Cross-Chain Integration: Poolz’s Solution for Interoperable Blockchain Ecosystems
Over the past decade, blockchain technology has become increasingly relevant and popular, with disruptive use-cases in almost every sector. So much so, that by 2025, its global market size is expected to surpass $39 Billion. As such, the finance sector could be the biggest contributor to this growth, especially with the rise of DeFi.
DeFi, as we know it, was formally conceived with Ethereum’s launch in 2015. Now, within merely six years, the sector has achieved over $12 Billion in market capitalization. Primarily, this rapid growth is courtesy of the massive potential that the technology holds — privacy, autonomy, access, and control for the user.
However, to achieve its full potential the blockchain-cryptocurrency community must find solutions to certain persistent issues:
- Inter-chain communications
Realizing this, PoolzDeFi — a decentralized, swapping protocol — is building a robust, trust-minimized, and cross-chain ecosystem to connect project owners and investors. In this article, we discuss the cross-chain integration that supports the unified PoolzDeFi UI, thus enabling users to launch and participate in liquidity auctions and OTC deals across multiple blockchain ecosystems.
The Stages of Cross-Chain Implementation
The goal is to achieve full decentralization, but given the available resources, the journey has to be undertaken step-by-step. Starting off with the Poolz server acting as a bridge between different blockchains, the cross-chain implementation will occur in phases and finally replace the pseudo-centralized bridge with a fully-decentralized, shared consensus mechanism. In other words, PoolzDeFi’s cross-chain integration shall proceed from a bridge-based model to a parachain-based model.
Phase 0 — Implementing Poolz on Multiple Blockchains
In the MVP phase, the Poolz platform will run on the Ethereum network (Chain A). Thus, the prerequisite for cross-chain integration is to deploy the same product on other blockchain (Chain B). For convenience, in this article, we shall consider Chain A as the base chain.
As such, Chain B can be any ecosystem that supports smart contracts and dApps. At a very high-level, the idea behind this phase is to have the platform running on multiple chains which can then be connected through cross-chain integration. Moreover, this will also allow the same POZ assets to be used on all participating blockchains.
Phase I — Token Factory
Once the platform has been deployed on Chain B, there has to be a token factory on this second chain. This shall be an easy way for users to create tokens on Chain B with custom parameters while leveraging the unified Poolz UI.
As a company, PoolzDeFi shall have no control over the token production from the said factory and shall not hold custody of these tokens. Rather, every asset will be held and managed by a smart contract which will also host token transfers from Chain A.
Phase II — Liquidity Lock & One-Way Peg
The integration fails if related assets on Chain A and Chain B aren’t linked or pegged to one another. Thus, the next step is to implement a pegging mechanism — users will “lock-up” assets on Chain A to generate the equivalent amount of liquidity on Chain B.
The user will bear the transaction fee involved in the process and can cancel a transaction before its completion. However, once the transaction is completed on Chain A, users can get back their locked tokens only through a reverse transaction of the same value.
Phase III — Equilibrium Protocol
To establish a trust-minimized bridge, the fundamental function is to ensure that the total number of POZ tokens remain constant and unaltered. Moreover, the protocol must check that the total value of tokens generated by the Chain B factory is equal to the liquidity locked in Chain A for any given cross-chain transaction.
On one hand, this equilibrium protocol will mitigate the risks of double spending on the platform. On the other hand, it’ll minimize the users’ need to trust either the liquidity pool on Chain A, the factory on Chain B, and so on.
Moreover, by integrating the balancer into the smart contract, Poolz will automate the test function and eliminate the involvement of any third-party mechanism. In this sense, the equilibrium is a cornerstone for the full decentralization of the cross-chain integration.
Phase IV — Quarter-Duplex Bridge
With the aforementioned elements in place, Poolz will implement a quarter-duplex bridge. In general, its function will be to trigger actions based on inputs from Chain A. Primarily, the bridge will perform two operations:
- Verify the locked assets on Chain A.
- Initiate token generation from Chain B’s factory. While creating the transaction on Chain A, the user will mention the address of a wallet on Chain B. The bridge will facilitate the token transfer accordingly.
Phase V — Half-Duplex Bridge
Let’s call this phase “Return Home” — so far, tokens could only move from Chain A to Chain B, but after this phase, they will be able to “return” to Chain A from Chain B. To implement this, Poolz introduces two functions or token parameters:
- Birthplace: specifies the native chain of the given token.
