Introduction

The DeFi space is booming, yet there’s a significant number of financial geniuses of traditional systems locked out of the space. The primary reason is the lack of technical skills required to create their own financial tools on blockchain and operate them. This is where Dfinance comes in.

Dfinance is an entirely decentralized layer-2 network bringing the infrastructure required to build innovative financial instruments and DeFi tools with no prior technical skills. A new project by Wings Stiftung Foundation, developer of the WINGS DAO protocol, it intends to enrich the way a DeFi ecosystem functions.

Team

The four co-founders of the Dfinance team are members of the WINGS Stiftung Foundation who worked on the Wings DAO project.

• Boris Povod –  Serving as the R&D Lead for Dfinance and WINGS Stiftung, Boris is also the blockchain developer of Wings.ai, tech advisor to Cartesi and ECONOMIX, and lead developer of Crypti.

• Sebastian Stupurac – Apart from being the core member of the Project and Product department, Sebastian is also the CEO of Forkway and Strategy Advisor to AdEx lab. In the past, he’s been Chainlab CEO and INS Ecosystem Strategy Advisor.

• Stanislav Oskin – The Core and Business Developer for WINGS Stiftung serves as Business Developer for Dfinance. He worked as CTO for eyecam, NeoCam, NeoVSP, and BeeCom.

• Arman Manukyan – A project adviser, analyst, and Wings investor, Arman was an Angel Investor, Founder, and CMO of Crypti (Lisk.io). At present, he’s also an investor and advisor to ECONOMIX.

The Dfinance Network Tokens

The Dfinance network plans to operate with two different tokens or coins – the primary crypto coin and a native token for the network’s internal management.

DFI – The Utility Token

DFI serves as the network’s utility token taking on several important roles –

• Gas fee – Every transaction processing requires a gas fee in DFI token from the sender. Validators determine the fee amount with a minimum of 1 DFI.
• Staking/Delegating – Users delegate and stake their DFI coins 
• Governance token – Holding DFI tokens grant rights for voting on updates, improvements, etc.
• Liquidity – Grants loans and brings liquidity in the network.

Dfinance’s latest testnet iteration supports BTC, ETH, and USDT coins.

XFI – The Coin Ticker

The primary token of Dfinance, XFI, is primarily an ERC-20 type coin to help Uniswap pool creation in the future. Awaiting the mainnet launch, XFI is not currently available in any exchange. It plays the following roles in the network – 

• Securing it
• As primary fuel 
• For transactions settlement

For now, only WINGS token holders can obtain the coin through an irreversible swap within a set time duration. The XFI-WINGS conversion ratio commenced with 1:1 and will be offered with a decreasing rate of 1/182 every day. While any ERC20 wallet will support direct swapping, the swap portal will allow only the MetaMask wallet.

Note that the US token holders are barred from participating in the swap due to regulatory ambiguity.

Dfinance Under the Hood

Consensus Algorithm

• Dfinance employs the Tendermint Proof-of-Stake (PoS) as the consensus protocol of the Cosmos network and thus is built with Cosmos SDK. 
• Tendermint’s Byzantine fault tolerance (BFT) feature allows Dfinance to work effectively, even if some nodes fail in its network.
• Tendermint is also used for security and peer-to-peer communications. 

Working Principle

The blockchain nodes are responsible for performing all the core functions including reaching consensus, securing chains with PoS, transaction processing, and making p2p connections. 

The protocol selects the top 101 validators as active validators out of all the nodes depending on stake size, i.e., the amount of staked DFI bonds as collateral. These validators generate blocks for a network fee (and rewards) paid by participants. Every active validator pre-votes each newly proposed block and further proposes to block himself on his next turn. 

The Staking and Slashing Mechanism

The PoS also lets users delegate their stakes (DFI) to preferred validators. The delegated DFIs are locked in smart contracts. Depending on their stake size, these participants get part of the validator’s fees as rewards.

The protocol also enforces slashing or punishments to deter undesired validator operations. The testnet 0.6 iteration exercises the following slashing – 

• For missing blocks – A 1% stake slash. Also, the validator can’t partake in the consensus till he sends a manual release request.
• For double signing – A 5% stake slash.

Smart Contracts

Developed by Facebook’s Libra blockchain, the Move Virtual Machine powers Dfinance smart contracts, and thus Move language is used to write them. This creates a powerful and secure code execution environment on decentralized nodes.

PegZone

Dfinance brings interoperability among multiple layer-1 blockchains using PegZone protocol. This promotes value transfer of the deposited coins, just like DFI. Though it currently only supports Ethereum blockchain and thus ETH or any other ERC20 tokens, the future upgrade will bring support for EOS, Bitcoin, etc.

This value transfer attracts a minimum fee of 1% transaction value. Note that this applies only when coins are deposited to Dfinance and not during withdrawal.

Other Important Features

• The network plans to incorporate a built-in inflation method to incentivize network participants like validators.
• Decentralized oracles join the Dfianance platform with real-world financial instruments and various data sources.
• Powerful high-level visual language empowers a safe way to design, publish, and run users’ own financial instruments without prior knowledge of programming.
• Dfinance offers integrated DEX service through which you can offer your financial tools for usage and access other products. You also have the option to create your own DEX.
• Dfinance’s web wallet brings additional product functionality and coin/token management.

Partnership

To promote composability, Dfinance has partnered with Elrond Network – a high-performance public smart contract platform. 

The two integrated platforms form a two-way gateway allowing both users to use each others’ service. While Dfinance users can build new types of products such as Elrond assets-collateralized products (stablecoin), it also brings access to existing instruments to Elrond users to create their own DeFi instruments. This will allow Dfinance to provide everyone full access to DeFi’s potential, thus directly competing with centralized finance.

Conclusion

With its mainnet launch due till the end of 2020, Dfinance is still in its nascent stage. However, it has shown high potential and is well-equipped to change how the DeFi ecosystem is perceived.