The XDC Network/XFin Network
— — — a fork of Quorum developed by JP Morgan
Abstract
XDC Network, or XFin Network, is built upon Quorum, a permissioned blockchain initially developed by J.P. Morgan. Quorum is a blockchain foundation service for enterprise customers. Enterprises could build their own Enterprise Blockchain Network on Quorum with a number of extensions provided by it. On August 2020, Morgan transferred Quorum blockchain to ConsenSys and became a ConsenSys shareholder.
XinFin’s network enables a P2P contract or transfer based on its payment infrastructure called TradeFinex. Different from traditional public blockchains, data in XFin network are classified into two categories, public state is shared by all nodes of network, private state is only accessible to the authorized group of nodes.
The payment infrastructure of XFin Network is called TradeFinex. It offers a bridge and incentives for trade participants like the owner of a project, the supplier and the financier seeking for improved investment opportunities. Participants sign the smart contract provided by TradeFinex platform. The execution of a contract is transparent and the payments could be settled almost instantaneously no matter cross boarder payments or domestic payments.
Historical Daily Prices (in USD)
2. What is XDC/XFin Network?
XDC network is a fork of Quorum. Quorum, a permissioned blockchain, was initially developed by J.P. Morgan. At that time, it was a blockchain platform for J.P. Morgan’s enterprise customers. Then, J.P. Morgan transferred it to ConsenSys and became a ConsenSys shareholder. the Quorum is open-sourcing, basically operated through one of the three original implementations of the Ethereum protocol called Go Ethereum. Taking into consideration that network development could be dedicated into Ethereum protocol, XDC chose Quorum as its base implementation.
The target of XDC network is to solve the problem that most of the blockchains have little interaction with the real world. It aims to boost efficiency of domestic and cross-border trade and payments, to speed the transaction up.
Token: The tokens XDC Network is powered by is XDC token, which is also the fuel for the smart contracts and transactions run on XDC Network.
TPS: XDC deployed a test that shows 2000 TPS at a stable stage with a capacity of 2500 TPS.
Consensus: XDC adopts the POS (Proof of Stake) consensus system.
3. XDC Network/XFin Network’s key features
3.1 XDC01 Protocol
The core protocol of XDC Network, XDC01 Protocol, helps XDC Network to maintain both a private and public state. All nodes of the network could share data of the public state, whereas, data of the private state are only accessible to the authorized group of nodes.
As the expectation of XDC Network is to boost the efficiency of domestic and cross-border trade and payments, XDC01 Protocol also functions as a messaging and confirmation layer. XDC01 allows a smart contract manager to maintain the information share between the trade participants and monitor execution of contract. However, the payment and settlement are on the layer of XDC token.
3.2 Consensus
Actually, the network runs on a DPOS (Delegated Proof of Stake) verifying mechanism between the selected master nodes. Master nodes, or DPOS delegates are elected to verify the transaction based on they and their supporters’ staked XDC tokens, and thus earning staking rewards and having voting power of community.
3.3 A Hybrid Architecture
As it is mentioned above, XDC network is built upon a consortium blockchain which is designed to afford Enterprise customers blockchain services. Thus the blockchain architecture of XDC network is different from conventional private or public chains. It owns a hybrid architecture. This kind of hybrid architecture divides data of platform into two categories, the public state and the private state. It can be imagined that the private state is in its own respective network. Some sensitive data could only be shared by the group of nodes within this network in order to keep data safe. However, transactions and smart contracts are still stored on the public state. In other words, the public state is used to share the public information like account addresses, while the private state is used to protect the sensitive data.
4. TradeFinex
TradeFinex is the basic business application on XDC Network, which aims to facilitate global trade and finance.
Traditionally, three participants are engaged into a trade, buyer, seller and financier. Buyer is someone who wants to start up a project which imports or exports goods or services. Supplier is someone who provides goods or services to buyer. Financier is some who wishes to invest in buyer’s project and receive interests or returns. The WTO states that some 80 to 90 per cent of world trade relies on trade finance (trade credit and insurance/guarantees) today, mostly of a short-term nature. Thus, trade finance plays a very vital role in the process of global trade today.
Demands of participants engaged in trade are different. For buyers, they hope for fund with a lower cost of capital. For sellers, they are more concerned with the credit of buyers and hope that payments for their products or services could be guaranteed. For financiers, they often lack access to high-quality investment projects and wish to track the development of projects in real time.
TradeFinex tries to meet the demands of different participants engaged in trade through some its unique instruments such as smart contracts, XDC tokens, IoT integration, global fund pool and the hedge pool against the forex volatility.
