The next era of DeFi starts with crossing this bridge

This article comes from hackernoon

Original author | Adam Boudjemaa

Translator | Katie Gu

Produced by | Odaily Planet Daily (ID: o-daily)

Imagine one day you enter a coffee shop and find that you can pay with ETH, but you only have Bitcoin in your wallet. If this situation becomes a reality, then we need to discuss the current problem of "lack of interoperability" in the blockchain ecosystem.

What is interoperability (cross-chain)?

Interoperability is simply "cross-chain communication", where two or more completely different systems communicate with each other and conduct transactions. However, most payment architectures in traditional financial systems are not interoperable.

Depending on how the store accepts payment, you can use a credit or debit card to purchase items. If you are traveling abroad, as long as your bank card is interoperable, you can pay regardless of the local currency, which is the advantage of interoperability.

In the blockchain field, interoperability means that two or more blockchain systems can communicate with each other and conduct transactions. For example, if you buy coffee at a coffee shop, as long as both stores use a decentralized payment system, even a store that only accepts Bitcoin payments can be paid with ETH. However, this situation does not exist in reality yet.

A web service with an API (application programming interface) can communicate with a specific web service. The API acts as a communication layer between the web service and other servers in the network. However, there is currently no cross-chain communication protocol for blockchains, only independent systems.

You can notice that the entire blockchain industry is progressing, as shown in the above chart, many protocols are similar. But it cannot be ignored that some past solutions actually laid the foundation for the development of our current cross-chain communication and interoperability platforms.

In order to solve the problem of cross-chain interoperability, we must first address the various limitations and inefficiencies that currently exist. Let’s discuss them together.

Centralized interoperability

In the payment process, many third-party centralized methods provide convenience for cryptocurrency conversion. But why do we still need this centralized intermediary?

When I need to use an intermediary, I can use a credit card or a service like PayPal, which is more convenient.

Most centralized systems have custodial wallets. When you spend different cryptocurrencies, you can convert currencies independently through Atomic Swap or based on market currency rates.

Atomic Swap

Atomic swap is a cross-chain transaction technology that allows users to convert currencies on a point-to-point basis.

Atomic swaps use a set of contracts called Hashed TimeLock Contracts, or HTLCs for short. Through HTLCs, transactions can be conducted in different network environments. In the atomic swap process, there is no real cross-chain communication between the two networks, but both parties allow cross-network transactions through time-locked contracts.

However, atomic swaps have a limitation. Both blockchain networks need to use the same hashing algorithm and support the execution of HTLC (Hash Time Lock Contract), and currently only a few blockchains share the same hashing algorithm.

Wrapped Bitcoin Contract (WBTC)

Wrapped Bitcoin Contract (WBTC) is a special smart contract that provides cross-chain communication between Bitcoin and Ethereum networks. WBTC is an ERC-20 token that is pegged to Bitcoin at a 1:1 exchange rate.

In the WBTC contract, a third-party custodian holds BTCs and issues a certain number of WBTC tokens, just like ERC-20 on Ethereum. In the WBTC circle, there is a function called "destruction", which is a way to buy back BTC and a sign that the merchant has issued BTC.

There are two problems in the WBTC contract. The first is that the contract only applies to Bitcoin and Ethereum, and the second is that it still relies on third-party custody, which is still centralized in nature. Receiving WBTC requires the custodian or merchant to pass KYC certification and anti-money laundering (AML) steps, and the entire transaction can only be completed after the user's identity authentication is successful.

pTokens

pRToken is a cross-blockchain solution developed by Provable Things. All pTokens can be pegged to other related assets. Anyone can pledge a certain amount of assets (such as EOS and BTC) on the relevant pTokens smart contract and peg it to pEOS and pBTC at a 1:1 ratio.

pTokens use a Trusted Execution Environment, or TEE. TEEs are hardware located in a sandbox that has security features and provides a secure execution environment.

TEEs securing the pTokens infrastructure represent another layer of protection for the network. TEE operators are validators, ensuring the issuance of pTokens or other assets.

Why is cross-chain interoperability important for DeFi?

