane has to pay for the materials to produce the widgets, and, of course, regular salaries to her workers on a monthly or weekly basis. The car manufacturer will pay the invoice, but not in time for Jane to pay all of her expenses. Without DeFi, Jane needs to go to the bank and pay whatever interest rates they demand, because she has no alternatives. The transferable receivables function would allow anyone to offer Jane a loan based on the receivables. Since many people would be able to see that the car manufacturer is a low-risk customer, and that they will pay their invoices, anyone who wants can make an offer to Jane for a better rate than the bank, creating a competitive market for debts and receivables based on the real risk and market assessment of that risk. Jane now can get a loan with great rates, and the lenders, likewise get excellent returns on their loans, despite the fact that they are loaning the money for only 30-60 days.

Blockchain adds transparency to the exchange of debts and loans based on receivables or other types of financial promises. DeFiChain will include the capability for organizations to create smart contracts that allow straightforward investment in such assets, so that peer-to-peer loans can be made without the need for a financial institution to guarantee these types of financial assets.

Decentralized Non-Collateralized Debt

In the future, it will be possible to provide non-collateralized loans based on the reputation and other factors about borrowers. Through different forms of verifiable credentials, and records of an individual’s borrowing and repayment history, non-collateralized systems can be developed. Many of the identity solutions being developed today are looking at anonymous and pseudonymous reputation-reporting systems, based on a Decentralized Identifier (DID) issued by the individual, and Verifiable Credentials (VC) issued by known authorities who are reputable to provide information about the individual’s credit history.

The appropriate reputation based systems and risk assessment systems will need to be built out. While this will take time, perhaps years, it is foreseeable that this kind of system could supplement or replace today’s credit ratings scores.

Another potential application of this feature would be the ability to create non-collateralized decentralized stablecoins. The success of DAI and MakerDAO show the desirability of pegged stablecoins, yet the high level of collateralization is a deterrent to creating more such projects. It is feasible that through market mechanisms and staking, decentralized non-collateralized stablecoins can be created.

Asset Tokenization

While several attempts have been made at asset tokenization in the blockchain space, most of them have pivoted and now provide services not directly related to asset tokenization (LAtoken, Etherparty). Tokeny and Tokenize-IT advertise themselves as tokenization platforms, but as of the writing of this paper, their processes are still fairly manual, and are heavily reliant on specific localities and regulatory requirements for those specific jurisdictions. Other blockchains, such as Tezos, have been mentioned as good platforms for asset tokenization, but, as with other multi-use blockchains, the Turing-complete set of commands will create complex smart contracts that are unnecessary when using DeFiChain. DeFiChain will provide a module specifically designed for asset tokenization, and will be particularly easy to use to tokenize assets such as company equity, real estate, and other valued holdings.

Recently (October 2019), the Lichtenstein Blockchain law created the legal basis upon which any asset can be tokenized and legally bound to tokens or “containers” that represent the right to the asset. The law is precise in its wording, describing how a container issued by a trusted party now can hold the legal rights to the disposal over the asset. Disposal over the asset is distinct from ownership or rights to the asset, or even control as a specific concept. The careful wording of this law is a breakthrough for everyone in the world of asset tokenization, because it will now allow someone to go to a court of law with a token and expect to have legal legitimacy for assets that are tokenized (as long as the authority granting the token is recognized as a trusted authority to do so). It also opens up a space for DeFiChain to apply for this trusted status, such that the Asset Tokenization capability described here can be offered as a decentralized, legal and authorized capability that people can trust, without having to depend on any centralized authority.

Examples of assets people can now tokenize using the blockchain:

Distribution of Dividends

Any tokenized asset with return on investment can use the dividends distribution module to create smart contracts that pay out returns on the investment automatically. Using DeFiChain will allow a leap in the functionality of dividends distribution. It will be possible to implement models similar to today, where payouts are performed on a weekly, monthly, or quarterly basis, or models where payouts are on a daily, hourly or even minute-by-minute basis.

