What is DeFiChain?

Decentralized finance (DeFi) has been making waves in the world of finance, and the DeFiChain is at the forefront of this movement. As the largest DeFi blockchain within the Bitcoin ecosystem, with over $200 million in total value locked (TVL), DeFiChain is committed to providing fast, secure, and transparent decentralized financial services to users worldwide. In this extensive blog post, we'll explore the world of DeFiChain, its unique features, and how it is revolutionizing the DeFi landscape.

TABLE OF CONTENT

1. A Brief History of DeFiChain
2. Understanding Decentralized Finance (DeFi)
3. DeFiChain's Security Mechanism
4. Bitcoin Anchoring
5. Proof-of-Stake Consensus Mechanism
6. DeFiChain's Unique Tokenomics
7. DeFiChain: A Specialized Platform for DeFi Applications
8. The DeFiChain community

A Brief History of DeFiChain

DeFiChain's foundation lies in the belief that people should control their finances, and existing systems fall short of offering genuinely user-driven financial services. The platform's ultimate objective is to grant individuals, and eventually machines and devices, seamless access to decentralized financial services by fully integrating DeFi capabilities into the Bitcoin ecosystem.

As such, DeFiChain is an innovative decentralized blockchain platform striving to provide swift, intelligent, and transparent decentralized financial services. The platform aims to introduce comprehensive DeFi capabilities to the Bitcoin ecosystem, empowering individuals to have full control over their finances.

In 2019, the DeFiChain team pinpointed the following key challenges to bringing DeFi to the mainstream:

1. General-purpose platforms like Ethereum necessitate extensive coding for financial services, increasing the risk of hackability or code bugs.
2. Scaling issues plague many platforms, as increased dApp usage impacts gas prices for all transactions.
3. Current blockchain governance models exhibit signs of politicization, centralization, and uncertainty.
4. DeFi's concentration on a few platforms limits its reach in the broader crypto market.

To address these challenges, the team proposed the following solutions:

1. Develop a blockchain dedicated to DeFi use cases.
2. Build on top of Bitcoin and anchor to the Bitcoin blockchain for optimal security.
3. Support all major crypto assets.
4. Employ a hybrid PoS and PoW consensus mechanism.
5. Implement an on-chain governance system.

By overcoming these obstacles, DeFiChain strives to revolutionize the DeFi landscape and make decentralized finance more accessible, secure, and efficient for users worldwide.

To understand what DeFiChain actually is, let's take a look at what makes it so unique. But firstly, we need to understand what DeFi is and how it works.

Understanding Decentralized Finance (DeFi)

To better understand the significance of DeFiChain, let's first explore the concept of decentralized finance (DeFi). As the name implies, DeFi is a term used to describe a variety of financial applications in the cryptocurrency or blockchain space geared toward disrupting financial intermediaries.

The technology behind DeFi is inspired by blockchain – the technology behind bitcoin – which allows multiple parties to maintain a copy of a history of transactions, preventing a centralized authority from controlling it. This is important because centralized systems and human gatekeepers can impede the speed and sophistication of transactions while offering users less direct control over their finances. A key distinguishing feature of DeFi is that it extends the use of blockchain beyond simple value transfers to more complex financial transactions.

In order words, the idea of DeFi is simply to put the traditional financial system – such as banks or any other financial intermediary – on the blockchain. Here are two classic examples:

• By using the blockchain, you can get a loan from your home instead of going to a bank.
• Users can conduct trades online by taking advantage of decentralized exchanges without the involvement of a third party. Until the introduction of DeFi, only those who held and sold cryptocurrencies at the right time could make profits. With the advent of more sophisticated DeFi applications, this will change, opening up a wealth of new earning opportunities for everyone.

DeFiChain's Security Mechanism

Since DeFiChain itself is a hard fork of Bitcoin, much of its programming code is similar to Bitcoin's. Both Bitcoin and DeFiChain are non-Turing complete blockchains. Although this term may seem complicated at first, it is fairly easy to understand. In general, there are Turing complete and non-Turing complete blockchains.

