Dfinance aims to lower the barriers-to-entry for DeFi (decentralized finance) instruments by empowering people to create and trade blockchain-based financial instruments with natural language tools. WINGS Stiftung Foundation created the platform to allow non-technical financial wizards to showcase their creativity and leverage the many advantages of DeFi.
The article will explore how Dfinance plans to realize its goals and the core technologies it employs.
Addressing Composability
The core work for Dfinance began in late 2018 and DeFi also started to become popular around this time. The reason is DeFi not only offers permutability, transparency, and permissionless finance, but also brings composability to the table. The modular approach inherent in DeFi allows users to combine different assets, instruments, and networks for innovative products and services.
To realize this potential, Dfinance entered a collaboration with Elrond Network - a high-performance public smart contract platform. The objective is to co-benefit through expanded utility and lowered usability barriers.
This will establish a two-way gateway between the two networks to facilitate easy asset transfers. The Dfinance users will create new types of products, including Elrond asset-collateralized products like the native $BUSD or $ERD stablecoins. On the other hand, this will enable Elrond users to access existing instruments and build their DeFi tools on the Dfinance platform.
This partnership will boost what Dfinance has set to achieve - total access to DeFi’s potential.
The Core Technology
Consensus Mechanism
Dfinance opted for Consensus Network’s Tendermint Proof-of-Stake (PoS) consensus mechanism. The team has yet to decide the final number of validator nodes for the mainnet. The present testnet contains 31 validator nodes. Dfinance is working to make the node setup process much easier.
Tendermint offer the following benefits -
The PoS mechanism offers excellent scalability and great speed, which is needed for a rapidly expanding platform. Even Ethereum has planned to switch to its own PoS.
Tendermint’s inherent Byzantine fault tolerance (BFT) feature enables the Dfinance network to withstand unpredictable malicious attacks or network node failures.
It helps in p2p communications and security purposes.
The Architecture
Dfinance network consists of three main components -
dnode - The blockchain node is built with Cosmos SDK. It includes Tendermint consensus, PoS modules, Oracles, VM functional, etc.
dncli - This is the command-line interface (CLI) for interacting with dnode. It also enables launching REST API server.
dvm - Move Virtual Machine by Libra packed as gRPC server, allowing smart contracts execution via gRPC. Also, it contains compilers of Move language. Requires dnode for correct functioning.
Token System
The main currency of the Dfinance network is XFI. This token is used for:
Participating in the POS protocol by staking or delegating the tokens.
Paying transaction fees.
Participating in network governance by using XFI to vote on various proposals, updates, improvements, etc.
Providing liquidity and loans in the various DeFi applications.
The Smart Contract Execution Platform
In its pursuit to offer a powerful code execution platform, Dfinance uses Move language and virtual machine (VM) by Facebook Libra on its decentralized nodes. This allows connecting to dnode to read data from storage, while dnode connects to VM to execute smart contracts. Unlike other EVM, the Move platform function is resource-oriented and offers bytecode verification, making it much more protected.
Also, the transaction-as-script functionality enables users to do multiple operations within a single transaction written in Move language, thus offering flexibility.
The Dfinance network uses two types of smart contracts - module and script. The module type is issued into blockchain storage and filed under the publisher’s account. On the other hand, script smart contracts are simply a transaction-as-script and therefore can operate only with existing modules. These default modules, called Standard Move VM library, are used to develop new modules.
PegZone
An integral part of DeFi is achieving as much liquidity as possible. This means being interoperable with other popular blockchains.
To achieve this easy value transfer across the chains, Dfinance employs the PegZone protocol. Dfinance plans to be interoperable with numerous layer-1 blockchains such as Ethereum, Bitcoin, EOS, etc. The present testnet version supports Ethereum blockchain only and thus offers any other ERC20 tokens, including ETH compatibility.
PegZone allows you to lock these ERC20 tokens in a smart contract called Bridge in the Ethereum blockchain, which is managed by the approved validators list. Once deposited, they release a proportionate amount on the given address in the Dfinance network. This feature enables the approvers to levy a 0.1% fee of every transaction for cross-chain value transfer only when coins are deposited.
Subsequent upgrade and mainnet launch will make it more efficient and add further chain supports.
Oracles
Dfinance uses decentralized oracles to connect with real-world financial instruments and various data sources. It currently supports price feed oracles only. Dfinance platform collects posted prices from multiple whitelisted oracles, calculates median, and stores the final price for the last block. Dfinance provides the option to write your own module that can use the oracle's feed.
As of now, Binance is the only platform it fetches price from, supporting ETH-USDT and BTC-USDT pairs. Dfinance plans to supplement more exchanges and ticker pairs.
Staking and Slashing Mechanism
Since using PoS, staking is an integral part of Dfinance network.
The node validators get selected based on the amount of stake they hold. Also, users can delegate their stake to preferred node validators by locking these XFIcoins in smart contracts. When the validators earn rewards, the stakers also gain from them as per their stake size - higher stake drawing higher rewards.
On the flip side, Dfinance has a slashing mechanism to discourage undesired activities in the network. The punishment strategy it employs are as follows -
Missing blocks - In addition to a 1% slash in stake, that validator is denied participation in the consensus until he sends a manual release request.
Double signing - A 5% slash in stakes.
Dfinance plans to introduce several liquidity staking mechanisms to bring borrowing, liquidity, borrowing, and other financial services for delegators through earned sXFI coins. Also, this increases the staking maturation time.
Conclusion
The project's objective is aligned with DeFi’s exponential growth, and Dfinance is building its platform swiftly on a solid foundation. It won’t be surprising if Dfinance becomes one of the leading platforms in DeFi by 2021.