Distribution of dividends would be relevant in any type of tokenized asset, as described above. For example, today, a municipal government might do a bond issue to invest in a wind turbine to supply electricity. The government would take care of everything, and repay that bond according to the schedule. With distribution of dividends, the community could purchase the wind turbine directly, and distribute the dividends to the investors in the wind turbine. Instead of going through the administration required through the centralized authority (government), every citizen who wanted to could invest in that wind turbine, and dividends would be paid according to each person’s contribution to that investment. Eliminating overhead and fair distribution of profits would be major benefits for the community owning the wind turbine. In this case, the wind turbine is a public good, but it could also simply be a private investment.

Any private investment could be run this way: a pinball machine, self-driving taxi, real estate investment, etc. Automatic distribution of dividends reduces the need for administration and overhead, as well as eliminating uncertainty about payouts and control by a centralized authority.

The need for joint dividend investing is becoming increasingly relevant with IoT. Devices are able to create tremendous value. A self-driving car will be able to provide taxi services. Vending machines, sensors, satellites, etc., are all potentially revenue-generating devices that people can own together and share in the profit of together, yet until now the legal and financial complexity of doing so has been prohibitive. DeFi can simplify those processes.

Similarly, distribution of profits for a private company can be implemented. One of the first experiments in this area is a DAO (Decentralized Autonomous Organization) called dOrg. dOrg is a collection of programmers (as well as a sales/operations team) who co-own their software house. Distribution of salaries is through a DAO that functions as a multi-sig, such that every 2 weeks, the whole organization submits their payment requests for work contracted, and the team votes to pass one anothers’ salary requests. Inside dOrg, each person holds a “reputation” that represents the percentage of ownership each person has earned (they earn ownership according to the amount of work done since the inception of the company). But what will happen to the profit at the end of the year? Presumably, each individual will have to submit a request for their percentage of the profits, and everyone will have to vote on that, too, because the DAO does not allow for automated distribution of profits. Using DeFiChain, the team could easily implement a quarterly or annual function that would automatically distribute the profits of the company to each person, according to their holdings in the company. This scheme would work even for people who were active in the past, but are no longer active, so they aren’t in the DAO any longer, but they still hold a percentage based on their past contributions. Other contributors might be an investor who puts money into the company, but does not participate.

The examples above seem logical and straightforward, but today are extremely time-consuming and complex. People who want to make an investment together in companies, real estate, or other income-deriving assets type of dividend distribution today is complex and requires a lot of manual calculations. Through the DeFi Distribution of Dividends functionality, it becomes not just simple, but automatic for companies to distribute dividends to equity owners.

DeFiChain Design

Design Parameters

Looking at the business requirements from the chapter before, DeFiChain needs to meet the following requirements:

Each of these design principles is described in detail below.

1. Robust and Secure

The proven security and robustness of the Bitcoin Core made it the blockchain of choice for DeFiChain base for extension. DeFiChain is built based on a fork of Bitcoin Core 0.18, specifically v0.18.1.

DeFiChain will be written in C++, and the plan is to use other languages, such as Rust, in the future.

While DeFiChain is a new blockchain, basing it on a Bitcoin Core fork results in a chain that is easy to integrate with for exchanges and apps that support Bitcoin.

2. Fast and Scalable

One of the proven disadvantages of the Bitcoin blockchain has been the slowness of transactions on the chain. Furthermore, scalability has become an issue as the number of blocks on the chain increase.

In order to implement a blockchain with the required speed and scalability, DeFiChain fork of Bitcoin Core will include the following improvements:

These improvements provide a transaction rate of over 2,200 transactions per second (tps) while maintaining manageable compute and bandwidth requirements to allow for decentralized operations of DeFiChain.

The following table compares Bitcoin and its forks, as well as Ethereum, to DeFiChain performance:

3. Decentralized Consensus Mechanism

Bitcoin Core is using Proof-of-Work (PoW) as the consensus mechanism. DeFiChain leverages the best aspects of PoW, that is, using hashing of the staking node’s ID for block creation while focusing the majority of the consensus on Proof-of-Stake (PoS). The major improvement in the PoW mechanism for DeFiChain is that staking nodes can run without investing in high-end servers and ultra-fast bandwidth connections. Thus, DeFiChain is creating the potential for easier and faster decentralization of the mode ownership and infrastructure.

4. Non-Turing-complete Smart Contracts

Decentralized financial transactions are implemented through smart contracts. For example to ensure that borrowers repay lenders, smart contracts implement the conditions of lending in the code. For smart contract development, DeFiChain will be adding opcode support for decentralized financial instruction sets. The DeFi opcode complements and works in tangent with the Script scripting language of the existing Bitcoin Core protocol.