Turing complete blockchains allow you to program almost anything you want on the blockchain. Ethereum is probably the most well-known Turing complete blockchain at the moment. It may be desirable for Turing-complete blockchains to be open and flexible, but they are prone to errors and malicious attacks, making them less effective. We have seen this occur more than once before, when Ethereum based applications have been hacked and millions of dollars have been stolen.

On the other hand, non-Turing complete blockchains, such as DeFiChain, provide fewer programming possibilities, but they also provide a smaller attack surface. This prevents arbitrary code from running on non-Turing complete blockchains. As a result, only “predefined” code can be executed. DeFiChain, however, does not consider this a drawback, but rather an important design feature, because financial products require a high level of security that can only be achieved by a non-Turing complete architecture.

Bitcoin Anchoring

DeFiChain is not only a hard fork of bitcoin with a non-Turing complete function set, but it is also periodically anchoring on the bitcoin blockchain. Every few blocks, a specific data set from the DeFiChain blockchain is stored on the bitcoin blockchain. In this regard, it is important to note that:

• In the event of a 51 percent attack, which means that someone holds more than 50 percent of the coins, the blockchain can only be reverted to the point at which the last anchoring occurred.
• In addition, this also implies that a 50 percent attack is fairly unattractive from an economic standpoint, meaning that the DeFiChain is relatively secure despite its young age.

Proof-of-Stake Consensus Mechanism

Due to its slow transaction speed and high transaction costs, Bitcoin's scalability is quite limited. Thus, DeFiChain chose the proof-of-stake consensus mechanism over Bitcoin's proof-of-work. In principle, proof-of-stake entails that transactions are verified not by hash power but by the number of people holding the coins - the stakers.

Three benefits result from this:

• As a first advantage, transactions on DeFiChain are significantly cheaper and execute much faster than on the bitcoin blockchain.
• Second, proof-of-stake makes it much easier to decentralize a new project. As opposed to the complex distribution of computing power in the case of proof-of-work blockchains, the distribution of coins, is a fairly easy and fast process.
• The third advantage of proof-of-stake is staking. The idea behind staking is not to buy expensive mining equipment, but to use coins – in this case DFI – to verify transactions and to protect the network. In exchange for this service, stakers receive rewards from the blockchain, which are currently around 40 percent.

DeFiChain's Unique Tokenomics

Like Bitcoin, DeFiChain has a maximum supply of coins. The maximum number of Bitcoins that will be ever in circulation is 21 million, while the number of DeFiChain coins is 1.2 billion. Around half of those coins have already been distributed, and the rest should follow around five to seven years. Essentially, this means that there is currently a high inflation, but on the other hand, it also means that staking is extremely profitable right now. More stats of DeFiChain can be found here.

DeFiChain's native token, DFI, plays a central role in the platform's ecosystem. It serves as a utility token that facilitates transactions, powers applications, and incentivizes users to contribute to the network. Here's a closer look at some of the unique aspects of DFI's tokenomics:

1. No Public Sale, ICO, or IEO: Unlike many other projects, DeFiChain did not conduct a public sale, initial coin offering (ICO), or initial exchange offering (IEO). This decision was made to ensure a more decentralized distribution of tokens and to avoid regulatory complications.
2. Incentives and Rewards: DFI tokens are used to reward users for participating in various activities within the DeFiChain ecosystem, such as liquidity mining, staking, and contributing to the platform's governance. This incentive structure encourages users to engage with the platform actively and fosters a vibrant and collaborative community.
3. Utility and Value: DFI tokens serve as the primary means of exchange within the DeFiChain ecosystem, powering transactions and facilitating the use of various applications. As the platform grows and attracts more users, the demand for DFI tokens may increase, leading to potential appreciation in value.

