Welcome to a new year, 2022, the year of Chainflip. Another quarter has rolled over and died, but we have dusted off a mannequin to sit in the throne in its stead. Meanwhile, it’s all systems go around here. It was great to get a break over Christmas, but we have a testnet that is still a little bit on fire, half a dozen new team members joining us, and perhaps one of the most complex and unpredictable market periods I’ve ever seen in the history of crypto.
I’ve spent the last couple of weeks back in my home country of Australia being annihilated by the intense UV radiation. I will now never make fun of my English family when they visit, as I too have been moulded into a weak and feeble human as a function of living in northern Europe for a while now. Whilst hiding out from the sun indoors, I’ve had the opportunity to reflect on the last year and reset my own thinking about where we’re headed.
This community update is going to be a little different. You may be aware that our incentivised testnet is running, and we had over 7000 applicants to a program that only fits 500. You may be aware that we are hiring faster than all of Chainflip’s history. You may be aware that the devs and comms teams are on full speed, and that we have Sandstorm and the token launch looming ever closer with each testnet fix that is deployed. I'm not gonna talk about any of that in this update though.
Make no mistake, 2022 is the year in which Chainflip will launch in every sense of the word. Not only that, but 2022 is the year which will define not only the future of the project, but the future of the entire Web3 space. Since we started Chainflip in May of 2020, so much has changed. As is ever the case with crypto, 3 months can feel like an entire year of change. Just 3 months ago, the Sol/Avax/Terra situation was still emerging. We’ve had EIP-1559, the Taproot hardfork, emerging L1s achieve astronomical interest, deployment of L2s, rollups and more, incredible user growth across a range of ecosystems, and a range of new bridging and messaging solutions pop up in the last 6 months alone.
At this stage, and with so much development and change since we got started, it’s important to reaffirm what we’re trying to do here at Chainflip, and what our thesis about our work is given this new and evolving backdrop and the delays in our timeline.
Affirming Our Thesis
Chainflip remains as one of a tiny handful of general cross-chain solutions under development. Many other narrower cross-chain projects have shown up in the meantime, some with valuations in the billions on token launch. This makes us incredibly bullish - demand for this technology could not be clearer, and we are confident that the tradeoffs we are accepting, including much longer development times, will be the best choice to achieve a high degree of success long into the future.
It is obvious now that there will be a great many bridging services available to users and developers alike in the future. In my view, that is a good and bad thing, as reliance on centralised services to bridge assets and perform cross-chain interaction offers poor guarantees to users and developers. The tail-risk associated with these products is a clear problem that will need to be solved, one which Chainflip is well-positioned to handle in the medium term. In the meantime, wrapping services and cross-chain messaging services will fill an immediate need in the market for cross-chain smart contract interactions. There is no winner-takes-all scenario in the cross-chain world. There are too many different tradeoffs that can be made for that to be the case, but the upside potential of each of the tradeoffs differ significantly.
Our thesis for Chainflip revolves around two key pillars which we think set Chainflip apart from the rest of the cross-chain space and will be the two strategic paths we will walk.
Pillar 1: Plug and Play Interoperability
Our first strategy is key to our bootstrapping plan. Because of the way Chainflip is engineered, we have the ability to create easy to use abstractions that give developers the tools they need to offer cross-chain features to their users using nothing but a simple web API. Developers accept zero tail risk by using Chainflip. Their users are not exposed to Chainflip in the long term in any way. If Chainflip stops working, or better options arise, developers can simply turn off the API. Using Chainflip is such a no-brainer for developers for a number of reasons. On the backend, we’ve made it incredibly competitive for users in terms of liquidity and pricing strategy, we’ve developed a strategy to extend integrations as much as possible to maximise the number of assets that can be used from any given chain, and have removed many of the complex parameters required to interact with most aggregators, DEXes, and cross-chain services.
Any multi-chain wallet developer or cross-chain aggregation service will pick Chainflip 9 times out of 10 on pricing alone for chains that we support. We think our Just In Time liquidity features of the AMM will outcompete all other DEXes with minimal capital requirements. But that will not be the lion's share of Chainflip’s volume generated through integrations. Quite simply, the number one reason why developers will choose Chainflip is because of its simplicity.
Our goal is that using Chainflip’s super simple web API, with less than a day of work from a front-end engineer, any dApp, marketplace, payment provider, or wallet can offer users the ability to deposit value into their service from all of the popular chains in a single transaction without leaving the service. If SolanArt allowed native ETH deposits to fund a user’s new Solana account, or if USDC could be used to buy Arweave directly to upload something to the permaweb, these developers would significantly reduce friction for their users, boosting their own protocol revenue and accelerating adoption across the board.
We believe we can provide technology simpler than any other competitor, made possible by our comprehensive general solution that we’ve developed on our backend. It will not be an end-to-end solution out of the box, but such solutions are too complex for most developers to warrant investing the time in, and often require extensive customisation to function as intended anyway. The basic interface Chainflip offers can easily be extended to include wallet management and transaction automation, but in order to be maximally composable, we should not focus on developing a complex SDK.