The DeFi scripting language is called Recipe, denoting the language’s role in describing and allowing for decentralized financial contracts.

5. Immutable through Block Anchoring

While the common discussion of immutability is a binary conversation (a blockchain is either immutable or not), in fact, immutability is on a spectrum. The level of immutability of a blockchain is related to the cost of a rollback or “fork out” of mined blocks, also known as a 51% attack.

It takes time to amass significant miners or minters to make 51% attack costly enough that it is generally regarded as immutable, meaning that a new blockchain is automatically at a disadvantage when it comes to the immutability of the records. Some newer blockchains have been taking shortcuts to increase its immutability quality, typically by compromising on decentralization. For example, the chains may allow only delegated stakers chosen by the founders, or by making the blockchain permissioned instead of permissionless.

DeFiChain aims to maintain decentralization quality while maintaining immutability. To do so, DeFiChain will anchor its block to Bitcoin blockchain every few blocks. This further enhances the immutability of DeFiChain without any compromise to the decentralized nature of the chain.

Consensus Algorithm

Proof-of-Stake

DeFiChain utilizes a Proof-of-Stake (PoS) algorithm similar to Bitcoin Core’s original Proof-of-Work (PoW) mining algorithm. While DeFiChain is choosing PoS over PoW, at the same time, DeFi technology retains the best of the tested and proven technologies that were developed in the Bitcoin Core blockchain.

Masternodes for Staking

To run a masternode (staking node), stakers must hold a fixed amount of 20,000 DFI. Masternodes on DeFiChain participate in active transaction validations and block creations. The staking amount is intended to be lowered with the stability and maturity of blockchain to encourage further decentralization.

Each staking node can perform only 1 hash per second, with the nonce from Bitcoin Core PoW algorithm replaced by a staker’s masternode ID. A new block is mined if it satisfies the following condition:

The stakers check this requirement each second. If the block condition is less than the current target, then the stakers assemble and sign a new block. Staker’s UTXO require 20 confirmations before it can be accepted as a stake.

Stake Modifier

A stake modifier is a collective source of random entropy. Without a stake modifier, the future PoS kernel would be completely predictable. A good stake modifier needs to be neither predictable nor influance-able by stakers.

Validation of Future and Past Headers

Unlike PoW, block header validation requires a stakes table. Headers get verified in batches before full blocks are downloaded, so the stakes table is used to verify future stakes. To be able to verify future headers, the blockchain needs to apply an additional rule, so any change of the stakes database gets written right away, but takes effect only after 300 blocks. As a result, any node will be able to verify any block header against its current stake, if a block header isn’t further in the future (or in the past) than 300 blocks.

Nothing at Stake Protection

For PoS blockchains, there’s no limit to how many conflicting blocks a staker may sign. As a result, stakers may stake for every possible fork or branch, which weakens the finality of a PoS blockchain. This problem is known as a double-sign and is not possible in PoW blockchains, where a miner cannot mine all the possible branches without splitting mining capability. In PoW, this represents an intrinsic economic penalty. However, PoS blockchains cannot apply an inherent economic penalty for signing conflicting blocks on different branches.

Therefore, in order to enhance the finality of DeFiChain, in PoS, it’s necessary to detect double-signs and penalize them through an explicit mechanism.

Detection of Double-sign

Each block header has a sequence number as a number of blocks that a particular staker has mined before a particular block. If two blocks are mined with the same sequence number, it means that a staker has double-signed, even if the blocks have different ancestors, i.e. across branches.

During a block’s generation, a staker has the right to include the double-sign proofs into his block header in exchange for only half of the penalty.

Double-sign Penalty

To be able to apply a penalty to stakers who double-sign, DeFiChain has to disallow immediate withdrawing of stake. Thus, when a deactivation transaction is confirmed, DeFiChain requires 3000 blocks to pass. At a block time of 30 seconds, 3000 blocks is equivalent to 25 hours.

