24Oct 2023

Chainflip Mainnet and Token Launch

by Matthew Harcourt

We are excited to cover an Apollo Crypto portfolio project, Chainflip, in today’s blog post. While we covered Chainflip in a 2021 research report, with Chainflip only weeks away from launch after years of intense development we thought it was timely to provide an update.


What is Chainflip?

Chainflip is a fully decentralised general cross-chain swapping protocol that enables users to swap between native blockchain assets like Bitcoin (BTC), Ethereum (ETH) and other Layer 1 assets. Chainflip utilises a permissionless network of 150 validators to reach network consensus for these swaps, this is referred to as the state chain. A feature unique to Chainflip is their ‘Just in Time’ (JIT) Automated Market Maker (AMM), which acts as the underlying liquidity source for the swaps on the network.


State Chain Overview

The State Chain is based on the Substrate blockchain framework built by Parity, but remains an independent chain from the Polkadot relay network. The State Chain is application-specific to Chainflip and serves as the core database for all activity occurring in the Chainflip protocol. All protocol events are recorded, executed, or triggered by the State Chain. The execution rules and parameters of the State Chain can be automated and optimised for the core Chainflip protocol, resulting in greater scalability and security. 


Just In Time Automated Market Maker

Chainflip’s AMM design differs substantially from industry standards due to limitations introduced by the nature of cross-chain transfers. The Chainflip AMM protocol has several distinguishing features which radically alter the optimal liquidity provider strategy and offer significant capital efficiency and pricing accuracy advantages for users. 

The core concept that drives the JIT AMM design is to flip frontrunning on its head. Instead of users being front-run by MEV-seeking bots, the protocol naturally incentivises liquidity providers to front-run each other to the benefit of the user. The JIT AMM will utilise a network of sophisticated market makers to operate while also allowing more passive liquidity provision from common users. 

While there are trade-offs in fundamentally relying on sophisticated market makers at all times, JIT AMM has the potential to provide some of the best pricing within cross-chain DeFi and DeFi more broadly. JIT AMM will be most beneficial for highly liquid assets like BTC and ETH, especially in the short-medium term.   


$FLIP Utility & Value Accrual

$FLIP is issued as an ERC-20 token on Ethereum. $FLIP will be staked by validators in order to secure the network through mechanisms similar to Ethereum mainnet’s ‘Proof of Stake’. This has a supply side effect on $FLIP as a large percentage of the network tokens will be locked and unsellable on the open market. $FLIP will also be ‘bought and burned’ as the network accumulates revenues and fees, creating a positive demand effect on the token, resulting in price increases if all else is equal.


THORChain is another general cross-chains swaps protocol and is the closest competitor to Chainflip. THORChain’s native token, $RUNE, currently trades at a fully diluted valuation of US$1.1 billion, showing clear demand for Chainflip-like protocols within DeFi.


Chainflip is a protocol that is set to provide immense utility to the crypto asset market through decentralised general cross chain swapping. With the help of a vast network of well known backers, Chainflip has built a novel protocol over the past 3 years. With the protocol and token only weeks away from launching, we are excited for the core team at Chainflip to realise what they have worked hard to achieve. 

Matthew Harcourt

Matthew has been actively investing in the crypto markets for 7 years and holds a Bachelor of Business from Monash University, majoring in Accounting. Matthew focuses on portfolio construction through thorough research and analysis of crypto protocols as well as execution of investments and strategies. Matthew’s passion lies in supporting portfolio companies through advisory on tokenomics and strategy, adding significant value to Apollo’s early-stage investments.