Most agree that a multi-chain future is near, and highly probable: but beyond basic interoperability between blockchains, this future is rather vague. What forms will decentralized applications take?
In this post, we’ll dive deep into the problems that arise from the imminent multi-chain future, the current state of interoperability affairs, and how dapps in this ecosystem are likely to develop.
Starting from Scratch
Why is interoperability important?
The multi-chain world is here, and it’s one of the most pivotal upgrades in crypto’s short history. Born out of a need to scale crypto to millions of users, a large set of new blockchains launched offering developers a wider array of design choices to create more custom user experiences. Tradeoffs between security, speed, and scalability are inherent in decentralized application design and these decisions naturally create fragmentation.
While fragmented blockspace has enabled more users to onboard into crypto, it has also created a number of issues, namely illiquidity and fragmented liquidity. Having multiple blockchains constrains composable blockspace by making it necessarily difficult to transfer data and state across chains.
Layer 2s are another important topic when discussing fragmented blockspace and modularity of blockchains. Optimism and Arbitrum popularized optimistic rollups, and Starkware has processed billions of dollars in volume on StarkEx (the custom L2 built for dYdX), establishing a strong proof of concept for L2s. As more Layer 1s and decentralized applications use L2s for execution environments, interoperability between chains becomes more of a necessity to enable scaling.
At this point in crypto’s life cycle, it is abundantly clear that the future is multi-chain, where different blockchains compete for market share and attract new sets of builders, helping create new ecosystems in which communities thrive. Some protocols, which may be native to another chain, are increasingly looking to interact with those communities and capture revenues derived from that chain’s activity (Such as Opensea).
The importance of composable blockspace
Jevon’s paradox is the idea that when technological progress increases the efficiency of a commodity, the falling costs increase demand for the commodity. Blockchains and blockspace follow a very similar paradigm: the more reliable blockspace available, the more applications and demand there is for the network. Following the development of Ethereum, new primitives like AMMs, stablecoins, and NFTs were developed and found product market fit.
In this way, new use cases for cross-chain applications will ensue from the availability of more blockspace. Imagine a world where your favorite dapps accept currency from any blockchain, transactions are executed on rollups creating cheaper fees, and unified liquidity creates financial markets with deep liquidity and offers execution at the best prices.
Blockchains are not just distributed computing environments, but also social networks that come with their own set of beliefs and tradeoffs. While additional blockchains are not the only way to increase blockspace, they create an entirely new design space for developers to build applications and downstream user experiences. In addition to the importance of blockspace itself, the composability of the blockspace is increasingly important in our environment today as it allows for a more streamlined use of applications. The future will be multi-chain and bridges are the first stage in composing this fabric of blockchains.
Blockchain interoperability offers several primitive solutions to liquidity issues. The first iteration of blockchain interoperability protocols are cross-chain bridges which introduce a new set of design and safety assumptions that allow users to bridge assets between chains.The importance of bridges has been reinforced by the launch of an increasing number of L1s blockchains without a native bridge and the rise of optimistic L2 rollups (Arbitrum, Optimism, Metis) , where bridging back to mainnet takes 7-days. While safety assumptions, speed, and trust are important vectors for any protocol, users tend to value user experience as the main reason for using a specific protocol.
The next implementation of traditional asset bridging is protocol owned user bridging experiences. Now that the security tradeoffs and speed of different bridges are relatively transparent, protocols will look to control the user experience by using bridge infrastructure instead of routing users elsewhere. This creates a symbiotic relationship between protocols and bridges where the userbase can can cross pollinate.
The Synapse SDK creates a new paradigm for developers to take advantage of this bridge technology. It is built to enable:
- In-app cross-chain contract calls
- Arbitrary messages cross-chain
- Protocol ownership over cross-chain user experience
(Explore the SDK here)
A basic implementation of the SDK and a cross-chain swap quote being loaded.
Newer developments in the bridge space include the bridging of alternative assets, like NFTs. Last month, Synapse supported DeFi Kingdoms in creating a custom bridging solution to bridge the in-game NFTs to DFK chain and back to Harmony; over the first couple of weeks, Synapse bridged over 10,000 NFTs between chains. The bridging of custom assets is the first proof of concept in the most interesting technology to enable interoperability: generalized cross-chain messaging.
Snippet of messaging functions
The technology itself is rather simple. Generalized cross-chain messaging enables developers to utilize Synapse to send customizable messages in arbitrary formats, creating a new design space for protocols.
What to build next?
Now that we have interoperable protocols, why is it necessary that dapps live on several chains themselves? After all, bridges solve a lot of the liquidity issues posed by a multi-chain blockchain ecosystem and in some ways have increased the velocity of crypto asset issuance. In some scenarios, using a blockchain’s native bridging solution is much easier than using fiat on-ramps.
In-reality, bridges only solve one of the two serious problems that segregated blockspace creates. Bridges alleviate the liquidity issues caused by fragmented blockspace as now users can move between chains without the need of a centralized exchange or poor native bridge infrastructure. More importantly, fragmented blockspace implies fragmented liquidity, which is problematic for both protocols and users, which tend to stick with the best possible UX. Fragmented liquidity bounds the positive externalities of network effects for protocols and end users.
Interchain apps effectively unify liquidity across all supported chains. This not only acts as a distribution mechanism for isolated ecosystems, but also offers cheaper prices, and a more user-friendly experience for blue-chip apps.
Becoming an interchain app comes with an entirely new set of design decisions to make. One that carries some weight is that the app will inherit the security of the weakest chain it supports, which Vitalik has previously asserted. Despite this, protocols have the choice to support networks they believe are sufficiently decentralized and in the same way that a protocol thinks about security of the singular chain they would build on, they will consider security tradeoffs for chains they interact with.
With cross-chain messaging infrastructure, protocols now have tools to build out complex cross-chain ideas, the bulk of which likely hasn’t been fully materialized. Protocols like AAVE have experimented with cross-chain governance, Gamefi apps support assets from different chains, and new primitives in cross-chain lending are all being explored.
Building for the future
What happens next? The idea space for cross-chain protocols is largely unexplored and unpredictable. From cross-chain contract calls to cross-chain voting snapshots, opportunities span from DeFi to Governance.
Synapse offers cross-chain infrastructure helping protocols build a cross-chain future. The Synapse Protocol is comprised of a messaging framework and an economically secure method to reach consensus on the validity of cross-chain transactions which developers can leverage to build truly native cross-chain applications. Get in touch with the team and other builders on Discord if you are interested in building the cross-chain future.
Synapse is a universal cross-chain liquidity network. Synapse connects blockchains by offering an extensible cross-chain communication protocol that supports assets, smart contract calls, and more. By leveraging Synapse, blockchains can easily and securely interoperate with each other and developers can build truly cross-chain applications including cross-chain DEX, lending platforms, margining systems, derivatives markets, yield aggregators, and much more. The first application built using this cross-chain protocol is the Synapse Bridge, which uses AMMs deployed across 16+ EVM and non-EVM blockchains to help users seamlessly transfer assets between all chains.