The double-sign penalty is 10 times the block rewards, deducted from the collateral. This also disqualifies the stakers from further staking immediately. The staker who wants to get back to staking has to deposit a fresh stake UTXO of 20,000 DFI. Running the official DeFiChain node does not cause any unintentional or accidental double-sign. Double-sign happens only in cases of malicious intent.

Time Drift Attack

The chain uses a maximum future block time of only approx. 5 seconds, to protect the chain from time drift attacks, where stakers set a block time too far ahead in the future, in order to claim a reward for themselves. DeFi also uses NTP time synchronization to allow for ongoing adjustment to the block time.

Bitcoin Anchoring

DeFiChain stakers publish blockchain block hashes periodically to the Bitcoin blockchain, providing public audit and block anchoring of DeFiChain to the strongest, most secure blockchain in the world.

Every 60 blocks (approximately 30 minutes), a staker gets the right to write the Merkle root of the previous block onto the Bitcoin blockchain. The information written is, specifically, the txid of the Bitcoin transaction, Bitcoin block header and Merkle proof containing the Merkle root onto the newly mined block. By doing so, the staker will be rewarded an extra block reward in DFI, incentivising nodes to regularly anchor all records to the Bitcoin blockchain.

DeFiChain node will include a built-in Bitcoin Simplified Payment Verification (SPV) client. SPV clients sync the Bitcoin blockchain by downloading only block headers which is sufficient information for nodes to add and validate the anchors.

DeFi Building Blocks

To achieve our goals of enabling decentralized finance transactions on DeFiChain, the following build blocks will be included as a base native components on DeFiChain.

Tokenization as a DeFi Standard Token (DST)

The implementation of the features described in this whitepaper is performed with the use of standardized tokens. This chapter describes the mechanics of the tokens, interaction with other cryptoassets (tokens), and how they are used in DeFiChain.

Cross-chain Mechanics

DeFiChain uses token standards to bring in external tokens to DeFiChain in a trustless manner and allow trustless financial contracts and trading of all major cryptoasset tokens. The token standards are similar to ERC20 on Ethereum and Omni on Bitcoin blockchain. Through this standard, DeFiChain allows tokenization of any assets.

On DeFiChain the standardized tokens are called DeFi Standard Token (DST). DST tokens are of two different types: DCT, created by users of the system, and DAT, which are asset-backed tokens created with the backing of cryptoassets.

DeFi Custom Token (DCT)

DCTs are custom tokens that can be created by any user to represent any project or set of smart contracts implemented on DeFiChain. Any user can create such a DCT. To prevent abuse, creation of any proprietary DCT requires the user to lock up 1,000 DFI for the time that the tokens are issued. The DFI is returned when the tokens are revoked and the DCT is cancelled.

DCT tokens are not backed intrinsically by DeFiChain. They may be backed through an external mechanism, but it’s essential to note that DeFiChain does not intrinsically back them. An example on the Ethereum blockchain would be DGX, which is an ERC20 token backed by gold. Ethereum does not back DGX, although the token is created through ERC20. The Digix Foundation is accountable for the value of that token. Similarly, DCT is the DeFi parallel to ERC20 on Ethereum. Creation and issuance of tokens on DeFi is simplified and the potential for errors in the smart contract is eliminated, because creators of DCT can set only the parameters below, using an easy to use scripting interface.

DCT Parameters:

Using this interface, there is no need to have a smart contract developer, and there is no need for a security audit.

DeFi Asset Token (DAT)

DeFi Asset Tokens (DATs) are backed in a decentralized manner. DATs on DeFiChain are tokens and crypto assets external of DeFiChain, such as:

New DATs are introduced to the system through voting by masternodes. This ensures that only assets that gather the most interest amongst DeFiChain users get introduced.

Economic Pegging of DATs

The goal of DAT is to have it represent the native asset on the other blockchains, e.g. 1 DBTC should represent 1 BTC.

There are two approaches to this:

In order for us to achieve economic pegging, the following building blocks are built natively on DeFiChain:

Loan Contract

Loan Contract is designed to allow the owner of the contract to take a collateralized loan against collateral locked in the contract. Each loan contract is unique to every owner (address) on DeFiChain.

Any user can open a loan contract on DeFiChain, free of charge. The user who opens a loan contract owns the specific contract. This ownership, however, is transferable.

