The Future of DeFi is Cross-Chain
With all of the focus on the growth of decentralized financial systems on the Ethereum blockchain, it’s easy to miss the broader story that is happening across crypto. While the “degens” get all the attention, the real work of bringing DeFi to the masses is happening around the globe across, and between, a growing set of layer 1 networks.
Five chains that are developing competitive DeFi systems today
Polkadot is one of the most heavily favored contenders to Ethereum developing a DeFi ecosystem. The Web3 Foundation which backs Polkadot has raised almost $200mn over its lifetime and Polkadot is the highest market cap Proof of Stake network. The current Polkadot landscape has several high profile projects, including Acala, Moonbeam and Edgeware, working on building primitives and more complex systems as well as a long tail of projects from scrappy beginnings to venture backed. Over the next several months, Polkadot will begin auctioning parachain (parallel blockchain) slots, where projects will vie for the ability to launch their services.
Solana is another network that arose from the shadows backed by heavyweights, FTX and Multicoin Capital. The most interesting developments on their platform is the launch of Serum and their proposed bridge to Ethereum, Wormhole. FTX is responsible for Serum, a decentralized derivatives exchange, and is a formidable competitor because of FTX’s roots as an exchange as well as the team’s initial foray into crypto market making via Alameda Research. Solana has also integrated other projects like Tether onto their network and continue to develop other projects like Wormhole to bring their native token, SPL, to Ethereum.
Tezos is another behemoth in the crypto space with a Foundation war chest of nearly $1 billion in funding. Tezos launched as a governance-first platform and as this year comes to a close, we are starting to see the launch of DeFi products. Thus far this year, a couple of tokens have launched, but more recently, DEXter, a decentralized exchange, went live. Other projects in the pipeline near deployment include another decentralized exchange, Quipuswap, stablecoin implementations like Checker and Kollibri, and our very own product, Wrapped Tezos.
Algorand may appear quiet on the DeFi front, with teams publicly focusing on CeFi solutions like USDC and USDT for stablecoins as well as the securitization of private markets. That said, behind the curtain, there are active ecosystem participants like Borderless Capital, LongHash Ventures, and the Foundation itself supporting projects coming to market. H1 2021 will likely debut projects including IDEX while our own product, Wrapped Algorand, is expected to be available as early as December 2020.
Cosmos may be last on my list but is also one of the most active L1’s building a “parallel” DeFi ecosystem to Ethereum, as covered by Messari. Cosmos has teams building functionality across the spectrum: Kava and Terra as stablecoins, THORChain as a DEX, and Band Protocol as an oracle. We included Cosmos’ native token ATOM in our Blend index of top PoS chains because of this advancement and we hope the StakerDAO community brings Cosmos based projects to the table.
These five networks are some of the most interesting for us, however, we acknowledge other high quality projects like Near Protocol, Ava Labs, Binance Smart Chain and others are under development as well and we hope our community considers adding those networks to the StakerDAO asset factory in the year ahead.
Five projects that are building bridges for DeFi
Note: Most of the projects below are in the process of rolling out their bridge technologies and do not consider their solutions fully released to mainnets.
While we love the projects emerging on these layer 1 networks, we know that cross-chain interoperability is the path to maximum value creation for users. With this in mind, we highlight 5 projects that are building bridges between chains so that value can transparently flow.
Keep (Bitcoin <> Ethereum) The Keep Network is developing a bridge technology between Bitcoin and Ethereum. Their BTC token on ethereum is called tBTC, and is designed to be fully backed by the value of 1BTC. In Keep’s model, a consortium of Keepers run services on both the bitcoin and ethereum networks, and collaborate with each other to store BTC, mint tBTC and maintain sufficient pledged collateral (in ETH and in Keep’s governance token KEEP) to stay overcollateralized regardless of any issues faced through the model. In return, the KEEPers capture a fee for each tBTC minted.
REN (Bitcoin <> Ethereum, BCH <> Ethereum, ZEC <> Ethereum) REN started out live as Republic Protocol but pivoted to providing bridge technologies between networks in 2019. The technology vision is large — provide an automated series of “dark nodes” that anonymously collaborate to manage bridging tokens between layer 1 networks. Today, the network draws scrutiny for being centralized and even the CEO points out that his team has broad control over bridged assets, but the long term vision is to allow anyone to bridge any asset between any blockchain.
StakerDAO (Blend <> Tezos, Blend <> Algorand, wXTZ <> Ethereum, wALGO <> Ethereum, ETH <> Tezos, STKR <> Ethereum, Tezos, Algorand) StakerDAO is the cross-chain asset factory, and has developed the StakerBridge protocol to allow users to move these assets from one chain to another. For example, StakerDAO provides an ALGO Vault on Algorand which generates wALGOs, and then a bridge to ethereum so users can trustly move their wALGOs to ethereum. StakerBridge is a trustless system for moving specific tokens between specific chains. The coordination of StakerBridge treasuries that fund and burn token supplies is controlled via a multisig process managed by elected members of the StakerDAO community.
Moonbeam (Polkadot <> Ethereum) The ambitious Moonbeam project is an ethereum compatible smart contract parachain on Polkadot. This means that Solidity contracts can be run natively on Moonbeam, and any DeFi project on ethereum could be cloned on Moonbeam with access to the Polkadot ecosystem. This does not mean that ethereum based tokens instantly appear on Moonbeam. Instead, a wrapped version of those tokens will need to be created and value will be bridged between the chains. Moonbeam has revealed limited plans related to their bridge architecture including a one-way state migration, and a point-to-point integration framework. More to come for Moonbeam as they roll out on Kusama in late 2020 and then Polkadot in 2021.
Wormhole (Ethereum <> Solana) Solana has positioned itself as an Ethereum challenger, and it wants to grow that reputation by bridging ERC20 tokens to Solana. Wormhole is being developed by Certus.one to let users lock ER20 tokens in an Ethereum smart contract and mint corresponding SPL tokens on Solana. This architecture will rely on “cross-chain oracles” called guardians, which will be operated by node operators that include top Solana validators and other ecosystem stakeholders whose incentives are strongly aligned with Solana. The project is expected in 2021.
What DeFi looks like in 2022
Now for a bit of speculation! One of the foundational principles of StakerDAO is that we need to pave the way for mainstream adoption of crypto, and this will require solutions that look a lot more like a bank or mutual fund company, than they look like an engineering command line tool.
2021 has the makings to be a big year in crypto and DeFi awareness, setting the back half of the year up for massive mainstream adoption. 2021 also looks like the year for the Ethereum stranglehold on DeFi to change. Between the growth of projects on other blockchains, the congestion and fees on Ethereum and the uncertainty surrounding Eth2, it’s a make or break year for the other L1 competitors.
For StakerDAO’s part, I expect to see a dramatic growth in the size and participation of our community. The addition of more wrapped tokens and index products, coupled with the launch of our liquid governance token in early 2021 will drive awareness and participation. I can’t wait to see what the future holds.