DeFi, or decentralized finance, is a set of financial services delivered through smart contracts on the blockchain in a decentralized environment. So far, blockchain has subverted the original monetary system through a peer-to-peer monetary system.

However, what is the impact on financial services like banking, lending, savings, etc.? This is what we are talking about DeFi (decentralized finance) bringing the traditional financial services ecosystem into the world of blockchain and cryptocurrency.

“We’ve disrupted the monetary system, let’s reinvent the entire financial system.” This is the motivation behind the DeFi movement.

But without cross-chain interoperability, the DeFi movement will be nothing more than a fleeting event. Imagine that each blockchain represents an economic development. If they cannot cooperate with each other, the entire ecosystem will not be able to develop and will not be able to take over the entire traditional finance.

Currently, blockchains are developed independently, which makes it impossible for chains to communicate and trade with each other. Therefore, third-party hosting services are born, which makes the ecosystem more and more centralized, and the decentralized nature of blockchain becomes increasingly unclear.

The DeFi world is developing rapidly, and a large number of projects are beginning to develop cross-chain communication platforms that can solve custody and interoperability problems. These platforms, which we will discuss next, will change the phenomenon of the DeFi industry and promote development and application implementation. The blockchain network will pave the way for a new financial system in the future.

Cosmos

Cosmos is committed to achieving communication and interconnection between individual blockchains. The Cosmos network is based on Tendermint, using Byzantine fault tolerance based on proof of stake (PoS) and a peer-to-peer gossiping protocol like Bitcoin.

To achieve interoperability, the Cosmos project follows the Inter Blockchain Communication Protocol (IBC) model. The Cosmos blockchain is based on Tendermint and consists of the following two components:

Hub - Hub is the main blockchain of Cosmos and is based on Tendemint; Zones - Zones are autonomous and independent blockchains connected to the Hub.

Independent zones can issue or connect to any external blockchain network such as EOS or Ethereum. The communication between hubs and zones is achieved through the common IBC protocol. For example, hubs and zones are based on the Tendermint protocol, but can independently issue ERC-20 tokens.

Since we have hubs, why do we still need zones as an independent layer? This is because blockchains use different languages, and zones are bridges or channels for those external incompatible blockchains to communicate. Each external blockchain needs an independent zone and hub connection.

Hub is like a decentralized exchange, where all tokens are converted through atomic swaps, which greatly increases the circulation between networks. In terms of consensus, the Cosmos blockchain uses ATOM tokens, which are equivalent to the collateral of all participating Proof of Stake (PoS) consensus nodes. If the Proof of Stake (PoS) nodes encounter malicious attacks, their collateralized ATOM tokens will be automatically destroyed, and all participating nodes on the network will also be transferred.

Fusion

As a cross-chain interoperability platform, Fusion is committed to decentralized financial services for the masses and provides a series of interoperable financial products.

Fusion has established a set of finance-related application programming interfaces (APIs) that allow developers to build cross-communication financial applications based on blockchain protocols, which will lead the next generation of financial innovation.

Fusion has also been redefined as the "Internet of Value", which is limited to value exchange through the Internet. The Fusion platform recognizes the value of the Internet. In fact, value is not only realized through transactions, but also through availability, scalability and interoperability.

Fusion is a platform that focuses on interoperability and scalability. Fusion uses a new consensus mechanism called Ticketed Proof of Stake (TPoS), which is a custom consensus that protects transactions on the Fusion network. The average block time on Fusion is close to 15 seconds and supports a throughput of 2500 to 3000. Fusion is currently ranked 12th on coinstats, making it one of the most frequently used networks.

To achieve operability, Fusion uses its patented technology - Distributed Control Rights Management (DCRM).

DCRM distributes and stores private keys on network nodes by using shards. In the traditional custody model, the keys are kept by a centralized server, which increases the possibility of being compromised. In DCRM, the keys are not kept by a central server, but are divided into many shards and encrypted and distributed on the global network.

Leading innovative cryptographers from around the world are also involved in the DCRM project, including Rosario Gennaro, professor of computer science at the City University of New York, Steven Goldfeder, a postdoctoral researcher in Cornell University's computer science department, Louis Goubin, professor of computer science at the University of Versailles, and Pascal Paillier, senior security expert and CEO of CtyptoExperts.

