[DIP-014] Implement DFX V2.0

Motivation

After a year of substantial growth, this DFX Improvement Proposal (DIP) seeks community approval for a new iteration of the DFX Protocol–DFX V2.

Specifications

This DIP introduces DFX V2, its features / improvements, and requests a community vote via Snapshot regarding a potential deployment:

1. Flash Loans: Allows users to borrow uncollateralized assets in each of the pools as long as the liquidity is deep enough. The loan must be returned in the same transaction with a protocol fee. All fees generated by the flashloan functionality are directly sent back to the protocol’s treasury.

2. Factory pools, for a more permissionless DFX: Factory pools are “permissionless” pools which anybody can deploy and operate. In v1 producing new pools was a very permissioned and tedious process but with v2 the process has been streamlined and users also have the option to use the oracle of their choice not restricted to Chainlink (i.e. custom oracles).

3. More efficient swaps: If the swap amount is relatively large compared to available liquidity, swapping token A for token B then swapping back the same amount of token B into token A results in slippage. An edge case but fixed in v2.

4. Removal of the invariant check: V1 had an issue with liquidity providers not being able to deposit their desired amount of liquidity into a pool. Another edge case but fixed in V2.

Users are now also able to exit liquidity pools in either both or just one of the underlying assets.

Pro:

Core features introduced will help the DFX Protocol stay relevant in the DeFi space as it’ll allow other DeFi protocols to integrate / leverage the protocol to theirs more easily.

CON:

Since DFX V2 is a separate and independent set of smart contracts, liquidity providers would have to fully exit their V1 position (unstake LPT and withdraw liquidity) then provide liquidity and stake on the new set of contracts.

A small inconvenience but that means there’ll be super high APRs for a little while after the migration, because it’s essentially going to start fresh all over again! ✨

Conclusion

This DIP has focused on the new iteration of the DFX Protocol and its main features. As mentioned above, the community will decide on whether or not to deploy V2. In any case, we’re super excited about what the community will discuss and decide on! 🔥

As always security remains top priority; in addition to thorough internal testing, auditing agency Pickax was commissioned to pick at the DFX V2 smart contracts. Nothing major surfaced, the the final audit report can be reviewed here 1.