In this article I will try to explain (without going too much into technical detail) what exactly a multi-chain bridge is, why we believe this is a good approach for KingDeFi holders and for the underlying token economics.
1. What is a bridge?
A bridge is in practice a mechanism which allows the flow of tokens from one chain to another (and back).
Bridges are extremely important because they help projects to move across multiple chains without issuing a new token on a different mainnet (e.g. from BSC to ETH). With this practice you will always have only one token, one project, one supply but on multiple chains.
A lot of projects have preferred to issue a new token instead of using a bridge. This has been done because a large amount of crypto and DeFi investors are not educated about the token economics. As soon as they see a project on another chain, they buy in without asking themselves how this has happened and how this is managed in terms of token supply.
We believe that going multi-chain without a functioning bridge is bad practice which can cause strong arbitrage and inflation effects between the two tokens issued on two different chains.
Moreover, if you have one company, you should always have one asset representing it on multiple exchanges. We don’t have Apple1 and Apple2 in traditional finance and there is a clear motivation for this.
KingDeFi’s view: a company/project should always be represented by only one asset.
2. Arbitrage and increasing circulation effect
What would happen if you issued a new token on a different blockchain without a functioning bridge?
- You would be minting new tokens which would increase the overall aggregated circulating supply of your project.
- Investors would arbitrage between the two tokens. One example: Assume KRW on ETH’s chain appreciates in price and KRW on BSC’s chain depreciates. Investors would then be selling the ETH one and buy the BSC one and vice versa. In described process you would be producing an unbalanced supply and demand effect which of course would affect holders on both chains.
- You would still have one project which is represented by one asset for your investors, but in reality you would have just split the project in two by issuing a lot more circulating KRW tokens. The market would find it difficult to “digest” your additional token emission.
KingDeFi’s view: the best way to “digest” circulating supply is to go multi-chain with a fixed supply amount and only one token emission.
3. Supply, demand and inflation.
What would happen if you used a bridge instead?
- We wouldn’t mint additional tokens, so our total/circulating supply remained the same across multiple chains, which is very good for inflation management in the long term. Multiple chains would “digest” our supply better than only one chain.
- We could onboard new projects, new partnerships and issue farms on multiple blockchains, keeping total/circulating supply the same, so that every investor would gain from generated multi-chain buy pressure.
- We would offer our holders the possibility to diversify their portfolio (point 5) and even more importantly, their blockchain exposure (point 4).
KingDeFi’s view: Instead of a continuous multi-chain burning process, just split your limited token supply across multiple chains in order to generate additional buy pressure.
4. Manage regulatory risk and blockchain diversification.
We believe that in order to be fully safe and decrease risk, it’s important that our KROWN native token runs on multiple blockchains.
A lot of people complain that ETH is expensive but we believe it’s not only about gas fees. Let’s not forget that ETH is a strong blockchain backed by a Swiss foundation and supported by a strong (development) community and a high number of participants, holders and validators. The same applies for other major chains. Our starting point has been BSC and we strongly believe in the Binance Smart Chain approach but the market evolves fast and we want to give our holders the opportunity to farm multi-chain. Having only one multi-chain token supply can as well bring a lot of advantages in terms of blockchain risk diversification.
There are as well continuous new upgrades and innovative changes incoming. Being able to move from one chain to another provides the opportunity to quickly switch and access these new features for our holders.
KingDeFi view: multi-chain diversification is important to manage mainnet concentration risks and find new tech opportunities in the blockchain markets.
5. Enhance portfolio diversification
As a logical effect, moving multi-chain will allow us to issue liquidity to new DEXes and our holders will be able to farm KRW and other new tokens, that are currently not present on Binance Smart Chain.
Obviously, even if cryptocurrency markets are normally characterised by strong correlation, this advancement allows KRW holders to better diversify their portfolio and consequently reduce their risk of impermanent loss.
KingDeFi view: portfolio optimisation and asset diversification goes hand in hand.
6. The KingDeFi approach
We are currently working on two approaches: the first one is developing a contract ourselves for each bridge. The second one is collaborating with our current partner to leverage some already existing bridge contracts and integrate them for KRW multi-chain transfers.
Option one is more of a steady in-house approach, option two gives us the possibility to move faster and on more chains in a quicker manner.
Preferred choice for now is the second one as we want to speed up in order to move ahead with our next milestones.
As usual, we will announce and keep our community fully informed on the direction we take.
KingDeFi’s view: if you have a strong partner with strong technology and great capabilities that helps to scale and speed up the project — obviously just go for it!
