The consensus seems to be that you're doing encrypt-and-mac, where the mac is just a sha1? If that's true, then you're relying on broken properties of IGE (not provably UF-CMA), and your protocol does not provide provable integrity. That's an essential part of any secure protocol.
> As for KDF, going for slower provable algorithms used for each incoming\outgoing packet may be a preferred solution for projects aimed at the relatively small security crowd. But we don't really compete in this area, our competition is WhatsApp and other mass market messengers.
That's interesting, because the thing you've made up is actually slower than a provably secure KDF.