Cross-Chain Automation as a Tool to Build Multi-Chain Future
A dive into the potential and challenges of building cross-chain products in web3
The future of web3 is multi-chain. What was a rumor or bold prediction only a few years ago, today firmly cements itself as a new reality. As users and developers span across various blockchain ecosystems, developers are looking into ways to satisfy the demand and create cross-chain products in a low-risk and cost-effective manner.
Yet, building cross-chain dApps today is not an easy job.
Despite an apparent appeal, the developer experience of running cross-chain smart contracts is full of nuances and pitfalls. Builders, irrespective of experience, have to address multiple security issues as well as high development costs, resulting in additional risks for users interacting with cross-chain tech.
It’s time to look into the ‘what’, ‘how’ and ‘why’ of building cross-chain products in web3.
In this article, we will cover the following issues:
- Why is web3 moving towards multi-chain ecosystems?
- Multi-chain vs cross-chain dApps
- Use-cases for cross-chain smart contracts
- The constraints of building cross-chain products
- Cross-chain automation capabilities of Nerif
1. Why is web3 moving towards multi-chain ecosystems?
Before we dive into cross-chain smart contracts, novel use-cases, and the specifics of developer experience, it would be helpful to understand the rationale for the existence of various blockchain networks and how we got here.
To do that, let’s have a very short blockchain history lesson.
In 2015, Ethereum took the lead and brought smart contract capabilities to blockchains. As the first smart contract platform, Ethereum benefited from network effects attracting waves of developers looking to build products with the support of battle-tested tooling and ever-expanding developer communities.
However, as demand for Ethereum blockspace continued to grow, so did the network transaction fees. The ideas for a more low-cost, compared to Ethereum, solution started to emerge.
A few years forward, the demand resulted in the tremendous growth of alternative layer-1s, sidechains, app-specific chains, and layer-2s. Today, there are blossoming DeFi, NFT, and gaming ecosystems not only on Ethereum but also on Solana, Binance Smart Chain, Arbitrum, Polygon, Optimism, Fantom, and others.
Some of the blockchains are designed to be highly secure and immutable, while others are designed to be more low-cost, flexible, and dynamic. Additionally, different blockchains offer different levels of decentralization and privacy, which can be important factors for developers when deciding which blockchain to use for their dApp. So, by design, different blockchains serve different purposes.
Today, when multi-chain is no longer the future but the present of web3, developers willing to make their products a success are asking the same questions: “Where are users?”, “Where is liquidity?” and “How do I succeed in this environment?”.
With users and liquidity being dispersed across various blockchain ecosystems, builders are exploring the potential of cross-chain smart contracts as a way to expand their user base, deliver high-quality UX, and decrease costs for interacting with the blockchain.
Hence, the incredible growth in the popularity of cross-chain products.
2. Multi-chain vs cross-chain dApps
So, what are cross-chain products?
Well, given that there is often confusion when differentiating cross-chain dApps from multi-chains ones, we should dive a little into this first.
A short answer is that the major difference between the two is that multi-chain dApps are built on one blockchain, while cross-chain dApps are designed to interact with multiple blockchains.
To unpack this, think of a multi-chain dApp as a smart contract deployed on one chain with similar smart contracts deployed on other networks essentially making them new copies of the dApp.
The problem is that the same code deployed on several networks does not make it a unified & harmonious dApp. Instead, each contract deployment manages its own internal state with limited interoperability between deployments on different blockchain environments.
Thus, the major issue with a multi-chain dApp is the lack of interoperability between deployments on different blockchains, sidechains, and layer-2 networks.
In contrast, that is exactly where cross-chain smart contracts shine. Unlike multi-chain dApps, cross-chain dApps allow for the transfer of data, tokens, and commands between on-chain environments.
So, in its essence, cross-chain smart contracts are dApps consisting of several separate smart contracts on different networks that can communicate with each other to create a single unified dApp. Cross-chain dApps not only share liquidity across networks but also their business logic, and they operate as a single entity that spans multiple networks.
3. Use-cases for cross-chain smart contracts
Now that we have a clear understanding of the differences between multi-chain and cross-chain dApps, let us have a look at some of the major use-cases enabled by blockchain interoperability.
Once we understand the potential of cross-chain exchanges, yield farming, lending, staking, gaming, and DAOs, there will be no more questions left as to why more and more developers explore cross-chain solutions.
A cross-chain DEX enables users to exchange different crypto assets across different blockchains. Such mechanics are usually enabled by sourcing liquidity from token pools on various blockchain networks making cross-chain swaps possible.
As a result, users can exchange two different cryptocurrencies, on two different blockchains in a peer-to-peer fashion. In addition, users are enjoying a far better UX, lower slippage on trades, as well as better fees for liquidity providers.
Cross-Chain Yield Farming
Yield farming opportunities arise on different chains. If a user has significant funds on one chain (Fantom, for example), but an attractive yield is offered by a protocol built on a different chain (Avalanche, for example), such a user would need to use bridges to manually send their tokens from Fantom to Avalanche. Apart from poor UX, bridging assets often comes with risks.