Minted DATs are subject to a floating borrowing rate. A loan contract has no expiry date. The owner is able to take out a loan for as long as they desire, as long as the collateralization ratio stays above 150% at all times.

If a loan contract falls below the 150% collateralization ratio at any point in time, its collateral is liquidated via Decentralized Exchange (DEX) to pay off accrued interest. There will be an additional 15% liquidation penalty to discourage loan contracts from having to be liquidated. It is the responsibility of the loan contract owners to monitor the collateralization ratio to prevent an unwanted liquidation.

If a loan contract is close to minimum collateralization ratio, the owner must take one of the following steps to prevent liquidation and having to incur 15% liquidation penalty:

Closing a loan contract entitles its owner to get back all 100% of its collateral. To close a loan contract, the owner has to pay back the loan in full, plus the accrued interest in its entity in the DAT (e.g. DBTC). Upon liquidation of the loan, the minted DAT is burned, and the initial minted DAT and the interest will be converted into DFI via the DeFi DEX described in this paper.

While this concept is not new to the DeFi system, what is novel is the possibility to collateralize any asset due to DeFiChain’s nature.

Decentralized Exchange (DEX)

The DeFi internal DEX provides decentralized trading for all DeFi tokens and DFI itself, which means that all tokens: DFI and DCT (DAT and DCT) can be listed on DeFiChain DEX. DEX will initially launch with DFI as the base trading pair, providing markets such as DBTC/DFI, DETH/DFI, DUSDT/DFI, etc. With increasing volume, other base trading pairs can be introduced, subject to a DAO approval, providing markets such as DETH/DBTC, DFI/DUSDT, etc.

DEX on DeFiChain operates without the need to pass custody to any intermediaries. Users are able to trade on their own in a trustless manner. One of the key differentiator about DeFiChain as compared to many other decentralized financial solutions is that DeFiChain is not only a consensus protocol facilitating DeFi, it is also comes with a very simple to use client user interface (UI) that allows users to interact directly on the blockchain without any intermediaries.

Cross-chain Exchange (XCX)

A user holding DBTC might be interested in holding of actual BTC instead of a DeFi pegged BTC token (DBTC).

The DeFi Cross-chain Exchange (XCX) allows anyone to do exactly that. XCX allows listing of DATs with its native tokens, e.g. DBTC for BTC, DETH for ETH, DXRP for XRP. Actual transaction is carried out through the trustless swap of both tokens commonly known as atomic swap. Atomic swap guarantees that either both parties receive their exchanged coins, or neither transactions go through – providing a strong cryptographic guarantee that no one party is able to cheat the other.

We use the following terms to describe the parties in the XCX:

XCX orders contain several parameters that can be freely decided by the market marker (first lister of an order). For selling of DBTC for BTC (i.e. someone who’s interested in receiving actual BTC), the parameters are:

First Example:

Alice has 1 DBTC and wants 1 BTC so she can trade on a centralized exchange.

Bob has 1 BTC that he does not need for 1 month, hoping to generate some lending interest during that period of time.

Now, Alice has 1 BTC and Bob has 8000 DFI. Alice also has 1 DBTC locked up on XCX order and Bob is the beneficiary of that BTC. Note that the beneficiary of an XCX is transferable, i.e. Bob is able to sell the XCX with Alice to a third party (this allows for decentralized debt selling and tokenization of receivables).

Should Alice wish to redeem her 1 DBTC from the XCX before the time is up, Alice will send Bob the 1 BTC she borrowed earlier to Bob’s address specified in the XCX and send the acknowledgment on DeFiChain. Upon confirmation by stakers with a BTC bridge, the XCX contract now closes and Alice gets her 1 DBTC back, having paid 8,000 DFIs as interest.

Bob gets his 1 BTC back (keeping his 8000 DFI as lending interest).

Should Alice wish not to redeem the XCX before the expiry, Bob gets to keep Alice’s 1 DBTC.

Alice gets to keep the 1 BTC (minus 8000 DFI interest) and Bob now gets 1 DBTC (plus 8000 DFI interest). Additionally Bob received the Guarantee of 0.1 DBTC providing him with an extra 10%.

