Throughout the history of blockchains, interoperability and multi-chain applications are considered the holy grails of Web 3.0. However, traditional asset bridges face security and centralization issues, making it difficult for such bridges to be reliable and universal protocols for many public blockchains. Furthermore, most chains use bridges to funnel liquidity and foreign assets to their own network for dApps to leverage them. Recently, we see protocols like Axelar and Algorand which aim to bring true generic decentralized interoperability amongst various blockchains. However, these protocols still lack standardization in cross-consensus interoperability while encouraging diversity in public networks. As such, dApps cannot truly leverage interoperability since these cross-chain applications are still limited by funnelling liquidity and avoiding high gas costs.
With the Polkadot ecosystem of parachains and cross-consensus messaging (XCM), not only do we have multi-chain assets, but we can also leverage functional interoperability. At Astar Network, we believe that this is the key to creating the next generation of innovative dApps and further progressing Web3.0.
This paper will propose Astar Network’s main focus regarding XCM functions. Technically speaking, XCM is a universal and open message format for cross-consensus message sharing, meaning that this is not limited to the Polkadot ecosystem. However, in this document, XCM will refer to sending cross-chain transactions between different parachains and the relay chain through its validators.
Basics of XCM(P)
XCM is a generic message format for sending on-chain instructions between any arbitrary blockchains that are capable of handling certain operations. It is a message format and not a protocol, meaning that XCM can be implemented by any blockchain to exchange messages–even outside of the Dotsama ecosystem. However, with Substrate, the message encoding scheme comes built-in alongside the XCM pallet, and the Polkadot relay chain acts as the protocol for sending these messages between its parachain. The protocol equivalent that allows parachians to communicate is known as XCMP. In other words, becoming a substrate-based parachain will allow the network to gain access to XCM channels and send messages natively.
Within the Polkadot ecosystem, networks can do all the usual things like bridging assets; plus, directly call chain functions like Substrate extrinsics. This is a powerful feature that expands the capability of the Polkadot ecosystem. If traditional bridges are like a trade route to transfer assets, then XCM is a free trade agreement where multiple parachains can “export” goods that are not limited to assets–allowing each parachain to build specialized features that can be used on other blockchains.
The Future of Blockchains
We see a future where blockchains are more integrated with each other, sharing their diverse use cases. Blockchains will have to focus on specific utility and bringing foreign assets to their sovereign network. Growth will not just be based on their ecosystem or the utility within the applications, but through the utility that they can provide to other blockchains. There will be less competition within, and more cooperation between networks and communities. We want Astar Network to be the hub of innovative dApp projects that can be written in various languages and use features of other parachains to create a unique experience of interoperable dApps
Multi-Chain vs. Interoperability
In this context, a Multi-Chain dApp refers to a project that is deployed on multiple networks to either maximize its liquidity, reduce the gas cost, increase the performance, or increase its user base to name a few. DeFi and NFT marketplaces are the most common multi-chain dApps as they benefit the most from having their tokens on multiple chains with fewer transaction fees.
For example, a DEX protocol that is deployed on a side chain or layer 2 chain that provides the same functionality, but with a different token for paying the transaction fee, can be considered as multi-chain dApps. Another example is when the user can change the host chain of a dApp from a single or similar UI.
On top of the aforementioned pros, it is also very simple to develop multi-chain dApps on chains that support the same contract environment (e.g., EVM) as these smart contracts are essentially forks of each other, and most of the heavy-lifting is done on the UI side. Often, the success of such multi-chain DeFi projects and DAOs relies on the name value and liquidity of its token — seeking to increase its user base, high liquidity, and low transaction costs, while ignoring the value proposition of the host network. But for privacy dApps, oracles, NFT projects, and other DAO projects that are already established on a certain chain, they do not have any incentive to be multi-chain unless they are a centralized organization that is offering a service to a blockchain network. That is why projects tend to fork popular dApps to new chains, as it is the best method to establish themselves on a growing network.
Interoperable (Cross-Consensus) dApps
We define interoperability as communication between multiple blockchains and not interoperability between dApps on a single network.
If multi-chain dApps are about deploying the same dApp on different networks that are controlled by a unified UI, an interoperable dApp can be defined as a single dApp on a single blockchain, that leverages the feature or liquidity of another blockchain as its core functionality. In the current ecosystem, we do not see many of these projects, but we can think of possible examples. For instance, we can think of a DAO project, where the NFT is listed and traded on Ethereum for maximum liquidity, yet the DEX protocol that fuels the DAO is deployed on Polygon for lower transaction fees. Another example would be a metaverse project that can import assets from NFTs that are owned by a single account on multiple networks. Finally, a dApp that is directly integrated and relies on a bridge contract can also be considered an interoperable dApp.
As you can see from the examples, with the current ecosystem, projects heavily rely on a centralized protocol/channel to hold the architecture together. However, we believe that this will no longer be an issue on the Polkadot ecosystem, as XCM acts as the universal generic message format that can be interpreted by any blockchains that implement the scheme (i.e., parachains) and use Polkadot’s validators as a guarantee for a decentralized and reliable message relayer. This is impossible with a traditional bridge. In other words, as long as we can trust the liveliness of the receiver and sender blockchain, the integrity of the message channel and the data structure will no longer become an issue.
With this in mind, we can imagine a new dApp architecture where a single dApp may rely on features/assets that are only available on different networks. For a generic example, imagine a dApp that is deployed on Chain A, which can execute a call from another dApp that is deployed on Chain B, and a Substrate pallet call from Chain D. These remote dApps could also rely on another dApp for certain functionalities in the back, which makes an interconnected web of interactions amongst various smart contracts and networks.
We believe that the current dApp ecosystem is stagnating because most blockchains are trying to be a generic smart contract platform without any specialization or providing dedicated utility functions. Because of this, projects must reinvent the wheel every time they wish to deploy their project on a new network. But imagine if there is a public, consortium, or private Substrate parachain that specializes in providing dedicated and comprehensive oracle services via their pallet (as certain functionalities are difficult to implement within the EVM environment without using a centralized system). If other blockchains can use this feature without having to deploy the same contract on multiple chains, and multiple chains can read from the same source, the overall security and the degree of decentralization will increase while also providing superior utility without compromises. Another example we can think of is a decentralized cross-chain DEX aggregator like 1inch, but looking at quotes from other blockchains instead of just Ethereum for token swapping — improving slippage and reflecting accurate token price.
While the overall architecture of a dApp will become much more complex in an interoperable future, we can see the advantage of this system if projects wish to innovate.
In Parts 2 and 3 we will discuss asset diversity through XCM dApps and smart contracts and, then, provide examples of how Astar Hub and the Polkadot ecosystem are achieving true interoperability.