Cryptocurrency is often condemned due to its extreme volatility. The green candles of the chart turn into red very quickly. Volatility can be a trading opportunity but using cryptocurrency as a medium of payment is often problematic due to this reason. Stablecoins solve this problem. Maximum stablecoin transactions happen on Ethereum as Ethereum has become the preferred value settlement blockchain nowadays but the arbitrary gas fee of Ethereum is a big problem. To do a transaction of 10 USDT, you may have to pay a $20 gas fee. There are many blockchains with nominal transaction fee but they are not interoperable with Ethereum. It is really important to be part of the Ethereum ecosystem now considering the exponential growth of DeFi. Many sidechain solutions of Ethereum are coming up nowadays to solve many issues of Ethereum. xDai, created by POA Network R&D, is one of them.
A stable payment blockchain with dual token model
xDai is a stable payment blockchain. It aims to provide inexpensive, fast and stable transactions. The blockchain has a dual token model – xDai & STAKE. xDai is the native stablecoin of the blockchain and it allows users to predict fees and conduct transactions. xDAI is obtained by locking DAI from Ethereum mainnet. During this operation, you need to lock the desired quantity of Dai in the bridge contract and the corresponding amount of xDai is minted on the xDai chain. If you want to convert xDai back to Dai, the xDai is burnt; Dai is unlocked in the contract and returned to your mainnet address. The best part is that you can facilitate these transactions using the same Ethereum address. DAI is a crypto-collateral based stablecoin and its value is pegged to $1. As xDai is backed by DAI, 1 xDai value remains stable at $1. This is ideal for doing payments. As xDai is the native cryptocurrency of the blockchain, the transaction fees are paid in xDai too. STAKE is another token of the blockchain and it is not a transaction-based token. STAKE is a volatile token and its price is determined by supply-demand economics. STAKE creates incentives for the validators and their delegators to continue staking. The governance of the blockchain is determined by voting through STAKE.
Image Source - Dual token model
The Ethereum bridge
xDai is fully compatible with Ethereum. Two bridges connect xDai chain and Ethereum for seamless token transfer. Any Ethereum token can be transferred to XDai chain. The DAI-xDai bridge is for the transactional token. The OmniBridge is for any other cross-chain assets. You can find the default token list here. A NFT bridge is currently in active development by the team.
OmniBridge web app
xDai chain uses a delegated Proof of Stake (DPOS) consensus mechanism called POSDAO. The validators on the blockchain produce randomized numbers to select the validators. The randomness is truly on-chain. The selected validators use STAKE tokens to secure the network. XDai chain was earlier functioning with permissioned POSDAO-based consensus but it moved to a public POSDAO in December’20. With public POSDAO, any user who holds the STAKE governance token on the xDai chain can apply to become a validator. The community members with a low amount of STAKE tokens can become delegators and participate in the consensus process.
xDAI is really connected to Ethereum well. Sending money over xDAI is damn easy. DeFi activities can happen smoothly on the blockchain due to low fee. Block time of xDai chain is 5 seconds and the cost of doing 500 transactions is $0.01. Honeyswap, a Uniswap fork running on xDai chain, has already attained decent popularity nowadays. Another NFT related project Proof of Attendance Protocol (POAP) is using xDai chain to keep NFT minting and transaction costs low before bringing them to the main Etheruem chain. Perpetual Protocol, a DeFi project offering decentralized perpetual contracts using xDai, became a top-ranked DEX by weekly trade volume within one month of launch. The total trade volume of Perpetual Protocol recently crossed $1B in 7 weeks of launch. XDai looks promising and it supports the Ethereum ecosystem by providing an option for cheap and stable transactions while improving interoperability and cross-chain interaction. Yes, it looks a bit less decentralized but any application or token existing on Ethereum fits on it immediately.
Note: This post was first published here for Cryptowriter in association with voice.com.