The interface will be good enough to save users time and reduce barriers to entry no matter the host blockchain, but cost minimal development time. If we achieve this, Chainflip could become the industry standard first-line interface for cross-chain interoperability given its simplicity.
The upside potential from this strategy is measured in billions.
Pillar 2: Treat It For What It Is: An Exchange
The Chainflip protocol is a novel combination of commonly accepted primitives in crypto. Although it is a carefully designed orchestra of features working to create a unique experience, at a basic level, it pays to remember that Chainflip is just an exchange. It’s got a set of unique properties that give it unique advantages, but at the end of the day, Chainflip is in the same category as the earliest and most widely understood business model in the entire industry.
From the very beginning, crypto exchanges have been the most utilised and most lucrative businesses and protocols in the entire industry. They have the largest revenue-generating user bases of any product category in the industry. Users have paid more fees to exchanges and exchange protocols than any other category by a mile.
Chainflip, although a decentralised protocol, can differentiate itself by considering the lessons and common practices of exchange businesses across the board. We have to think carefully about the target audience, user experience, pricing model, marketing strategy, and competitive landscape. We should do so not only by looking at the DEX sector, but the crypto-to-crypto exchange market more broadly.
Just because Chainflip is a decentralised and permissionless system, it doesn't mean Chainflip Labs shouldn’t attract protocol users through the same methods and strategic thinking as the most successful centralised exchanges in the world. As long as we remain mindful of the different target audiences and user expectations, there are a lot of lessons that can be learned by analysing and replicating some of the tactics and strategies employed by the most successful (and unsuccessful) exchanges in the space.
I also think this should be a helpful framework to understand Chainflip from a token holder’s perspective. Measuring Chainflip’s upside potential as a token is made much easier when it is viewed as a way to get direct exposure to the fee revenue of a unique and powerful exchange, not merely as an abstract way to be exposed to the ‘cross-chain’ sector.
As such, you will see the Chainflip team switch gears very quickly when our swapping product reaches feature completion. All of the sudden, we’ll set our sights on the crypto spot market as a whole, focusing on user acquisition, retention, and support.
The potential upside from this strategy is measured in billions.
Bringing it Home
These two strategic pillars are not only strong and unique in their own right, but also create mutual synergy. Our plug and play strategy serves to boost volume on the protocol, and by treating the protocol as a normal exchange, we are able to make a more compelling case to developers to use it as their first-line interoperability solution given the level of support and effective liquidity.
These strategies mean that Chainflip will not be focused on hacking together quick and dirty features to grab quick wins on the cross-chain leaderboard. Shortcuts like burying unacceptable levels of centralisation, developing EVM only solutions, and risking the erosion of users’ and developers’ trust by rushing development have no place in this strategy.
We are here to develop the ultimate solution. From what I can see on our design team and our development team, I hope that our users will come to agree with me that Chainflip will be the best product in the market from a user experience standpoint. I’m happy to be patient. I’m happy for protocols that some might label as our competitors to generate interest in the cross-chain space in the meantime and to fix genuine problems for users who need solutions right now. I’m happy for the space to become more fragmented and for the ecosystem to grow more complex, as it is these complexities that will stand as problems which our protocol can solve.
I’m sure that in time, true competitors will arrive, probably in the form of forks from our own codebase or similar general solutions such as THORChain. Such forks do not concern me, as Uniswap has proven the stickiness of liquidity in the largest and most recognized v3 AMM of its category. Vampire attacks are ineffective against Chainflip’s AMM design. There is in fact a world in which many Chainflip derived sub-networks, collateralised in a range of different assets, can form together to greatly expand the number of supported assets across the liquidity network without sacrificing any security, user experience, or speed. This too would have a synergistic effect on each of those networks, including (and probably especially) the main Chainflip liquidity network.
I can see several futures laid out before us. All of them are good, but some are better than others. It is very tempting to become obsessed with the VC driven world of cultural capital and spend all of our mental and human capital on trying to win the mindshare of the current investment zeitgeist. This is undoubtedly important to a degree, but also can easily lead one astray from the original and stronger thesis of Chainflip. Our existing supporters know full well what we have set out to achieve, and their continued support and faith in the project brings me great joy.
We have several months of non-stop scaling and grinding ahead of us to begin to deliver on the products required to test our thesis. After a whole year of working with over 20 people in a tight-knit team, we are now growing on that established culture as quickly as possible. There is so much to be built, so many things to improve, and so many opportunities to be capitalised on. Without sacrificing the culture we have been able to create, we hope to double the size of the team by the end of the year to test our thesis to the absolute maximum.
Blind conviction is rarely a good strategy. Having a vision is the opposite of that. With open eyes and a constant awareness of the market, we march into 2022 on a war footing, with clear goals and strategies at hand, an experienced core team to build an army from, and a legion of fresh supporters ready to answer to the call. Will you?