MultiChain: The Seamless Integrator of On-Chain Assets
by Evanarp, David Sim, Russell and Kaydon
Nothing following this constitutes financial advice, please do your own research!
Our research on Multichain was done in June, with the completion of this report on 14 June 2022. The delay in publishing this report was due to administration issues and the changing of Medium Accounts.
In recent years, the crypto ecosystem has both seen and facilitated the meteoric rise of numerous blockchains we are familiar with. Popular Layer 1 blockchains that have gained traction include the Binance Smart Chain, Solana and Avalanche, which are able to offer low transaction fees alongside high throughput. The numerous opportunities on nascent blockchains are also part of their allure. However, it is very challenging to transfer assets across different blockchains as they cannot communicate with each other. As such, bridging infrastructures that provide interoperability remains crucial for users to ensure flexibility in the wider crypto ecosystem. With at least 117 blockchains spread across it, such infrastructures have arguably become a fundamental and essential service.
The figure above illustrates the Total Value Locked (TVL) across all the different blockchains. Although Ethereum accounts for the majority of the TVL (~64%), the cumulative value that is locked across alternate blockchains still comprise a third (~36%) of it, which is approximately USD$28.1B. This points to rather significant activity on the latter, which reinforces the essentialness of cross chain bridging technologies.
Multichain.xyz is one of the largest providers of such a service, both in terms of TVL and the volume it handles. With it being able to bridge tokens and NFTs across 53 chains, its service comes in as one of our top recommendations in this continuously diversifying space. This is because Multichain provides for its users a seamless experience through its ability to bridge assets in a simplified and expedient manner.
How it works
Multichain, formally known as AnySwap, utilises two methods — (1) Cross-Chain Bridging & (2) Cross-Chain Router — to bridge selected tokens without any slippage. For (1), users will interact with Multichain’s smart contract to lock tokens on one blockchain via a Secure Multi Party Computation (SMPC) wallet address, and mints wrapped tokens on the destination blockchain. Conversely, (2) makes use of liquidity pools across different blockchains to trade bridged assets.
Multichain supports a series of blockchains with different underlying technologies such as Ethereum Virtual Machines (EVMs), Litecoin and Cosmos. On top of that, Multichain also bridges NFTs such as ERC721 and ERC1155 standard tokens.
Multichain uses a pegging system for some coins and tokens across different blockchains. Each bridge acts as a link between two blockchains. For example, assets from the origin chain (A) will be deposited into a smart contract and locked into a SMPC address residing on the same chain. Following which, the smart contract on the destination chain (B) will mint the stipulated tokens in a 1:1 ratio with those deposited in the origin SMPC address.
Cross-Chain routing predominantly uses liquidity pools on the respective blockchains to bridge the assets seamlessly.
If the native token already exists on both of the blockchain, it is not possible for Multichain to mint the tokens. In this case, Mutlichain uses liquidity pools for users to move the assets cross chains. Ideally, there needs to be sufficient liquidity on the destination blockchain in order to facilitate this process. To better illustrate this cross chain process, let’s imagine a user who is planning to move 2 $ETH from Chain A to Chain B. This can play out in 2 scenarios as delineated below:
In Chain B’s liquidity pool, there is sufficient liquidity for the user to receive 2 $ETH. Thereafter, the initial 2 $ETH from the user is added into Chain A’s liquidity pool for other users to bridge from other chains to Chain A. The total number of ETH remains the same throughout this interaction, unless someone opts to be a liquidity provider or wishes to withdraw his/her stake from the liquidity pool.
With sufficient liquidity in Chain B’s liquidity pool, the ideal bridging process takes place as shown above.
As with all liquidity pools, there can be cases where the liquidity on Chain B is insufficient. For instance, there is only 1 $ETH in the liquidity pool on Chain B, which is inadequate given that the user intends to bridge 2 $ETH. In this case, when the user bridges the $ETH, he will receive 1 $ETH (from the pool) and 1 $anyETH in his wallet on Chain B. Think of (any)token as a “redemption ticket”, which will be imbursed to the user once the liquidity pool on Chain B has been replenished. Once there is enough $ETH in the pool on Chain B, $anyETH is automatically swapped for $ETH and $anyETH would then be burned.
$MULTI is the governance token used for users to vote and participate in governance of the community and ecosystem. $MULTI token is evolved from Anyswap’s token ($ANY) and $ANY holders can redeem 1:1 for $MULTI. As such, $MULTI’s circulating supply matches that of $ANY’s. As for the uncirculated $MULTI tokens, they are locked in a smart contract, and their specific use is determined by the DAO.
Users can stake their $MULTI tokens across varying lockup periods and receive the corresponding amounts of veMULTI NFT. veMULTI NFT holders gain voting rights to MultiDAO as well as receive fees earned by the bridging protocol. Every quarter, veMULTI NFT holders receive 45% of bridging fees denominated in USDC. In Q1 2022 alone, Multichain has accumulated $3,901,975.04 of bridging fees that were distributed to veMULTI NFT holders.
Why $MULTI over other bridges
Fundamentally, $MULTI and other bridges sit firmly in the category deemed as “Chain-Agnostic Infrastructure”, i.e., protocols that provide a public good and are not relegated to a specific chain. No matter the narrative or the meta, the use case for such protocols cannot be refuted. Demand for cross-chain asset interoperability will always be present.
However, within this “scope of service”, we can observe fragmentation, with multiple protocols offering very similar services. In June 2022, as we emerge from a tech and hype-fueled stupor, prioritising nitty gritties that marginally differentiate protocols from each other, we observe usage coalesce around protocols that already harbour liquidity; liquidity begets liquidity. This can also be explained by the Lindy Effect; the older a technology or idea, the more likely it is to continue persisting.
While a reasonable case can be made that, especially in Web3, any one provider of a service will not come to capture all market share, $MULTI stands as the protocol with the largest market share. At $82 billion total value locked, it boasts 7.8x larger TVL than the next competitor, while also charging the 2nd lowest fees of all bridge services. This alone is bound to attract bridgoooors to use Multichain over other services. With especially volatile market conditions, a quick (requires lots of liquidity on both chains) and fuss free (cheap fees) experience is paramount.
$MULTI trades at cheaper P/E and P/S ratios than its competitors. Add to the fact that $MULTI has no other planned token unlocks or vestings for its seed round investors, and you get a token that is unperturbed by the huge market dumps that we have come to expect from VCs and seed round investors. This alone is attractive in a space where 100x returns for early backers can cause price action to never recover.
Additionally, only 18.77% of circulating $MULTI (i.e. 3 498 600) tokens are locked as $veMULTI, with an average locking duration of 3.8 years. A much smaller pool of $MULTI holders preferentially receiving yields of up to 220% (as per latest quarter of fees accrued) can cause market participants to buy into and lock $MULTI, therefore exerting upward price pressure in the medium term. In the long term, we can expect the use case of Multichain to further solidify and sustain demand for $MULTI.
In time to come, there will only be more blockchains that are added to the crypto ecosystem. Given how MultiChain is able to offer a massive range of assets (EVM & non-EVM) that other bridges struggle with, we strongly believe it is well positioned to leverage this ever-growing space. Furthermore, Multichain is able to integrate other blockchains swifter than that of centralised exchanges and other bridging providers, proving their continuous ability to front run their competitors.
Therefore, its technical capabilities and established foothold in the ecosystem translates to more users, both pre-existing and new, utilising its service. We foresee Multichain supporting more chains and playing an increasingly imperative role in integrating on-chain assets, both in the near term and future.