Composable Finance
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Composable Finance

The Philosophy of the Cross-Chain Ecosystem: A Continuum of Interoperability

Within the Web 3.0 space, a wide range of chains exist all with their own specialties and strengths working to support the overall premise of decentralization.

While Ethereum remains the dominant network within DeFi, there has been a strong rise in other layer 1 (L1) competitors that offer a cheaper and faster alternative to Ethereum’s scaling limitations. Avalanche, Solana, and Polygon have all seen their network activity and total value locked (TVL) increase significantly over the past year as users search for new opportunities without the high gas fees. The Ethereum mainnet itself is no longer being viewed as the singular — or even primary — location for DeFi. Instead, it is seen as a data availability layer for its layer 2 (L2) scaling solutions.

As a result, there are hundreds of different loci for the DeFi industry where users can access all sorts of DeFi applications and functions. With this, we have found that a single user may be leveraging many different blockchains at the same time to combine and optimize different use cases.

Therefore, the question is: how do we allow users to combine functionality within all of the different ecosystems so that they are not siloed into individual locations for behaviors in the most scalable way?

This question has given light to the idea of cross-chain communication and interaction. The basic premise is to allow users to perform an action or transaction on one blockchain which can be quickly translated to another chain for further use. This concept has become increasingly popular within the DeFi community as seen by the many projects striving to actualize it. Composable Finance is just one of the many voices chiming in to agree that cross-chain communication is essential for the future of the industry.

What does cross-chain communication actually look like and mean for DeFi?

To visualize the potential and utility for cross-chain communication, imagine a continuum from zero to 100%. Our team at Composable Finance views cross-chain communication as different levels of cross-chain interoperability falling along a spectrum — an interoperability sliding scale.

This is a fundamental difference between the thought process at Composable Finance and other projects in the space. Our team recognizes that cross-chain communication can occur at different levels, yet we aim to push the limits of interoperability to the very top of this scale and beyond.

0–20%

At the initiation of this continuum is 0% which represents the most basic cross-chain communications. Here, new chains pop up within the industry and with them comes a new financial opportunity. Money is now up for grabs on this new chain made accessible to users with funds on other chains by projects like Connext and Biconomy. These products offer base-level token movements from one chain to another.

20–50%

Moving further along this continuum, we get to the 20% point. Here, you find projects — such as Instrumental Finance — which are essentially chasing yields across different chains in a somewhat chain-agnostic manner. In the example of Instrumental Finance, if a user is providing liquidity for an asset on one chain, but they could get a higher APY for the asset on another chain, they would be able to quickly move between chains to make use of that opportunity.

While this idea still seems quite simple, it has not been made available in the industry yet. I am happy to be in the process of helping to deliver this use through supporting the Instrumental team and other projects of this nature in the future.

50% — 75%

At 50% on the interoperability spectrum, we can position projects like Aave which enables users to deposit collateral on one chain and borrow a loan on another chain. This allows for communication across different instances of an application on different blockchains.

This utility is quite intriguing as it provides the user with the ability to utilize certain applications as a gateway to move their assets to another chain. This means that users do not have to directly deal with the logistics of bridges and the complexities involved in the process. They simply continue using one application uninterrupted — meaning their flow of income is uninterrupted as well.

75% — Intra-application operability

Around the 75% mark is where the level of cross-chain communication has not been actualized yet but only theorized. This level and above is where Composable flourishes and will drive an unprecedented level of ecosystem-agnosticism to the industry. While we are cognisant and solving along the scale prior to 75%, we pioneer with the maximized goal in mind.

This is the juncture where we ask the question: if every chain has a specific type of user and a specific type of functionality that it’s most optimal for, then doesn’t it make sense for a multifaceted application to have different parts of that application deployed on different chains?

The answer is simple — this makes sense.

That is why it would be ideal to curate a world in which a single application can have different parts deployed on multiple chains where each of those parts are best supported. I refer to this as Intra-application operability.

Subsequently, for intra-application operability we reimagine the blockchain space as a series of backend packages. For instance, when you turn on a game, there are many different types of backend packages running at the same time. However, this has no impact on the gamer experience. Gamers are simply interacting with one interface oblivious to what is happening in the background.

This vision is how our team dares to imagine the evolution of the blockchain space over time: applications will use blockchains as backends for the things they need to get done with each part running on the most efficient chain. In addition, these different backend packages of blockchains will communicate with each other to ensure the sustained continuity of the user experience.

While this already is an incredibly promising premise, I believe that we can push interoperability even further to 100% completion.

100% : Absolute Ecosystem Agnosticism

Once the premise of the 75% mark is realized, then we can construct a series of APIs that become the interface for the broader Web 3.0 ecosystem. In other words, Composable’s technology will become the Web 3.0 API.

Using this API, Web 2.0 developers will be able to deploy their projects powered by Web 3.0 tools on the blockchain, but with all of the complexity abstracted away. For example, a Web 2.0 developer could write their application’s desired specifications (such as getting the highest yield on a certain product) into a program, and deploy it from within the API. That is all that the developer would need to do — no complex blockchain programming would be required. Instead, the minutiae are completely abstracted away powered by Composable’s technological infrastructure.

This is the moonshot vision of the space; however, our team at Composable Finance believes that we can make it happen, and we are consciously building towards this reality. By achieving 100% cross-chain communication on this ecosystem-agnostic approach, we will allow for unlimited utility within the blockchain space pioneering true mainstream adoption.

Summary:

Cross-chain interoperability in DeFi is not just a singular, finite concept, capable of being resolved instantaneously with the establishment of cross-chain bridges. This is a common misconception, perpetuated by so many projects working to resolve lack of interoperability in the space. Instead, at Composable Finance, we conceptualize cross-chain interoperability as occurring on a continuum, beginning with the most basic level of cross-chain transfers and expanding all the way to chain-agnostic behaviours.

Meeting this basic level of cross-chain transfers is still critically important to our ability to deliver enhanced interoperability, yet it is not sufficient to truly resolve the siloing of the blockchain ecosystem. Thus, Composable Finance is working to build products that push the industry progressively further along the continuum of interoperability towards its maximum potential: absolute ecosystem agnosticism.

Once this maximum level is reached, blockchain will essentially be capable of powering any digital use on the backend, abstracting away any complications from developers and users to deliver ultimate user-friendliness and optimized functionality.

If you are a developer with a project you think fits our ecosystem and goals, and you would like to participate in our interactive testing landscape at Composable Labs, reach out to me on Telegram at @brainjar.

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Composable Finance is a robust cross-chain and cross-layer infrastructure including an array of intuitive developer tools and a vibrant decentralized community

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0xbrainjar

0xbrainjar

Composable Finance Founder & CEO. I write about R&D at Composable Finance. Physicist by training

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