Buyers can post their borrowing queries on Tradefinex. org. Normally, when buyers are searching for available financing opportunities, they can not break the territory restrictions. However, a pool of global funds on Tradefinex allows buyers to finance with a much lower cost of capital from other regions.
Afterwards, financiers could review these queries and select available investment opportunities globally .Once a financier agrees to accept the query of a buyer, they enter into a smart contract on XDC blockchain. Digital wallets of both sides will also be integrated into this smart contract. Millstone payments of financier to buyer and any repayment could be observed and finished by the smart contract automatically via the transfer between two parties’ digital wallets. The hedge pool on Tradefinex also could help financiers to avoid the risk of forex fluctuation as long as they wish to use the XDC tokens for payment and repayment.
For buyers and sellers, firstly, buyers post trade queries on Tradefinex.org. Then, suppliers review these queries and select high-credit ones from them. If both sides agree on the trade, they enter into a smart contract on XDC blockchain. In this kind of smart contract, buyers should firstly deposit into an escrow smart contract. Contractual milestones will be submitted into the smart contract instantaneously once completed. Smart contract will automatically transfer deposits of buyers into the wallet of suppliers according to the progress of contract completion.
Additionally, an incentive mechanism also exists on XDC network for every participant. For buyers, any buyer will be awarded for entering into a smart contract with financier or supplier. For financiers, any financier with a competitive rate or easier borrowing terms will be awarded with XDC tokens. For suppliers, they have their ratings based on the feedback of their customers. They will also be incentivized for entering in to a smart contract.
5. Economics
XDC Tokens Total supply: 37.7 billion
Circulating supply of XDC Tokens: 12.31 billion
XDC Tokens Allocation:
Founders and core team: 40% of XDC tokens will be used as wages and rewards for founders and core team. The releasing speed of these XDC Tokens is 3% every year in order to avoid a crash on the price of XDC Tokens.
Ecosystem development: 26.67% of XDC tokens will be allocated into the ecosystem development pool or be used as rewards for the masternodes and trade participants. Ecosystem pool is set for paying the companies which contribute to the infrastructure development of XDC network. Besides, 83.9 million XDC tokens are set aside for incentivizing masternodes. Masternodes are normally high-staked holders or authorized institutions which play a vital role on network consensus. At last, participants engaged into trades, including buyers, sellers and financiers will also be incentivized from this part of tokens. The releasing speed of tokens allocated to ecosystem development is 2.5% per year.
Contingency: 6.66% of tokens are allocated into the contingency pool in case of any unexpected emergency. The contingency pool will not be unlocked unless some unexpected circumstances happened.
Pre-Placement: 26.67% of tokens are reserved mainly for any private funding. In 2017, XinFin network finished a sale of 3% of the XDC tokens to private investors. In 2018, XinFin network finished another private sale. Any follow-up token offering will be released from the pre-placement pool.
6. Network Status
Totally, in terms of network activity, there is still a huge gap between XDC and Solana, even Polygon. Total transactions on XDC Network is around 280 million, which is only a fraction amount of Solana’s total transactions(75.5B), and also around 1400m less than Polygon’s. As for TPS, the real time TPS on XDC Network when writing this article is 2 with a capacity of 2000.
As it is mentioned above, XDC Network aims to facilitate global trade. Thus, even though XDC Network can be taken as a public chain, it tends more to seek for business development opportunities in the real world, such as supply chain cooperation, export financing and so on. Comparatively, the most hot applications on Solana are largely NFTs, DEFIs, and something like these, whose trading frequency is very high as they only happen within the blockchain world. I think that this differentiation can explain the low activity of XDC network partially.
However, the number of signed contracts on XDC Network till now are only 8.54K. According to the report of UN, global trade happened in 2021 hit a record of 23.5 trillion dollars，which is an incredibly enormous market. Although it has been only one year since the formal launch of XDC Network, XDC Foundation still needs to pay more effort to develop enterprise level customers in order to level up the reputation and value of their program.
7. Major Business Development
D.C. United: On February 26th 2022, D.C. United, a professional football club of Major League Soccer, announced a three-year agreement with XDC Network. XDC Network is qualified for the sponsor of D.C. United soccer jersey on the upcoming 2022 season. Besides, D. C. United will offer their team tokens and NFTS through the platform of XDC Network. The fans of D.C United can also exchange the digital merch of team on XDC Network freely.