Fusion is one of the platforms that can build financial applications, with a large number of financial application programming interfaces. Fusion has all the common functions in the financial industry, but these functions are not available on other chains.

With the time-locking function, Fusion reconstructs time-based financial transactions, and users can obtain time value from their digital assets. In today's financial market, some institutions establish financial structures and obtain time value from assets to meet market demand, such as bonds, futures, etc.

This approach is very expensive, inefficient, and takes days or even weeks to launch these financial facilities. Fusion has invented a fast and efficient way to get time value from assets. Fusion's time block locking feature embeds time value digitally. This allows anyone to exchange time value on Fusion's decentralized and trustless quantum exchange.

The Fusion wallet has a short address scheme for the Universal Short Account Number (USAN). This is a unique account in the ecosystem, and any digital assets using the Fusion Quantum Exchange can be traded, which provides users with a unique account for each transaction.

With a unique consensus mechanism and various technical supports, Fusion is trying to establish true cryptocurrency finance and decentralized finance, and focus on developing feasibility, scalability and interoperability.

Anyswap Protocol

Unlike the platforms we discussed earlier, Anyswap is unique and based on the DCRM protocol. From a technical perspective, Anyswap is an automated market maker (AMM), just like Uniswap. Users pledge digital assets on Anyswap and trade them seamlessly with other assets, all in a decentralized environment.

The exchange pairs provided by Uniswap are limited to Ethereum and ERC-20 tokens, while Anyswap is more advanced and allows cross-chain token swaps, which brings higher circulation. As of now, the Anyswap platform supports Fusion (FSN), Tether (USDT) and Ethereum (ETH). In the future, Bitcoin, Ripple and Litecoin will also be added to the platform as exchange pairs.

The only limitation of Anyswap is that only 95% of the total amount of tokens can be exchanged or there is no further exchange of token types or tokens using ECDSA/EdDSA as the signature algorithm.

The Anyswap architecture consists of three main components:

Decentralized cross-chain bridge - using the DCRM protocol, users can pledge tokens and trade digital assets; cross-chain exchange - with fast asset liquidity, users can quickly swap between currencies; price programming and liquidity - Anyswap has an automatic pricing system set by algorithms and supported by liquidity providers. Liquidity providers can add or limit the circulation quantity entering the exchange pair, and the automatic pricing system will reset the appropriate price.

Anyswap is a fully decentralized cross-chain exchange protocol built on Fusion's DCRM protocol. Platforms like Wanchain and Anyswap not only focus on interoperability but also on high-speed liquidity, which meets the development needs of the decentralized financial ecosystem. Anyswap has specific limitations on its supported signature algorithms, but the technology is developing very rapidly, and we can expect these problems to be solved one by one in the near future.

Polkadot

Polkadot is a network that connects different blockchains through a unified platform. In depth, Polkadot has the same architecture as Cosmos. Its main chain is the relay chain, which connects different blockchains through bridge chains.

Let’s analyze the components of the Polkadot network to better understand how the platform works:

Relay Chain - The Relay Chain is the main chain of Polkadot, just like the "Hubs" of the Cosmos network, connecting all independent blockchains; Parachains - Parachains are parallel chains that are built on the Polkadot layer and run in a parallel manner, just like the "Zones" of the Cosmos network; Bridge Chains - These separate blockchains connect external blockchain networks such as Ethereum to the main relay chain. All cross-chain communications and relay chains of external chains must go through bridge chains; Validators - There are some nodes on the Polkadot network that are responsible for verification functions and adding blocks to the relay chain; Collators - There are nodes on the parachain that are responsible for collecting all transactions and adding them to the transactions of the block, which will then be added to the main relay chain.

All of the above architectures are clearly structured. Although Polkadot and Cosmos are similar in many ways, the governance mechanisms are different and improve operability and introduce cross-chain communication with independent bridge chains.

The transaction volume and verification process are still completed independently, which means it is more efficient. The Polkadot network has DOT tokens as fuel, which are used in governance and to pay transaction fees.