In contrast, a cross-chain yield aggregator could deploy user funds into different protocols on various blockchain networks providing lower risk, higher return, and a better experience for a user overall.
With cross-chain lending protocols, users can borrow assets or supply liquidity for borrowers from one blockchain network to the other.
Users can benefit from cross-chain lending by depositing collateral in a market on one blockchain and then borrowing tokens from another chain. One way for users to gain from such technology is by keeping the collateral on a secure blockchain, such as Ethereum, while borrowing tokens and deploying them into DeFi strategies on a different network in protocols with more attractive and risky yields.
As a rule, staking is tied to a native chain and token. With cross-chain capabilities, users could stake their assets in various networks or validate transactions on different blockchains.
Cross-chain staking allows users to earn passive income in a hassle-free mode on several networks while ensuring network security at the same time.
Think of a game that prescribes numerous interactions of a user with a blockchain. If such a game is built fully on Ethereum, the cost of playing a game would make it rather unattractive due to the need to constantly pay high fees even for minor transactions.
However, if the game is built using cross-chain smart contracts, developers can separate smart contract logic between two chains, so that the most expensive and repetitive part would go to a cheap blockchain (such as IMX), while the cheap logic would be in the “main” blockchain (such as Ethereum).
By doing so, the game publishers can ensure both the security of a battle-tested L1, such as Ethereum, and the speed and price attractiveness of a cheaper blockchain like IMX.
The benefits of cross-chain capabilities to DAOs echo the opportunities this technology provides for gaming.
DAOs could leverage cross-chain interoperability to enable on-chain voting on one of the inexpensive blockchain networks, with the results then relayed back to the higher-cost blockchain network where the protocol’s core governance contracts run.
The above are just some of the use-cases enabled by cross-chain smart contracts. The potential is truly limitless and developers continue to expand the capabilities of cross-chain products daily. Now that we are aware of the advantages that cross-chain smart contract tooling can bring to a product, let’s have a look at some of the challenges for developers willing to build cross-chain dApps.
4. The constraints of building cross-chain products
The heart of cross-chain dApps is a cross-chain communication channel.
As a rule, cross-chain communication is enabled by cross-chain bridges, i.e. a technology that enables two different blockchain networks to communicate with one another. It allows users to transfer assets, information, and value between two different blockchains, all while interacting with multiple networks at the same time.
The problem with cross-chain bridges is that they come with several security and centralization concerns. There are risks of malicious actors attacking the bridge, double-spending potential, and the risk of a single point of failure as both the bridge and its associated assets could be controlled by a single entity.
Another challenge for developers looking to build cross-chain products is cost. It is rather expensive to develop and maintain integration with multiple chains as more resources are required. These costs could skyrocket even further when the cross-chain product provides for integration between EVM and non-EVM chains.
Because of the above constraints, the whole web3 ecosystem is suffering. The risks and costs related to developing cross-chain products are considerable, making developers doubt whether the potential of cross-chain technology outweighs the risks.
5. Cross-chain automation capabilities of Nerif
Imagine a technology that allows you to bypass all the limitations when it comes to developing cross-chain products.
Nerif is the world’s first ecosystem designed to automate smart contract execution and build dApps across multiple chains — even on top of both web2 and web3 products.
Think of leveraging all off-chain stack to Nerif and not caring anymore about integrations, bridging, etc. Simply deploy smart contracts on multiple chains, set up automation with Nerif, and communication with a third-party solution. No need to develop any off-chain backend for it.
With the ability to build cross-chain dependencies, trigger execution on specific events, and lower reliance on specific function names or interfaces, Nerif will offer the most versatile and flexible solution for smart contracts automation.
The cross-chain automation could be applied to any on-chain and off-chain conditions/ events/ actions/ triggers such as event emission, eth_call results, and off-chain triggers.
All-in-all, Nerif’s cross-chain automation can reduce gas costs, increase transaction speed, and bridge different networks. With this solution, any dApp could be built on top of any network.
This reduces the risk of any single point of failure while simultaneously increasing the security and trustworthiness of the ecosystem as a whole.
The multi-chain vision is no longer a dream but a reality of web3. With liquidity and users spreading across various blockchain networks, builders expand their user bases, improve UX and offer lower costs by bringing cross-chain products to the market.
The potential is obvious. New cross-chain use-cases are emerging daily with several dApps already satisfying the demand in cross-chain swaps, yield farming, lending, staking, gaming, and DAOs.
Despite the appeal, building cross-chain dApps comes with challenges, such as security, centralization, and high costs.
There is a solution, however, and it’s called cross-chain automation by Nerif. With this new tech, developers can leverage all off-chain stack to Nerif and not waste resources on integrations and bridging anymore. All they need to do is deploy smart contracts on multiple chains, set up automation with Nerif, and communication with a third-party solution.
The advantages are on the surface: reduced gas costs, increased transaction speed, and lower risks of a single point of failure.
At the same time, this brings the whole ecosystem to a new level of security and trustworthiness.
Thanks for reading this piece, it was a good one! In our next article, we will finally start looking into more details of how Nerif works, how it drastically improves developer UX, and decreases costs for automation smart contracts, whether on one chain or cross-chain.
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