Published 1 year ago • 4 minute read

How Cross Chain Technology Is Impacting The Growth of DeFi

The vision for blockchain when being created was to be a fully autonomous system living in a self-sufficient universe without the need of interacting with other blockchains and other external platforms. However, this is largely impractical and inefficient for the booming blockchain space, as blockchains require communicating and sharing data to scale the ecosystem. 

As such, interoperability has become a huge challenge that platforms are trying to solve hence the wide development of cross-chains and relay chains. 

How Cross Chain Technology Is Impacting the Growth of DeFi

Understanding Cross Chain Technology in Blockchain

Simply, a cross chain is an emerging technology across the blockchain field that provides an interconnection between multiple networks, allowing proper communication between the previously closed systems. Via cross chains, blockchains can send information and transfer value between blockchain networks, which helps users easily trade, swap tokens, run different blockchain applications, and transfer data in an intertwined distributed ecosystem. 

Cross chains also allow blockchains to directly connect to each other without the need for an intermediary. They operate separately and transfer data independently, which ensures it inherits none of the shortcomings either of the connected blockchains has such as high gas fees, slow transaction times, and centralization aspects. 

Since the rise of decentralized finance (DeFi) in 2020, cross chains have become more popular, improving value transfer and boosting transactions made in the ecosystem. Cross chain implementation is essentially the backbone of DeFi with the most popular cases of implementation being asset swaps and transfers across blockchain networks. 

Over the last few years, a number of cross chain projects such as Wanchain, Polkadot, Cosmos, and t3rn (a project on Polkadot) have seen widespread adoption, each offering a different aspect of interoperability. For instance, t3rn is an open-source smart contract hosting platform that provides interoperable smart contract execution with fail-safe mechanisms built-in. This means platforms communicating across multiple chains can always be guaranteed execution. 

On the other hand, Wanchain aims to build a distributed asset transfer platform, whereby users can efficiently transfer, save, and trade assets across any blockchain network. Cosmos provides a base that supports other blockchains using zones connecting to a central protocol called the Hub while Polkadot allows users to share smart contract data across blockchain networks using relay chains. 

The Top Cross Chain Projects in Defi

As mentioned above, the cross chain innovation has boosted the overall DeFi ecosystem, and in extension the crypto market. Cross chains help users circumvent the high gas fees on Ethereum, scalability issues on Bitcoin, and inefficiency across other chains, while maintaining a secure and decentralized approach. 

This has led to more projects being crafted up to give any potential crypto user a channel to communicate across independent blockchain networks. Some of the top cross chain projects include Wanchain, Polkadot-based t3rn, and Cosmos ($ATOM). 

Wanchain: Providing Interoperability Solutions to Decentralized Banks

As alluded to, Wanchain aims at providing asset swaps and transfers on one network, creating one big blockchain marketplace for all users. According to its website, Wanchain connects and exchanges value between different blockchain ledgers in a distributed manner. It uses the latest cryptographic theories to build a non-proprietary cross-chain protocol and a distributed ledger that records both cross-chain and intra-chain transactions. 

Any blockchain network, whether that be a public, private, or consortium chain, can integrate with Wanchain to establish connections between different ledgers and perform low-cost inter-ledger asset transfers. Apart from supporting smart contract interoperability, Wanchain also offers institutions and individuals an opportunity to set up their own “teller” and provide services such as loan origination, asset exchanges, credit payments, and transaction settlements based on digital assets. 

T3rn: Fail-Safe Interoperable Smart Contract Execution

t3rn is a Polkadot-based cross-chain platform that provides fail-safe mechanisms for smart contract execution. The protocol provides uniform standards of integrating new smart contracts and transaction-based blockchains using unique interoperable ‘gateways’. Additionally, the platform adds a layer of safety via its fail-safe mechanism that ensures execution changes are escrowed so that they can be reverted if they fail. 

Adding to this, the smart contract code is separated from data and execution is standardized, which makes designing new smart contract systems easier than ever. t3rn has also been created to serve open-source developers, with a smart contract repository that developers can contribute to and opt to be remunerated every time somebody utilizes their code.

Cosmos: Inter-Blockchain Communication Hub

Unlike the two projects above, Cosmos concentrates on building its own ecosystem that communicates, shares information, and transfers value across other blockchain networks. The apps on the blockchain connect using the Inter Blockchain Communication (IBC) protocol and work as an ecosystem around the Cosmos Hub. The Hub allows users to exchange assets, provides a router between networks, and also provides custodial services.  

Conclusion 

As the blockchain space grows and application development booms, communication between blockchains will be crucial to ensure the scalability of the ecosystem. With tens of cross chain platforms currently in operation and even more being built, these three show potential to take over the DeFi ecosystem in the coming years.

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