Wanchain Platform

Wanchain has an entire independent infrastructure, focusing on developing digital asset trading services between different blockchain networks through a unified architecture. It is a currency-agnostic platform that provides interoperability between different blockchains.

The biggest advantage of the Wanchain platform is its "cross-chain asset trading" function, which is different from other competing platforms. Wanchain can be connected to all major blockchain platforms, such as Bitcoin, Ethereum, EOS, etc. Wanchain can achieve asset conversion without exchanging any original assets or going through bridge chains.

All blockchain groups, including companies, whether public or private, can directly connect to the Wanchain protocol and transfer assets to the Wanchain platform. This transfer is bidirectional, and assets can also be transferred from the Wanchain platform to the original blockchain network.

The Wanchain protocol has high security and built-in privacy features, so assets are absolutely safe during the transfer process. Wanchain achieves high security through the combined effects of multi-party computing power, threshold key sharing, ring signatures, and one-time addresses.

The interoperability architecture provided by Wanchain focuses more on digital asset conversion, trading, investment, lending and exchange, rather than data sharing. If a decentralized application (DApp) uses the IPFS or any decentralized cloud storage solution, data reading and modification will not be allowed, and only "digital asset" related operations can be performed.

In the decentralized industry, we really need platforms like Wanchain as this will bring higher liquidity to the market. Decentralized finance is about digital finance in a decentralized ecosystem. Platforms like Wanchain facilitate all decentralized services such as lending, investment asset conversion, and mature exchanges.

Ren

Ren is another great project that is committed to universal interoperability. Any asset on any chain can be converted to any application, and the total amount is unlimited. Sounds amazing, right? Let's take a deeper look at how Ren does it:

Ren enables universal interoperability through various technologies, specifically RenVM, a decentralized, unrestricted, trustless hosting using a tokenized representation model.

In the tokenized presentation model, users lock up assets with a custodian. The custodian develops a backup token on another chain with a 1:1 ratio. The problem with this model is that in most cases, the custodian can only be fully or partially centralized. On the other hand, RenVM solves this problem, but in a completely decentralized and trustless way.

RenVM uses the RZL MPC algorithm to manage ECDSA keys without modifying or leaving any records. It uses a combination of algorithms to adjust fees to ensure that the other party has no chance to take advantage of the attack. RenVM solves many technical and economic problems in existing interoperability design issues.

RenVMZ supports the following three types of cross-chain transactions:

Lock and Mint - A user initiates a transaction and uses both the original chain and the main chain. For example, when sending BTC from Bitcoin to Ethereum, the transaction is locked while going through the RenVM process, and after verification, new tokens are re-minted at a 1:1 ratio with the locked asset; Burn and Issue - The next transaction is the opposite of Lock and Mint, where the user transfers assets from the main chain to the original chain, and the pegged asset from the main chain is destroyed. The native asset is sent back to the original chain; Burn and Mint - There are several very interesting transaction types where users can transfer assets from the main chain to other chains, including "Burn and Issue" and "Lock and Mint" transactions. However, transactions require multiple rounds of operations on RenVM, and the original blockchain fees are not cheap, which makes the final transaction fees very high. To solve this problem, RenVM supports Burn and Mint transactions when users destroy the pegged asset on the main chain and mint the same amount of assets on another main chain. For example, the process of transferring BTC from Ethereum to Polkadot.

Summarize

The decentralization train is moving forward at an accelerated pace. Lack of interoperability is currently the biggest obstacle to the development of the platform. There have been many corresponding solutions in the past, but they all have limitations of varying degrees. However, they have laid the foundation and accumulated expertise for the development of future platforms.

Among all the platforms mentioned above, Fusion is the most decentralized platform. With the help of DCRM protocol, true decentralization can be achieved. The threshold signature scheme (TSS) and multi-party computing power (MPC) of shard keys make centralized services such as custodians no longer meet the conditions of decentralized finance. Fusion's DCRM protocol on Anyswap increases the circulation of digital assets. The foundation laid by Fusion provides a reference for the low handling fees and integrated development of other platforms and decentralized applications in development. One platform alone cannot solve all cross-chain interoperability problems. We look forward to more platforms working together in the future to meet these challenges together.

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