🪐 What's the multichain future we're heading towards?
How can we understand this multichain world through patterns from international trade and the development of cities?
The future of web3 is multichain.
In this article, I’ll explore:
How the evolution of the multichain world can be understood through patterns from international trade and the development of cities.
Why we’re heading towards a multichain future
Features of the multichain world and trends we’re likely to see
But why do we need a multichain future at all?
Different blockchains are good for different things.
Special purpose blockchains have advantages for the problems they are trying to solve.
A great analogy to interoperability between blockchains is international trade between countries.
Different countries have different comparative advantages.
For example, manufacturing costs are much lower in countries with abundant labor supply like China.
This is (partly) why China can manufacture goods much more efficiently than other countries.
Similarly, different blockchains have different comparative advantages.
For example: @desoprotocol's social blockchain is designed to scale on-chain social apps to billions of users.
To achieve this, they make tradeoffs that general-purpose blockchains like @ethereum and @0xPolygon can't make.
For instance, low-stakes data (likes, comments) for social apps on DeSo can have fewer dedicated validators than high-stakes data like financial transactions.
This allows them to scale more efficiently to meet the high-scaling requirements of social networks.
If you're curious why web3 social is more than a gimmicky idea, I've written about this before.
If we truly want to see all the crypto use cases we’ve discussed, we need to be prepared for a multichain future.
Okay, so what does this multichain world actually look like?
1. Chain Specialization
Chains need to specialize in order to be valuable.
Solving the blockchain trilemma (scalability, security & decentralization) isn't enough anymore. There are dozens of L1s and L2s that have achieved a sufficient balance already.
This is why chains that have a special raison d'etre seem like the ones with the best shot of making it long-term.
Specialized blockchains can attract devs and users for their specific use case, building up their network effects.
For example:
• @ethereum for security
• @immutable for gaming
• @desoprotocol for social
As the network grows, adjacent use cases will also emerge on the network.
This is similar to how cities develop.
Big tech in Silicon Valley attracted tech workers.
Other companies also set up offices in SV for the talent pool, attracting even more tech people.
These employees start companies and bring in even more tech workers.
Loop.
These network effects of cities are similar to building a community on a new blockchain.
2. Primitives Deployed on Every Chain
Once you have residents, you also need barbers, grocers, doctors, etc (no matter what city you're in)
In our world, that means the aforementioned primitives deployed on every chain:
• Stablecoins
• Oracles
• DEX
• DEX Aggregator
• Stableswap
• Bridges
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Due to the power of network effects, it seems likely that a few dapps / primitives will dominate each use case.
There’s no benefit to having different stablecoins on different chains, instead of having the same one(s) you trust deployed everywhere.
Currently:
USDC and USDT are the leading stablecoins and are available on most major chains.
Curve is the leading stableswap protocol with $5B+ in TVL
Uniswap is the leading DEX with $5B+ in TVL
Aave & Compound are the leading lending protocols
Each of these dapps is deployed on multiple EVM compatible blockchains.
3. Seamless Interoperability
If we have multiple blockchains, we also need frictionless interoperability between chains.
To understand this, let’s look at one of the most important innovations of the 20th century: Shipping Containers.
Shipping containers don’t exactly fit in with today’s descriptions of “revolutionary technology”, but they’ve had a MASSIVE impact in facilitating international trade and globalization - why?
Containers are stackable allowing for much more efficient transporation
Containers are intermodal - they can be used for sea or land cargo transportation
Containers are standardized, meaning ships, ports, trucks, cranes, etc across the world work with the same specifications.
With the invention of containers, the unloading time for cargo ships went down from 7-10 days to a few hours.
Interoperability has a similar function in the multichain world - creating standards for blockchains to communicate with each other efficiently can advance crypto economies just like shipping containers did for trade.
Bridges already let you transfer funds between chains. But there are a lot of problems today - it takes time, funds occasionally get stuck, and bridging funds often requires more than one hop.
Cross-chain bridges in particular are also very vulnerable to hacks and exploits.
Since there are a lot of funds locked in their smart contracts, cross-chain bridges make for a very attractive honeypot for hackers.
Over $1 BILLION has been stolen from bridge hacks so far in 2022. (and we still have a few months to go 😬)
Vitalik has also publicly expressed his disapproval of cross chain bridges in the past.
We made a video about Crypto Bridges to explain how they work, and the challenges they face - subscribe for animated videos explaining the most interesting concepts in crypto.
But interoperability is more than just transferring funds across chains. As we see increased adoption, the use cases for interoperability will expand:
• Swap at the best price across chains
• Borrow at the best rate across chains
• Identity and data across chains
• Game assets / NFTs tradeable across chains
• Payments from any coin on any chain to any coin on any chain
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Some projects are working on creating better ways for chains to communicate with each other.
Cosmos, for example, created the IBC (Inter-Blockchain Communication) protocol that allows different chains to communicate and transact with each other seamlessly.
4. Omnichain Protocols
Omnichain Protocols can interoperate across various chains without the user needing to explicitly switch chains.
Imagine if Uniswap could find you the best price across all your approved chains to get you the value for your swap.
An example of an Omnichain Protocol is Radiant Capital (@RDNTCapital).
Radiant provides access to lending and borrowing pools from any chain.
Under the hood, Radiant uses LayerZero / Stargate infrastructure to bridge the funds.
I think more dapps will integrate bridging directly into the application layer wherever possible to offer the best user experience, and abstract away the parts that users don’t need to worry about.
There’s a lot more we can expect and hope for which I didn’t get to cover here, but I hope this gives you a better understanding of the multichain world being built.
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Great article 👌
You Nailed it mate, Also Researching towards the future of multichain & that would really affect the future of bridges