- Travel: the function to automate the return from Chain B to Chain A.
At this point, it’s important to note that Chain A is still the base chain, in the sense that users can initiate cross-chain interactions only from Chain A. Thus, the phase involves a half-duplex bridge, although assets can move both ways.
In this phase, the bridge will also be able to read inputs from Chain B and perform the following actions:
- Verify the token burning on Chain B.
- Transfer the tokens locked in Chain A to the predefined address.
Phase VI — Reverse
Having implemented the two-way bridge on Chain A, Poolz will establish Phases I-V on other participating chains (Chain B). The asset locking mechanism will be deployed on Chain B and Chain A will have a factory (similar to Phase I).
Moreover, the reverse function will also be implemented to the equilibrium protocol (Phase III) so that similar functionalities can be achieved for tokens moving from Chain B to Chain A. In turn, this will facilitate a full-duplex bridge, where cross-chain interactions could be initiated and undertaken both ways.
Phase VII — Shared Consensus
So far, the bridge acts as a centralized element in cross-chain integration and can also be seen as a single point of error. Moreover, although the process is automated and verified using the equilibrium protocol, users still need to trust the security and reliability of the chain from the tokens are originating.
To overcome these issues and to achieve full decentralization in the cross-chain integration, Poolz will replace the bridge with a shared consensus mechanism. This will validate cross-chain transactions independently of the originating chains. The process will involve miners or validators and will be based on the equilibrium protocol from Phase III.
Presently, the exact model of the decentralized system remains to be decided, but a parachain-based architecture appears to be the most feasible.
Implications of the Cross-Chain Integration
Before concluding this article, let’s briefly discuss how the cross-chain integration could be significant for Poolz users as well as the blockchain-cryptocurrency community in general. First, Poolz intends to mitigate the issue that most existing cross-chain functionalities have some degree of centralization involved. Moreover, several of these protocols are custodial in nature and thus pose substantial threats to the user’s security and privacy.
Indeed, Poolz’s solution starts off with a centralized component, but as discussed, these are merely the means while full decentralization is the end. Second, the integration will enable a truly interoperable Web of blockchain networks, thus widening the scope for both innovators and investors.
- Cross-Chain Token Auctions: Innovators can auction their tokens outside its native ecosystem. For instance, a project on Ethereum can auction its tokens on, say, the EOS network. This will enable project owners to leverage the arbitrage in terms of transaction fees, scalability, and so on. Similarly, investors on the EOS network now have a wider range of projects to interact with, giving them a greater chance of yielding returns for their crypto assets.
- Cross-Chain OTC Deals: The integration will enable users to have peer-to-peer transactions across blockchains. The asset locking mechanism discussed in Phase II has an added feature called TrustSwap. In general, this allows token owners to create a pool in which only a specified wallet address can participate. This can have several use cases, including escrowed, time-defined transactions, and so on.
- Cross-Chain NFT Auctions: Similar to fungible tokens, the Non-Fungible Token (NFT) integration on Poolz can also be extended to work within the cross-chain ecosystem. The functions and benefits of this will be similar to those of cross-chain auctions for fungible tokens.
Much like the internet, blockchains need to be able to communicate with each other, so that processes running on them are interoperable. Only then, the technology can become relevant for day-to-day usage and achieve its promised goals.
Through the cross-chain integration, PoolzDeFi will substantially contribute to the much-needed interoperability of blockchains, while also making them more scalable. That too, while standing true to the project’s ideals of full decentralization. The platform strives to become a unified marketplace, where innovators connect with investors and conduct some of the most pivotal business functionalities. For regular updates, join our community on Telegram and Discord.
Poolz is a decentralized, swapping protocol for cross-chain pools & auctions of Fungible and Non-Fungible (NFT) tokens as well as OTC deals. The core code is optimized for DAO ecosystems, enabling startups and project owners to bootstrap liquidity for their crypto-assets prior to listing.
Poolz is a decentralized, swapping protocol for cross-chain token pools & actions, enabling Blockchain companies to bootstrap liquidity, prior to listing.
To keep updated on our progress, follow us at:
Telegram Announcements: https://t.me/Poolz_Announcements
Our live code on Discord: https://discord.gg/xwtWw4sGPp
Contact: Liam Cohen, CMO- Liam@poolz.finance