Benefits of Cross-Chain Development
No matter how hard maxis try to convince you that their chain is “best”, the reality is that blockchain development is fragmented. For example, Google Cloud, Amazon Web Services, and Microsoft Azure offer similar services, yet they all exist and own a market share in a competitive market. Projects choose one cloud infrastructure provider over another when building in Web2 for a number of different business, legal, or technical reasons. A project might choose AWS because it offers a compute engine that Azure or GCP don’t, GCP because of a legal conflict with Azure, or maybe even Azure because its prices are cheaper for the project’s use case.
In a similar way, projects building on crypto infrastructure have conflicting business, legal, and technical needs. The difference between Web2 and Web3 development environments is that a Web2 project’s platform is hidden away from the end-user. If it weren’t, users of one product would only be able to communicate with other projects on a similar infrastructure. For example, that mortgage website that’s deployed to AWS? Well, you wouldn’t be able to connect your bank to it because the bank is deployed on Azure. But because Web2 builds protocols that communicate regardless of the infrastructure in which each individual project is deployed, developers get access to services offered by other apps on other infrastructures.
In Web3, these types of communication protocols are being implemented via cross-chain bridges. Developers who take advantage of these bridges not only create better user experiences for their customers, but they also tap into increased liquidity for their DeFi protocols, larger communities to interact with, and greater identity data about the user.
One of the biggest cross-chain use cases in the expansion of DeFi applications is the ability of applications to tap into massively expanded liquidity. Different projects on different chains only issue tokens on the network on which they’re deployed. One of the easiest ways to move liquidity from one network to another is to lock up funds with a bridge and use wrapped assets on the network of the user’s choice. This means that if the user wants to trade their ETH on Solana, where transactions can happen faster and cheaper, they can. The project whose assets are being transferred to other networks gets the benefit of increased usage and utility, while the project incorporating these xAssets gets access to greater stores of liquidity and projects to interact with.
Beyond issuing tokens on one chain and using wrapped assets, there’s also some work being done in native cross-chain tokens. These assets don’t require lock up on the sending chain and minimize custody risk, but they do require the developers to issue their token as a multi-chain token, with mint authorities on connected chains working in tandem to burn and transfer tokens.
Community is a growing area for cross-chain development. As projects on individual networks mature, they naturally seek out other projects to build partnerships and launch joint ventures. By connecting with projects cross-chain, they can build interconnected DAOs.
Cross-chain voting is a perfect use case for DAOs. Hypothetically, if the Ape NFT projects on various chains wanted to collect votes to form an Ape “United Nations” DAO, they could pick a single chain to collect votes and have each individual project’s members vote on the chain the project is deployed on.
A hypothetical Ape “UN” DAO could go further and build a cross-chain treasury to deploy capital and hold xAssets. They could hold disputes and carry a common code of conduct. They could enforce rules through actions like blacklisting individuals that break their common core of values.
Collectively, these org of orgs could build communities large enough to offer services like insurance and banking to their communities.
Finally, going cross-chain allows developers to ask for pieces of information about their users from other networks. For example, one of the biggest identity ecosystems is ENS, the Ethereum Name Service. Accessing cross-chain data (xData) about a user allows developers to implement a “Login with ENS” system even on the Solana blockchain. Solana xApps could read the information about the end user’s avatar, screen name, crypto addresses, and more without the user needing to re-upload that information.
Cross-chain identity, xID, will allow bank xApps to offer loans based on your holdings on other networks and other communities. They’ll allow you to build a cross-chain reputation and further create moats against Sybil attacks by making those attacks even harder and more expensive to carry out.
As projects mature, it makes sense for them to interact with each other, and that’s where cross-chain development comes into play. Composability is one of the hallmark promises of blockchains. Cross-chain development makes it a reality.