DAFI Protocol is a blockchain startup that aims to reinvent rewards programs in every decentralized network. With its synthetics dTokens pegged to network growth, DAFI incentivized long-term usage while enhancing scarcity when demand is low.
Some of the most prominent figures in the cryptocurrency industry refer to DAFI as the Chain Link of staking rewards. So, we sat down with CEO Zain Rana to understand everything about DAFI.
Hi Zain, welcome to our series "Behind the Startup". Would you please tell us about yourself and the story behind the DAFI Protocol?
Zain Rana: Hello, I'm a founder at DAFI Protocol, an intelligent and gamified Staking 2.0 protocol for limitless applications.
Almost every network and decentralized economy can integrate our dTokens to create a better rewards program without the high inflation and native token release. These smart synthetics offer better yield in staking and liquidity programs as well as social and gaming applications. Essentially, DAFI allows blockchain projects to increase liquidity and network growth whilst offering maximized rewards to boost long-term commitment.
The DAFI team comes from mixed backgrounds of academia, traditional finance, and several well-established projects. My personal background was previously as a technical keynote speaker at some of the largest Blockchain events worldwide. I also proudly presented Bitcoin and the underlying technology to institutions and leading universities in England since 2018. I personally fell in love with exploring some of the most significant flaws in decentralized protocols. With the market chaos in 2018, it became clear that the method in which every network rewards its users (PoS, nodes, liquidity) doesn't work. The incentive structure is not tied to network demand and adoption, breeding an environment for short-term participants, and not hodlers.
Can you please explain the concept of Super Staking and how does Super Staking work technically?
Zain Rana: Super Staking offers better rewards to long-term users, without a high inflation rate. It is an evolved staking system that is baked with several game-theory mechanisms. These include the ability for dTokens to multiply when market demand rises, additional rewards based on commitment, and APY boosts when other networks adopt their own dTokens. In theory, Super Staking is Staking 2.0.
The key difference between Super Staking and primitive staking, is that by replacing native token rewards with dTokens rewards, we can achieve the desired inflation rates relative to the level of market demand. Super Staking uses oracles that feed data for dTokens to be pegged to. Such mechanisms make our smart synthetics adaptive to stress and changes in the market, and aligns users into a joint-consensus for protocol success.
Super Staking V2 is launching in October, and it will be made available to other projects to adopt soon after.
We want to enforce the idea that “for every token there’s a dToken.” Such a mission will be accelerated when every protocol can easily launch a Super Staking pool. We would become like Uniswap, but for smart and dynamic staking.
How does a dToken work with other blockchain networks specifically, how does it reduce inflation and why are other blockchain networks adopting it?
Zain Rana: It's simple, if you love your users, give them dTokens instead of native tokens. The model of distributing unsustainable token rewards clearly doesn't work in the long-run. Everything decentralized is reliant on incentives; nothing could exist without this inflation.
So the big question is, how does a protocol reward participants without damaging the network? In other words, how does an application acquire users, liquidity, and TVL whilst offering better yield to the users that genuinely care?
Rewarding users through network demand is the key. When the market is fragile, rewards are more scarce, but as a protocol or application grows in demand, so do the dToken incentives that token holders receive.
This has widespread applications to potentially reinvent everything from staking, liquidity, social rewards, and gaming, to name a few.
Can you explain how liquidity pools and liquidity provisions tokens work on Ethereum and Polygon?
Zain Rana: Liquidity is required for a token to have any value, it reduces friction in trading and exchanging of the token. Liquidity pools typically enable trading through an automated market maker. This is all made possible because contributors have supplied a split amount of two assets within the pool.
By providing liquidity, you receive LP tokens to prove ownership of the pool and in return you receive trading fees. To build liquidity, token projects typically offer a reward program where they distribute their token in return for a user who provided the liquidity.
The need for liquidity is of course essential here, but is this the best way to achieve it? It is an expensive, inflationary renting of liquidity from the protocol’s side, and the use of simple token rewards can actually exchange liquidity-acquisition with long-term supply shocks and inflation.
You can now see that within a decentralized world, economic incentives are the heart of everything. A blockchain itself can be simply visualised as a collection of actors making decisions that will maximize their rewards. Anything that can move the network towards this equilibrium, such as liquidity reward programs, is a step in the right direction. But we can leap further.
What are your views on NFTs, and have you developed any exciting NFT products?
Zain Rana: One interesting thing I've seen about NFTs is that they work best when an underlying community is behind them. In fact, in an ecosystem or an application like gaming, they act as an additional incentive. This is something that I’ve been researching for a while. If we can look at how we could create evolving collectibles for stakers, it could be a game changer. I think a personal bias here is that we’ve designed such a game theory inspired protocol, that we want to tackle a lot of different directions that the community don’t know about yet.
What are your views on the difference between the transaction fees on Binance Smart Chain and Ethereum? According to you, if the scaling of Ethereum takes more than one year, will most DeFi networks shift to Binance Smart Chain?
Zain Rana: The truth is, all blockchains have to decide to compromise on scalability, decentralization, or fees. Typically, two traits can exist out of the three. Ethereum is so well-adopted that it will simply not disappear. Similarly, Binance Smart Chain's adoption since last year can be thought to be part of the growth of the Binance ecosystem and the powerful marketing initiatives.
Over the past three years, I've seen multiple alternatives to Ethereum, but nothing has been able to kill the smart contracts giant, and I believe it's not going to happen. I think that both ETH and BSC can co-exist. There won't ever be one blockchain to rule them all. It's just not realistic. The beauty of decentralization is that you have options. Cross-chain agnosticism is becoming acknowledged, and I'm a big believer in this.
What are the next trends that we are going to see in the blockchain industry?
Zain Rana: From a personal perspective, I think that right now gaming and play-to-earn are two popular trends, and DeFi is starting to pick up as a result. I’m of course a personal fan of gaming because the incentive theory that makes it work, is partially what inspired DAFI.
It's a pretty cool time to be in crypto. I spend a lot of time with some of the brightest minds in the industry, so I’m pretty excited about what the next few months & years have to show. Bitcoin may be scarce but innovation here certainly isn’t.