DeFiChain: A Specialized Platform for DeFi Applications

DeFiChain was purposefully built for decentralized finance (DeFi) applications, distinguishing itself from blockchains like Ethereum, which support programming of games and distribution of NFTs. By design, DeFiChain's functionality set is intentionally limited.

The adage "a jack of all trades is a master of none" emphasizes DeFiChain's strategic decision to concentrate solely on DeFi applications, rather than attempting to be a versatile platform. Let's examine the DeFi applications currently supported by DeFiChain and how they contribute to the platform's overall vision.

• Decentralized assets: Users may take out dToken loans in the form of dTokens (e.g. dTSLA, dGOOGL or dCOIN) by creating vaults and depositing crypto as collateral with a minimum collateralization ratio of at least 150% (at least 50% has to be in DeFiChain's native coin DFI or DeFiChain's stablecoin DUSD).
  
• Tokenization of assets: This is undoubtedly one of its most interesting features. Initially launched in 2021, it expanded in 2022 with futures and will continue to grow with options and other advanced financial instruments. It has been made possible through so-called dTokens, tokenized versions of actual assets (e.g. dTSLA, dGOOGL, dCOIN), which currently can be bought and minted on the DeFiChain blockchain.
  
• Wrapped tokens: For DeFiChain tokens to be interoperable with various other networks (such as the ERC-20 network), they must be 'wrapped', which allows them to be transferred to non-native DeFiChain networks while still remaining closely tied to their native version's price.
  
• Decentralized oracles: One of the main issues with pricing assets in decentralized systems is precisely dictated by the lack of centralized entities determining their value. A decentralized oracle can help solve this problem by bringing real-life data onto the blockchain. A smart contract, which consists of software code that executes itself, uses this information to perform various functions.
  
• The DEX (Decentralized Exchange): The DEX is the place where users can exchange DFI for other coins and dTokens. As there is no order book architecture on decentralized exchanges, liquidity pools on blockchains are needed to facilitate trades.
  
• Liquidity mining: Closely related to the liquidity pool concept is liquidity mining (LM). Liquidity mining is the process in which crypto holders lend assets to a decentralized exchange in return for rewards. These rewards commonly stem from trading fees that are accrued from traders swapping tokens and from rewards, distributed directly from the blockchain.

The following functions will be available in the future:

• Decentralized lending
• Transferable debts and receivables
• Decentralized non collateralized debt, based on reputation and other factors
• Distribution of dividend

The Role of DeFiChain Improvement Proposals (DFIPs) and Community Funding Proposals (CFPs)

DeFiChain's governance system encourages community involvement and empowers users to shape the platform's future. DeFiChain Improvement Proposals (DFIPs) and Community Funding Proposals (CFPs) are two essential components of this process.

1. DeFiChain Improvement Proposals (DFIPs): These are proposals aimed at modifying a fundamental aspect of the blockchain or its underlying mechanism. Anyone can submit a DFIP by paying a fee of 50 DFI.
2. Community Funding Proposals (CFPs): These are proposals designed to finance a specific project that benefits both the community and the entire DeFiChain ecosystem. Individuals can submit a CFP by paying a fee of 10 DFI.

During monthly voting rounds, masternode holders evaluate each proposal and decide whether to approve or reject it. It is essential for submissions to adhere to strict deadlines; however, in exceptional cases, the core team may initiate an emergency vote. This governance structure ensures that the DeFiChain ecosystem evolves and adapts to the needs of its users, fostering a dynamic and responsive environment.

The DeFiChain community

The DeFiChain Community is very active and constructive, primarily on the subreddit /r/defichainblockchain. Users in this subreddit discuss critical issues, propose improvements, or simply initiate leisure discussions.

These discussions often result in improvement proposals (DFIPs or DeFiChain Improvement Proposals) or requests for community funding (CFPs or Community Fund Proposals).

The community is also very active on the following channels:

Twitter

YouTube

Telegram

Facebook

Discord

GitHub