Trade Finance Distribution(TFD) Initiative: The TFD Initiative was established by the International Trade and Forfaiting Association(ITFA). TFD Initiative aims to boost accessibility and transparency of trade through technology innovation and recognizes that blockchain technology will play a very vital role in shaping the future trade finance. TFD Initiative states that the utilize of smart contracts will contribute a lot to increase the liquidity of trade as it is free of human intervention. In 2021, XDC Network was selected to join the TFD Initiative alongside with some renowned institutions such as Santander Asset Management, Commonwealth Bank of Australia, and Texel Group.
Ledger Mail: Ledger Mail announces that it is world’s first decentralized email solution based on blockchain technology. Ledger Mail owns 738,250 users now。LedgerMail operates on the blockchain of Xfin Network.
Maharashtra (3rd largest state of India):XinFin Network presents blockchain proof for land registry to Maharashtra Government, India.
8. Merits and Drawbacks
Global trade always faces problems of information asymmetry and lack of accessibility.
Usually, when some buyers want to import some productions from foreign countries or areas, such like shoes, vehicles, wines or teas, it often happens that buyers have a lack of information on production quality and supplier credit. Certainly, buyers sometimes can evaluate their suppliers according to the reputation of “group” which their suppliers are classified into.For instance, people usually have a strong confidence on the manufactures of Italian shoes, German cars, French wine and Chinese Tea. However，things do not always go well likes this. Information asymmetry asks for a standardized evaluation system built for every participant engaged in global trade.
Taking another example, commercial banks in China tend to avoid financing the international trade of small and medium companies as China banks are under a relatively high regulation pressure concerning the prestigiousness of borrowers. As a result, regardless of the financial condition or cashflows, some small and medium-sized companies in China always struggle for funding their high-quality projects. Although a lot of institutions aboard wish to finance them, these companies almost have no access to such kind of fund due to the extremely strict foreign exchange control in China Mainland. This is a proof of accessibility lack in global trade.
We argue that blockchain technology is almost a perfect tool for improving the global trade in the future. Immutable distributed ledger technology and smart contract executed automatically can almost solve the issues brought by opacity and deception completely. As it is mentioned above, XDC Network builds up a rating system for buyer, seller and financier in terms of lending rate, feedback of customers, credit scores and so on. We suppose that effects of information asymmetry could be alleviated to a large extent through such a system. Additionally, as it has been discussed above, gaps existed in the real world between buyers and sellers or buyers and financiers are closed on XDC network. Buyers post their trade queries or borrowing queries on Tradefinex.org and then sellers or financiers from every corner of the world can review these queries almost instantaneously. Smart contracts could be signed once participants both accept the proposal and then executed automatically through settlement of XDC tokens. Entry-exit administration, cultural gaps, transportation, foreign exchange control, everything limiting accessibility of global trade in the real world can be ignored on XDC Network.
As global trade affords such an enormous market and numerous opportunities, it is reasonable to believe that the development strategy of XDC Network is brilliant and has a big potential which differentiates it from other public chains very much. It is glad to see that even the ITFA, has selected XDC Network to attend the TFD initiative of it, along with ING Bank, SMBC and ANZ. It stands for a recognition of ITFA that XDC Network will play a vital role on the infrastructure building of future trade finance.
Despite the advantages of XDC Network, we can’t ignore some non-conformity of this program.
Low decentralization: Look at the distribution of XDC tokens. 40% of tokens are allocated to founders and core team, 26.67% of tokens are reserved for private offering. Only a small portion of tokens are allocated to masternodes and ordinary investors. Considering that masternodes are mainly high-staked individuals or authorized institutions, the discourse power of ordinary investors in the community may be very low. Thus, it seems that XDC network is more like a consortium chain than a public chain. It is reasonable to doubt that the decentralization degree of XDC Network is not enough, which may lead to some decisions against the benefits of ordinary investors.
Low network activity: XDC Network is originally a permissioned chain of JP Morgan. Thus it is reasonable that XDC Network succeeded to some enterprise customers from JP Morgan. Whereas, smart contracts on XDC network are still less than 10,000, which is a very small number comparing to the volume of daily trade happened globally. It seems that the business development of XDC Network is not as smooth as it should be.
Legal and Regulatory: Though XDC Network boosts the transparency and accessibility of global trade, trade processed on it sometimes may get involved into some regulation trouble or legal issues. For example, though buyers and sellers from different countries agreed on the proposal and signed the contract on XDC network, products may still fail customs clearance as without the permission of authority in advance before signing the contract. Besides, settlement of trade online by XDC tokens may cause the investigation of organizations like Internal Revenue Service.
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