Learn about the ecosystem of Ethereum sister chain xDai in one article

In our blockchain family, Ethereum is a well-respected big sister who is quirky, cool, responsible, and has excellent grades.

Most people in the cryptocurrency community know and love Ethereum, but today we are going to learn about her sister xDai. xDai admires Ethereum and relies on her a lot, but she also thinks her sister can be a bit boring sometimes. In contrast, xDai is more rebellious and interesting. She is an artist and a free spirit.

Despite their superficial differences, xDai and Ethereum get along well and compliment each other when it comes to achieving common family goals, such as building a decentralized settlement network, open finance, and more.

They are family, ultimately sharing the same long-term vision and goals, and moving toward a decentralized, blockchain-centric future.

(Image from: pixabay)

Similarities between xDai and Ethereum

Without Ethereum, there would be no xDai.

xDai is an EVM (Ethereum Virtual Machine) sidechain that runs independently of Ethereum but relies on Ethereum to create its native token XDAI (DAI converted from Ethereum) and multi-purpose governance token STAKE. The network follows the same protocol updates, block size limits, and EVM parameters as the Ethereum mainnet. This compatibility makes it easy for developers, projects, and users to move seamlessly between chains.

Through the TokenBridge architecture, tokens and messages can also be transferred between Ethereum and xDai, as well as between other blockchains. Through interoperability, xDai expands the available Ethereum operating space, providing developers with a wider network and familiar tools and applications.

Differences between xDai and Ethereum

xDai is a chain with a stable reserve currency, and its transactions and fees are carried out through XDAI, which is created by locking DAI on Ethereum and through the xDai bridge. The value of XDAI is basically anchored to the US dollar, which means that transaction costs are predictable and will not be affected by market fluctuations.

The actual cost of a transaction on Ethereum can vary greatly depending on congestion and ETH prices. For example, recently a simple ETH transaction cost about $5.5, while on xDai, the same transaction cost about 1 cent ($0.01).

In addition, xDai uses a different consensus mechanism from Ethereum, called POSDAO, and uses a proof-of-stake incentive model to achieve a 5-second block time with lower transaction costs. Since validators are incentivized with STAKE instead of XDAI tokens, transactions can be processed with minimal transaction costs.

Currently, some respected projects from the Ethereum community (such as Gnosis, MakerDAO, Shapeshift, etc.) have become validators for xDai. They will be responsible for signing blocks, but operations are transitioning to a more permissionless delegation model where community members can participate as validators and delegators.

POSDAO consensus uses smart contract functionality to manage validators, validator candidates, and delegators.

How Ethereum and xDai Coexist

xDai provides additional scalability for Ethereum, it can support heavy transaction operations, complement existing Ethereum applications, and act as an overflow when the Ethereum mainnet is too congested.

In order to take advantage of the low-cost and stable payment model, many Ethereum ecosystem projects have chosen to migrate to xDai, while some other projects are motivated to migrate because their applications cannot work properly under the limitations of Ethereum 1.0.

A good example is the game application Dark Forest, which is a multiplayer space exploration blockchain game that uses zkSNARK technology. Every time a player moves, a meaningful transaction must be processed on the chain, and each player may initiate multiple moves per minute.

In the latest round of Dark Forest game testing, nearly 600 players participated in the game, and they conducted 250,000 transactions, spending nearly 100 billion gas. On the Ethereum mainnet, players would spend a lot of money to play such a game, and the congested network would make the game impossible to play.

Other projects have taken a hybrid approach to accessing xDai, moving some operations to xDai while keeping others on Ethereum. For example, PrimeDAO, a decentralized autonomous organization for DeFi, moved member voting operations to xDai to remove the basic cost barriers that may prevent members from voting or proposing proposals. When the cost of a vote is only a few cents, members are able to express their opinions more freely and actively participate in governance.

Additionally, xDai’s low cost enables NFT-based projects (such as Foundation and POAP), new financial protocols (such as Perpetual Protocol), ecosystem infrastructure (such as Clr.fund and 1Hive), and other cutting-edge projects (such as Circles) to deploy real economic value on-chain.

Tools like BrightID, Burner Wallets, and WalletConnect make it easy for projects to use xDai without imposing additional requirements on users. Chain data is transparent and can be explored using BlockScout, while partnerships with companies like Splunk bring additional visibility and monitoring capabilities to xDai transaction data.

Example of a Splunk dashboard monitoring Reddit Bakeoff load test data

Currently, xDai still has some processes to improve (especially the fact that users have to add a custom network when trading with MetaMask, which can be troublesome), but overall, its experience is acceptable to both ordinary and experienced users.

It can be seen that more and more Ethereum ecosystem projects are using the xDai sidechain, and Gnosis infrastructure and Chainlink oracles are helping developers and users to enrich a fully functional ecosystem.

Projects using or migrating to xDai in September and October 2020.

xDai and the Future of Ethereum

Ethereum 2.0 is full of promise, and xDai is excited to help scale Ethereum during this multi-year transition period. xDai will continue to support projects and applications that require low-cost, predictable user transactions, or contracts that must process many transactions in a short period of time. xDai is also actively working to enhance the security of the network and bridges, and increase the decentralization of the protocol.

During the transition, xDai will be secured by STAKE tokens, which provide proof-of-stake incentives for honest validators. STAKE will also be used for governance, giving holders the opportunity to update network parameters for optimal performance.

Once Ethereum 2.0 is fully implemented, xDai will be well positioned to join Ethereum 2.0 as a shard or in the form of a rollup. At that time, xDai's security guarantees can be transferred to the overall Ethereum architecture, making xDai more decentralized and secure.

For STAKE, this also means transitioning from a network security token to a full xDai governance mechanism and a chain-based micro-governance mechanism. Holders will use STAKE to determine things like transaction ordering and priority on a block-by-block basis, providing a true community voice for transactions written directly into the chain. When Ethereum 2.0 goes into production, the value capture associated with this concept (called “miner extractable value”) will provide an intrinsic and important purpose for the STAKE token.

To achieve this full circle, xDai plans to reunite and live in harmony with her sister Ethereum.

Until then, xDai will do what it can to foster new innovation, launch some unique projects that can’t be done on Ethereum, and attend some virtual family gatherings.

Hope to see you there!