Sumer Multichain Asset Class — The missing piece in DeFI Lego
The growth story of Decentralized Finance (DeFi) and the multi-chain ecosystem has been staggering. With the continued adoption of WEB3 and the blockchain ecosystem, the reinforcing network flywheel effect will play a critical role to onboard new users, enterprises, and developers into this vibrant ecosystem.
Key Trends driving blockchain and DeFi ecosystem:
The present and the future is multi-chain
We see the evolution of blockchain platforms to be analogous to the internet of the mid-1990s — both in terms of the infrastructure and the ability to spur new business models and improve operational efficiencies.
The adoption of blockchain technology by Enterprises in the near to medium term will be earmarked by varying objectives and use cases as they venture into new business models. We concur with the BCG analysis on the key areas that the Blockchain ecosystem has the capability to support;
New Business Models
e.g. Decentralized Finance — Blockchain-based banking and financial applications, track and trace or analytics services based on data captured by blockchain.
Improved Operational Efficiency
e.g. Audit and regulatory compliances - generating significant time and cost savings.
Improved Risk Mitigation
e.g. Blockchain-related applications to improve tracing and authentication across the supply chain
Wider Social Impact
e.g. Support a variety of initiatives like voting and election management and ethical sourcing.
These varying objectives and use cases warrant varying architecture, consensus mechanisms, token types, and other characteristics paving the way for a multi-chain ecosystem.
Even across similar use cases of Decentralized finance and NFTs, any single blockchain infrastructure is not scalable enough to target mass adoption.
The blockchain ecosystem will scale similarly to how the internet scaled horizontally through the TCP/IP protocols and enabled disparate enterprise network communications to be interconnected and reach broader audiences.
DeFi growth and its impact on composability
Though the introduction of new blockchain networks and decentralized applications are a critical part of the broader adoption of DeFi and WEB3, they have collectively crippled the DeFi composability due to inefficiencies introduced in the primitive at the core of WEB3 adoption — Assets/ Tokens
The key adoption challenges introduced by these stakeholders are;
Blockchains
Introduction of wrapped assets that are non-fungible with the assets on the native chain
- ETH on Ethereum ≠ ETH on Binance Smart Chain ≠ ETH on Avalanche
Interoperability Solution/ Bridges –
Deployment of wrapped assets by different bridging solutions that are non-fungible with the same native asset on the same chain. Each decentralized application has chosen to deploy assets provided by different bridging solutions
- BTC on Ethereum by WBTC ≠ BTC on Ethereum by Binance ≠ BTC on Ethereum by Ren
Deployment of wrapped assets by the same bridging solutions that are non-fungible with the same native asset on another chain
- ETH on BSC by Multichain ≠ ETH on Moonriver by Multichain ≠ ETH on Avalanche by Multichain
Decentralized Applications
Support of wrapped assets that are non-fungible on the same blockchain
- One DEX supports BTC by WBTC whereas another DEX on the same chain supports BTC by Ren
Instead of focusing on transmitting information securely, each solution (blockchain/Bridge/dApp) has chosen to create its own liquidity solution on the application layer causing “liquidity walls’’. In addition to liquidity walls, this approach has also fractured the direct communication channel between smart contracts. Imagine connecting to the Internet through “proxy servers”, the functionality of cross-chain smart contracts is greatly limited by these “proxy servers”.
The missing piece in the DeFi Lego
One of the most important primitives in the blockchain token economy is a crypto asset.
And, we are witness to the growth of the DeFi ecosystem that has impaired the composability of these crypto-assets across the web of interconnected networks.
In order for crypto assets and smart contract communications to travel seamlessly and interact, collaborate, share, and make transactions with multiple entities across numerous platforms, there has to be a common abstraction for data communications like the TCP/IP protocol.
For the financial Internet, we were still missing such a protocol stack. Until the introduction of Sumer.Money!