Second Example:

In a second scenario Charlie has 1 DBTC and wants 1 BTC. He has no intention of paying it back and getting his DBTC back. He also does not want to include an additional guarantee, so he adds a higher Premium and an immediate Expiry. Charlie would list the following XCX order:

Dave, notices the order has no guarantee and an immediate expiry and knows that this XCX order expires instantly. He happily provides the counter-trade to Charlie, giving him 1 BTC and receiving immediately 1 DBTC + 12000 DFI.

A Guarantee is therefore not a must, but a potential incentive for the lender to know whether he/she has to exchange the received funds afterwards or whether he/she will get the original native coins back.

Pricing Oracles

A Pricing Contract is a smart contract on DeFiChain allowing multiple trusted and appointed parties to submit periodic price feeds of DATs and DFI.

Multiple Pricing Contract oracles are chosen by the DeFi DAO (explained in the next chapter).

Use Case Examples

Following are examples of how the technical implementations of DeFiChain can be used. This is just a list of examples. Many other applications can be implemented as well.

Leveraging a Long Position

Thus Alice can obtain a compounded long position on DFI without putting in extra money.

Shorting a Coin

Getting a Loan (Borrowing)

Lending a Coin for Cashflow

$DFI coin

The DeFiChain Foundation will be issuing the DeFi utility token, DFI, capped at 1,200,000,000 (1.2 billion) for throughout its lifetime. There will only ever be 1.2 billion DFIs created.

DFI is divisible up to 8 decimal places.

$DFI coin Utility

Fees from DeFi Activities

Fees from DeFi activities on DeFiChain are burned and redistributed through new token minting over a period of time as laid out below. This ensures that DeFi stakers enjoy the benefits of earning rewards from facilitating trustless DeFi trades on DeFiChain in a fair manner.

Rewards from mining a block on DeFiChain are calculated as:

The burned token redistribution schedule is determined automatically every 259,200 blocks (approx. every 90 days) and works as follows:

Burned token redistribution for the next 259,200 blocks =

Masternodes

DeFi is a Proof of Stake blockchain. Initially, 1,000,000 DFI allows the owner to own a staking node. Today, the amount has been reduced to 20,000 DFI for ownership of a staking node. The returns for staking will decrease over time, as the volume and number of transactions compensate for the reduction in per-transaction staking rewards.

Nodes are entitled to:

Governance

The DeFiChain Foundation is responsible for issuance of tokens and is governed by an independent board. This board will be governed by the DeFi masternodes voting on its members and also by giving directives on key decisions.

The DeFiChain Foundation awards tokens to users and groups to speed up adoption (see the section on initial token distribution and marketing). The Foundation is tasked with boosting the ecosystem, bringing in ecosystem partners, directing the development of the tools for ecosystem partners, and other activities to increase the number of ecosystem partners.

For clarification and transparency, Cake Pte Ltd is a private company located in Singapore. Cake Pte Ltd is an initial contributor as part of the ecosystem’s partners to creating services on DeFiChain.

Community Development Fund

The DeFiChain Foundation will create a community development fund with up to 10% of the block rewards under management. This percentage can be updated by submitting a DAO proposal that will be voted on by all masternodes. Community development funds were popularized by DASH 10 and are used in some selective DAOs today. The community will determine the use of these funds for development, marketing, or research that forwards the DeFi community. DFI masternodes vote for projects they like and the highest voted proposals every month will be funded.

It costs 10 DFI to submit a budget proposal and a proposal can be submitted by anyone. This fee is burned and non-refundable regardless of whether the budget is approved. Budgets are proposals which receive a net total of yes votes equal to or greater than 10% of the total possible votes (for example over 448 out of 4480). Budgets can be nullified at any time if vote totals (cast or re-cast) fall below the approval threshold. Budgets are processed (paid) in order of yes minus no votes. More popular budgets get payment priority. Voting happens on a monthly basis but can be changed by a masternode vote.

For governance decisions, only the Foundation may submit proposals. Proposals are voted in similar way as DAO budget proposals except that decisions will be honored via simple majority vote.

Initial Token Distribution

For any avoidance of doubt, there will NOT be a public ICO.

Further tokens will only ever be received through staking, which is described in the next chapter.

Token Issuance Schedule via Staking

DeFiChain is initially launched with a 200 DFI block reward, of which 10% goes to the community fund. The Foundation pledges to guarantee this 200 DFI block reward for at least 1,050,000 blocks since the the first genesis block, so approximately 1 year.

