Sifchain Project Review
In this edition of our project review we are going to explore Sifchain, the world’s first omnichain decentralized exchange.
So what’s the story behind Sifchain and what is the problem that they are trying to solve? Will it overtake Uniswap? Keep reading to find out and get an in depth look at the project, its team, tokenomics, and community.
If you wish to skip to the summary to see the matrix score and rating, click here.
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*Please not this review is scored out of 80 and not 100 as we are currently unable to analyse the Technical Analysis section.
There has been a lot of excitement over Decentralized exchanges (DEXs) since mid-last year brought about by the launch of the highly successful Uniswap platform that marked a huge resurgence in DEX’s as viable alternatives to centralized exchanges, and also introduced entirely new concepts like swaps and yield farming. Since then, there have been more DEXs coming out, some basic and simple and some very innovative and complicated.
Sifchain is designed to be an omnichain decentralized exchange which means that it can basically connect to every Blockchain in order to enable the decentralized flow of cryptocurrencies across chains enabling users to focus more on the DAO they are working in and less on the chain they are working on. Sifchain runs on an AMM (automated market makers) model which means that it uses liquidity pools where people can pool their tokens, like what we see on uniswap and thorchain. Sifchain also intends to have margin trading and limit orders as good complements to AMMs. These three features will provide the main components of Sifchain’s crypto economic programme.
In a nutshell, Sifchain is building a decentralized exchange with cross Blockchain compatibility. Sifchain, which inherits its infrastructure from Thorchain and Cosmos, will target 20–25 Blockchains (such as Ethereum and Stellar) for cross-chain integration. However unlike Uniswap, Sifchain has its own independent chain on Cosmos and unlike Thorchain, Sifchain will have pegged tokens.
Obviously there are some huge hurdles to overcome. Right now the decentralized finance (DEFI) space seems to be predominantly dominated by Ethereum. In addition, there are several other platforms that are trying to do cross chain integration, so it’s quite a huge undertaking.
Sifchain’s key functionalities
There are two key components of Sifchain. The first component is Sifnode which runs the nodes that people use. It is an application specific Blockchain which is designed for the specific application of swapping tokens against a liquidity pool where people pool in their tokens.
The second component is Peggy which enables you to move tokens to and from other Blockchain e.g. a peggy smart contract which enables you to move tokens to and from the ethereum network. When it hosts those tokens it has the capacity to then mint a pegged version of that token on Sifchain. Sifchain is designed for swapping pegged tokens but you can also take those pegged tokens and move them back and forth within their original chain and also send them to other chains in the Cosmos ecosystem.
- Margin trading
- Limit trading
- Regular swaps
- Connectivity with other chains
Some of Sifchain’s competitors include Thorchain, Rosetta from Coinbase, Chainsafe / Chainbridge, and Polymath Network etc.
Key features that differentiate Sifchain from its competitors
First is Omnichain. No one is really trying Omnichain. That’s a huge unique selling point for Sifchain which will support cross chain transactions for 20 – 25 of the top Blockchains such as Bitcoin, Ethereum and Stellar. None of the other cross chain projects are targeting the number of chains that Sifchain is targeting.
Sifchain is the first network to get connectivity to the cosmos ecosystem, enabling you to take the tokens that you bring on to Sifchain and use them with other cosmos chains like Kava, terra, akash network or the cosmos hub. That a huge advantage that Sifchain brings with it.
Lastly, I am unaware of any other DEX’s out there that do margin trading as well as limit orders. They either do one or the other but not both. This feature is still in its infancy.
How Sifchain differs from uniswap
1. Dynamic Fees
When the market is more volatile there is more trading and arbitrage going on. This is where liquidity providers can suffer larger and permanent loss and the way to compensate for that would be to have dynamic fees payable to liquidity providers so that they are compensated for the volatility in the market.
The AMM model for uniswap is very basic. There is a 0.3 percent flat fee. Uniswap is the first big AMM protocol to capture mineshare from the entire ecosystem so the standard 0.3 percent flat fee made sense at the time when it was launched, however the industry has evolved beyond that. Furthermore, uniswap does not take into account the demand in real time from traders on liquidity that is in these pools. To elaborate, when there is high volatility, traders are looking for liquidity in the AMM and they are going to make larger and more frequent orders. Liquidity poolers should be given additional compensation for that because they are on higher demand. Sifchain has a slip based model where instead of a flat 0.3 percent, a dynamic fee is charged based on the size of a swap. if you are making a really large order you are going to pay more than 0.3 percent but you are also going to get liquidity at a time when you really need it. Whereas when the market is flatter and you don’t need as much then your fee is going to be lower. A lot of research has been done on how a slip based fee incentivizes users in the real world and what rational profit seeking agents will do under a system like that. It’s better for poolers because they are getting better returns when there is high and frequent volatility and traders can benefit when there isn’t as much volatility because the fees are lower.
