The Case For A Multi-Chain Future
Blockchains and crypto liquidity has been siloed. The lack of interoperability has been a hindrance to the growth of the Web3 world. The need for the free flow of digital assets has been felt acutely by blockchain users and developers alike.
However, solutions are being developed that can lead to a multi-chain future for the cryptoverse. No longer will fungible and non-fungible tokens be trapped within their single ecosystem, instead, they will be able to flow freely between chains. Already with solutions like cross-chain routers, wrapped assets, and inter-blockchain communication we are seeing separate blockchain projects beginning to interact with each other. In this article, we’ll look at specific areas within the blockchain industry that are developing viable solutions to this industry-wide problem. Thus, the case for a multi-chain future seems to be more and more likely.
Multi-Chain VS Cross-Chain
Before diving in, let’s clean up some terminology. A multi-chain blockchain refers to a project using multiple chains that are designed to communicate with one another. Whereas cross-chain technology refers to a tool that allows assets to flow between unrelated blockchains using smart contracts. This article will explore the thesis that the future of blockchains is multi-chain.
Ethereum and DeFi
Ethereum has effectively connected multiple dApps (decentralized applications) to create a robust DeFi ecosystem. From DEXs (decentralized exchanges) to synthetic assets, there is a dApp for many use cases. While the Ethereum network is incredibly powerful alone, it does have its limitations when it comes to interoperability.
One problem that Ethereum faces is that although dApps within the blockchain are interconnected efficiently to enable users to reap the benefits of DeFi, the assets are still locked within Ethereum itself. In addition, Ethereum is still working to resolve it’s scaling problem, with fees to interact with Uniswap costing more than $100 per transaction during busy periods in 2021. Other blockchains offer different solutions to the scaling problem and specialize in different DeFi use cases.
Polkadot presents a popular infrastructure tailor-made for a multi-chain future. To understand how Polkadot Is interoperable with all chains, it’s best to break down the important aspects that make this solution work. Four key components make up Polkadot:
The Relay Chain: The relay chain is the main chain of Polkadot and it’s responsible for validating parachains. This is where interoperability is securely managed through their PoS (Proof-of-Stake) consensus mechanism.
- Parachains: These are the different blockchains that are connected to the Polkadot system. As long as they adhere to the guidelines set by Polkadot, they can be connected.
- Parathreads: These are also blockchains but are connected to Polkadot through a “pay-as-you-go” model. It’s essentially meant for blockchains that are looking to rent the ability to connect to Polkadot rather than commit to a full parachain.
- Bridges: Bridges are responsible for connecting different blockchains together. The bridge connects the “dots” to create an interoperable system, hence the name, Polkadot.
What’s important to note is that all these blockchains are still independent of each other. In other words, they can still run their own governance models, have their own staking mechanisms, and so on. The only difference is that they’re now connected and can interoperate with each other. This can be a game-changer for the blockchain industry as a whole.
Trust-Minimized Cross-Chain Bridges
This solution is also improving as we can see with Pendulum’s Spacewalk bridge. Spacewalk connects Stellar with DotSama so that the abundance of fiat stable tokens on Stellar can be utilized for DeFi activities with Polkadot’s smart contract on Pendulum.
Pendulum’s Spacewalk bridge enables users to lock their tokens and mint-wrapped tokens that will be usable across multiple chains connected by the Spacewalk bridge. The interesting aspect of this is that users don’t have to trust the entities that run the bridge as their tokens are always locked.
This is a big improvement as it means that we don’t have to rely on centralized entities to manage our assets and create trust between different blockchains. With this convenient system, interoperability will become much easier to achieve and it will open up numerous possibilities for the future of Web3.
Interoperability between blockchains is much needed but so is interoperability between traditional finance and decentralized finance. Pendulum plans to advance both. By connecting blockchains such as Stellar, Polkadot, Ethereum, and Cosmos with fintech companies and the forex markets, we could see an explosion of adoption for Web3 technologies in a multi-chain future.
Pioneering the internet of fiat. Amplitude is the sister network of Pendulum on Kusama. It will act as a testing ground for Pendulum applications and network parameters and be powered by the AMPE token.
Building the missing link between fiat and DeFi through a fiat-optimized smart contract blockchain based on Polkadot’s Substrate. Allowing traditional finance fiat services to integrate with DeFi applications such as specialized forex AMMs, lending protocols, or yield farming opportunities. Developed by SatoshiPay.