Subsequently, block rewards will be adjusted through governance vote. The Foundation also further pledges that there will never be more than 1,200,000,000 (1.2 billion) DFI in circulation, unless until the DAO governance votes to change this limit. Therefore DFI is a deflationary utility token.

The proposed staking schedule for the first 10 years is according to the following table:

DeFiChain Foundation

The DeFiChain Foundation is incorporated as a company limited by guarantee, resembling a foundation structure which holds the DeFiChain Trademarks, Domains and makes sure the DFI foundation funds are used as instructed by the masternodes.

Marketing

Target Market

Unlike most other DeFi-focused initiatives, DeFiChain being built on top of Bitcoin can harness almost the entire crypto market without being limited to “smaller” chains like Ethereum etc. Thus, as of publication, the target market for DeFiChain are over 60-80 million cryptocurrency owners and we can expect that hundreds of millions of other users will join in the future. This group of investors is investing and holding cryptocurrency due to the returns as well as their belief in the future of the industry. As investors, they have widely done well with the rise in many of the cryptoassets, however, they are not able to use their holdings in order to get better returns. Providing DeFi services will allow these investors to hold the coins they believe in, and increase their holdings over time based on investments that go deeper than just currency trading.

Go-to-market Strategy

The initial DeFiChain team is made up of some of the top names in the cryptocurrency industry, people who have made a name for themselves not just by delivering on their promises, but by creating a following. The team has built up a variety of marketing channels and has an established following on social media, wide distribution of books in the area of cryptocurrency, and deep contacts within the cryptocurrency industry.

With the experience of building up social media followings of hundreds of thousands of users in the course of just a few years, the team plans to leverage their current followers and bring them onto specific channels that will be the domain of DeFiChain. The team will build up a complete marketing engine and staff, using the same proven competence they displayed in the past.

Unlike other blockchains, DeFiChain will be balanced between marketing and technology expertise. Building the best network is only half of the job. DFI holders can rest assured that the marketing team has the proven experience in building up a marketing engine that is required for product success and that the tech team will be able to deliver on the roadmap.

Partnerships

The DeFiChain Foundation will undertake a variety of efforts to choose the best projects for the expansion of DeFiChain:

Every project on DeFiChain will naturally bring it its own users and put effort towards marketing of the project, adding users and hodlers to DeFiChain.

Roadmap and Milestones

A Glimpse into the Future

Building on top of DeFiChain will lead to some of the most exciting benefits not only for first-world areas, but moreover also all those that need decentralized finance the most. For example, imagine Anna, who owns a small business in a developing economy, but who doesn’t have a traditional bank account. She uses mobile money and digital currencies to run her business, accepting payments through mobile—which makes perfect sense, because nobody in her province uses cash or credit cards. Anna uses DeFiChain to take out a loan when one of her suppliers pays late, saving her business. In the old days, she would have simply gone out of business, because no bank would loan money to her. Anna also invests wisely. When she is paid by the supplier, she immediately moves the cash into various tokenized assets to avoid the hyperinflation and instability of her national government’s currency, and on top of that, she is able to earn interest.

Anna creates a group of local businesspeople, and together they pool funds to help other entrepreneurs in their village. They purchase office space, solar panels, and a satellite to create a business center. The group uses DeFi to eliminate the overhead of complex legal contracts between them. They receive automatic dividends when the business center profits. Some of them reinvest in a delivery drone which charges for its services, and distributes the income to the investors. Others invest in sensor equipment that test local soil conditions, and sell the data to commodity markets. All of the sensors work independently and charge independently, and the investors simply reap the profits, all calculated automatically on DeFiChain.

Now, 5 years after her initial use of DeFi, Anna is able to take out a loan with no collateral, based on her long-term record of smart investments and returning loans on time, as well as assessment of her industry from trusted oracles. It’s a win-win situation. The lenders come from all over the globe, from people who want to diversify their investment portfolio to developing economies. The lenders don’t have to worry about the complexity of cross-border transactions or legal requirements. They escape the banking systems of their own countries, which moved to zero and negative-interest rates on savings. Now, these regular investors can be assured of returns on investments based on Anna and people like her, who run great businesses and can provide returns on people’s investments.