In addition, margin swapping will enable borrowing. This will result in even larger demands on liquidity pools and higher compensation for poolers.
Therefore, Uniswap can be looked at as a good proof of concept for AMMs where as Sifchain is more suitable for a professional grade trader who wants to execute more complicated strategies.
2. Asymmetric additions of tokens
In the pooling community there is a huge problem of impermanent loss which is this idea that if you add an equal amount of two sides of a liquidity pool e.g. you have eth and makerdao and you add equal amounts of both thinking that the price of one of those token sizes is going to go up, you could end up in a case where you make some profit but not as much as if you had just held your tokens. Especially if e.g. you were long maker but not ethereum or vice versa because then you had to sell some of one side of the token to even out the pool in the first place. That can be really frustrating. AMMs are designed for people who want to do passive value accrual and so they are not necessarily trying to do a projection of where price is going or trying to figure out exactly where they want to pool and unpool from. With a lot of protocols you can’t even necessarily unpool immediately. You have to hold your tokens in the pool for some amount of time especially with liquidity mining rewards. Sifchain decided to do asymmetric pooling. Instead of pooling 50/50 you can pool 90/10 or 80/20. That’s much more helpful for someone who is concerned with impermanent loss, you start able to avoid the extra work of doing a projection of where the price is going but if you do that work then you don’t have to be subjugated to this arbitrary split of your assets 50/50. So if you pool say 80/20 then when you withdraw you are also getting 80/20 back plus whatever swaps occur. That’s really critical for someone who is focused on one token or another and so asymmetric pooling is one way that Sifchain helps to shield users from impermanent loss.
3. Pegged token
A pegged token is a synthetic asset that is similar to a native asset. if you’ve got a token like USD for example, that’s an asset that everyone cares about and you can’t really use your USD in crypto directly, but you could use a proxy. Something like USDT or USDC are pegged versions of the native asset which is USD. There are a lot of ways you can create pegged versions of USD. You can do what the USDC or USDT teams have done which is to take one native asset for every pegged asset and as long as you have some way to go back and forth between the two, i.e. take your pegged asset and redeem it for the native asset and vice versa, then the price should be roughly one to one. You can also do it the way DAI, DSD and ESD have done where you use some kind of an on chain algorithm that will incentivize people to keep the price roughly pegged at one dollar. There is often more volatility and more deviation from the peg price but at the end of the day it does tend to work and has its advantages. You can do the same with BTC, ATOM, ETH etc. Sifchain is going to peg a number of erc20 tokens and ethereum on the internet of Sifchain which will enable you to trade ethereum and erc20 tokens on the platform. Sifchain will make sure every asset is pegged one to one and unlike other DEXs, the one to one storage will be done on chain so that there is no centralized entity that controls the tokens but it is controlled by a network of validators. Because the validators are all signatories to a single smart contract, they are all beholden to act in a way that is fair and in the best interest of the depositors and this includes being able to redeem the pegged assets for the native assets when required to do so.
BetaNet will be launched alongside with the public sale on 3 Feb. The point of having them at the same time is to ensure that the Rowan token will have actual utility by being used on BetaNet meaning that you can buy at the public sale and immediately use on BetaNet right after. This will enable the prices to remain in sync.
|✅ POSITIVE||⛔ WEAKNESS||📝 IMPROVEMENT|
|Next Gen Exchange||N/A||N/A|
|Huge target market||N/A||N/A|
|Innovative dynamic fee structure||N/A||N/A|
|GENESIS BLOCK||19th Feb 2021|
|TOTAL TOKEN SUPPLY||1,000,000,000 ROWAN|
|% MAX SUPPLY MINTED||7%|
|VOLUME (AVG 30 DAY)||N/A|
|VOL TO NETWORK||N/A|
|AVG PRICE 30 DAY||N/A|
The Rowan Token Sale will take place on Feb 19th 2021.
Sifchain is already gaining a lot of traction and experiencing organic growth but the team wants to further incentivize and encourage people to become adopters of the platform, liquidity providers and validators by implementing a robust liquidity mining programme. The economics means that validators, swappers and liquidity providers are rewarded in proportion to the amount of volume that they provide in held assets for stakers and in traded and swapped assets for the swappers.
Rewards will also be distributed in proportion to the amount of time you hold a token so the longer you hold the higher the liquidity mining rewards. This will ensure that the Rowan token goes to those people who will help to provide value to the sifchain ecosystem.
This is also an improvement to other liquidity mining programmes that exist e.g. on uniswap where rewards are delivered at a flat fee regardless
Securing the network
It secures the network so that validators can stake it. Without the token the network cannot run. Rowan is the currency that validators are using and it’s what they will receive as a function of block rewards.
Settlement token and validator
If you want to swap from BTC to USDT for example, you will have to move from BTC to ROWAN and then ROWAN to USDT ensuring that the ROWAN token is always utilized. Liquidity pools are equally weighted with ROWAN and everyone who swaps has to pay a fee so it makes sense to be a ROWAN holder. Also, because Sifchain’s pools are equally weighted, there is more of a direct connection between the total value lock (TVL) for external tokens and the price of ROWAN. Meaning that if they possess $10 million worth of external assets like BTC, ETH, USDT etc., there has to be at least $10 million worth of ROWAN in those same pools because they are equally weighted.
An arbitrager would definitely even them out if that wasn’t the case. So that gives the community a target to work for in terms of getting total value lock so that they can see the appropriate rise in ROWAN. Unlike a standard Ethereum project, Sifchain is run on its own sovereign chain which is validated and secured by ROWAN, therefore validators need to pool as much ROWAN as is on chain in order to secure the network, in addition to those ROWAN tokens that are being held in cold storage and on other exchanges. It ensures much more of a direct connection between the token’s usage and price.
Sifchain hopes to have a robust DAO using ROWAN to vote on changes to the protocol.
|✅ POSITIVE||⛔ WEAKNESS||📝 IMPROVEMENT|
|Rewards for ROWAN holders||N/A||N/A|
|Several token utilities||N/A||N/A|
Sifchain is led by CEO Jazear Brooks, a computer scientist (BS Computer Science and Economics from Yale) with a decade of leadership and engineering experience working within the technology and financial services industry. Some members have publicly disclosed their profile on the Sifchain LinkedIn, however, the rest of the team is primarily anonymous.
Development for Sifchain is consistent with the roadmap; however, the project is still in its early phase and the exchange is currently in development.
Sifchain is partnered with some of the sharpest minds in Blockchain including NGC Ventures, Alameda Research, Genblock Capital, Kosmos, Wings, Bitscale among others.
|✅ POSITIVE||⛔ WEAKNESS||📝 IMPROVEMENT|
|Experienced CEO||Team info partially public||Add more team member info|
|Strong partnerships and investors||N/A||N/A|
|Revenue generating business model||N/A||N/A|
Sifchain recently had their contract audited by Halborn Security (Halborn.com) who released two security audits of Sifchain’s Balancer Pool and Peggy Eth Smart Contracts. They can be found in the following links:
|✅ POSITIVE||⛔ WEAKNESS||📝 IMPROVEMENT|
|Several contract audits pre-launch||N/A||N/A|
The majority of Sifchain’s community involvement and engagement takes place on Telegram. There is an active community, with the head of marketing active in the chat daily. Sifchain also has an active discord channel and a weekly newsletter that can be accessed on Sifchain.finance.
Announcements are made through the above channels as well as on twitter. Links to their social media channels can be found on their website.
A Youtube channel is a great medium to share content, and we suggest that the team produce regular videos to take advantage of a wider audience.
The website is not multilingual, and we recommend the team implement this to improve their adoption among non-English speaking communities.
|✅ POSITIVE||⛔ WEAKNESS||📝 IMPROVEMENT|
|Growing community||Website not multilingual||Add more languages to website|
|Active engagement with community||N/A||N/A|
At the time of this review, the ROWAN token is not currently trading so we are unable to complete the Technical Analysis section.
In summary, the Sifchain project scores an impressive 59/80 giving them an impressive A- rating. We would like to revisit the review once the exchange is live and the ROWAN token has been trading actively post mainnet launch.
Sifchain is a DEX that has its own application specific Blockchain and tries to balance the incentives between the validators and all the different participants. It’s very different from the bare bones model of uniswap because of features such as dynamic fees being provided when swapping tokens and asymmetric liquidity.
The four main uses cases for Sifchain are as follows:
- The validator. This is Sifchain’s Blockchain layer.
- The liquidity providers of the different swaps in exchange.
- The traders who are trading token A to the native token.
- Peg token validators that are pegging to specific kinds of crypto assets that’s available.
For a further look behind the scenes, more details on the mathematical mechanisms and how sifchain is incentivizing different participants in the entire ecosystem, and more information on how the Rowan token works, check out their website Sifchain.finance.
- This is a sponsored review on behalf of the Sifchain project.
- This review is intended for educational purposes only and SHOULD NOT be considered by you as financial advice.
- Before investing in any project, we recommend you do your research + consult a registered financial adviser.
- All information listed is accurate at the time of publishing in February 2021.
- We used a combined rating score out of 80 for this review, covering all the listed metrics for project reviews.
- Each section is rated out of 20 and comprises of 4 metrics we analyse.
- Each metric is rated out of 4, including a potential bonus point in every metric.
- Our rating and grading framework is available here.