How will blockchain bridges and cross-chain interoperability evolve from a UX perspective?

The crypto/Web3 space has matured significantly overall. Long gone are the days when Ethereum was the sole smart contract platform – the advent of multiple smart contract chains has provided us with faster and cheaper alternatives to Ethereum.

As a testament to this fact, Ethereum’s Total Value Locked (TVL) dominance is waning by the day – from 95% for most of 2020 to now “only” around 60% at the time of writing. In fact, this current cycle could be the first time that the “launch base” for DeFi and NFTs is not Ethereum for the majority of new crypto adopters!

Make no mistake, Ethereum remains a major hub in the entire crypto ecosystem. Major DeFi or NFT innovations mostly still come from Ethereum before being ported to other chains, largely due to Ethereum’s huge lead in the number of developers over other chains. Most of the capital is still on Ethereum, and while its dominance isn’t as strong as it used to be, Ethereum’s TVL still far trumps any other competing chain.

That being said, the crypto space is certainly not going down the path of maximalism – a scenario where only one dominant chain wins. Expect Ethereum’s TVL dominance to continue to decline over the years as other chains take over that share. Therefore, blockchain interoperability becomes imperative to enable seamless flow of funds between chains, instead of the siled liquidity we are mostly used to at the moment.

[Dmitriy Berenzon/1kxnetwork] Imagine having to remember all these different bridging protocols depending on your source and destination chains – there must be a better way…

Currently, the most common option for transferring funds between chains is through a centralized exchange. And it’s totally understandable why.

Blockchain bridges are cumbersome to use, it’s as simple as that: UX is as unfriendly as it gets. To prove my point, ask a crypto newbie to perform a simple cross-chain transaction himself:

“So you go to Wormhole, click on Source Chain and select the current chain you are in. Next, click Destination Chain and select the chain you want to bridge to and paste your address. Then select the token you want to bridge, approve the token, and click Transfer. Wait a few minutes for confirmation, then redeem your token on your target chain. Ah, that reminds me that for non-EVM chains you need to download another wallet that is native to the chain. Also, you need to see if the wrapped tokens you will receive in the target chain have a liquid market where you can exchange them for “native” tokens. If not, bridge it back to the source chain and exchange it for a token that has a liquid market on the target chain. That’s all, happy bridging!”

At the end of your lengthy speech, I guarantee that 95% of the time you’ll mostly encounter blank stares and visible confusion. What is the target wallet? Why Wrapped Token? Where liquid market? And at the weekend another hour of free time is lost…

In short, one thing we can say for sure is that current interoperability solutions are just a UX nightmare. We do this all the time so we might not notice their struggles as it’s like second nature to most of us – but for them they’re mapping into uncharted territory and so it’s extremely important for us to make sure theirs The onboarding process is as beginner-friendly as possible.

[CoinYuppie] Wormhole: a Lock and Mint bridge – wrapped tokens in the target chain are secured by native token collateral deposited in the source chain

In fact, we’ve actually made progress on the UX of bridging. If first-generation bridges have a lock-and-mint architecture (e.g. wormhole), second-generation bridges are actually not bridges per se, but more like a liquidity router.

Simply put, it basically matches a supported asset’s bridging demand from the source chain to its available supply on the target chain, and then, upon verifiable evidence that the asset was deposited at a “threshold address,” distributed nodes collectively release the equivalent Quantity of the asset from the available supply in the target chain.

This “second generation bridge” greatly improves the UX as the user no longer has to worry about wrapped tokens and the available liquid markets in the target chain. Just select your source chain, your token, your destination chain, paste the destination address and you’re good to go! The most prominent example of this second generation bridge is AnySwap (renamed Multichain) with two billion dollars in TVL at the time of writing.

[@MultichainOrg/Twitter] Multichain (formerly AnySwap): a router protocol – users swap native tokens on the source chain for native tokens on the destination chain (think of it as AMM + Bridge from a UI)

But we’re far from done. The end goal is not to design the most efficient bridge, but to enable seamless flow of capital between chains. Bridges alone will not solve fragmented liquidity or siled smart contracts.

For ultimate seamless interoperability, liquidity must be made available to all chains, regardless of where it originates, and smart contracts must be able to communicate with each other regardless of their scripting language. In fact, bridges are only part of the blockchain interoperability equation – they are intended as a back-end infrastructure, not a user-centric front-end application.

To put this in an analogy, imagine two islands separated by a sea – one has an abundance of coconuts while the other is filled with bananas. Bridges are just that – bridges! In order to trade, the Coconut Islander must bring coconuts across the bridge to Banana Island, exchange the coconuts for bananas there, and then carry the bananas back to Coconut Island. Vice versa for the Banana Islander side.

This is the current state of blockchain interoperability. However, what if both islands could agree on some kind of communication channel for trading coconuts and bananas? That’s right, surely it would greatly increase the trading volume of coconuts and bananas on both islands!

[Coinweb/YouTube] Coinweb: a “cross-chain computing platform” (no confirmation)

Returning to the analogy, let’s assume that both islands are equipped with an internet connection. In this case, instead of physically taking coconuts to banana island for trade (and bringing them back), they can simply arrange the trade in advance and then bring the actual goods to each other after a certain time interval.

Therefore, the liquidity of the coconuts will not be limited to the amount that the islander can carry across the bridge – in fact, the entire island’s supply of coconuts is now available liquidity for the banana islanders. The same applies to the liquidity of the bananas for the coconut islanders.

Fast forward a few years. The residents of Banana Island have now acquired the ability to make Banana Splits from raw bananas. Coconut Islanders traded more coconuts for banana splits, believing they can improve this “creation”.

After a few months, Coconut Islanders actually improved the banana split by sprinkling chunks of coconut meat on top and mixing it with some coconut juice. Then the residents of the banana island traded even more bananas for this “coconut-infused banana split” – and learned how to make banana juice from it. This self-reinforcing cycle will continue and drive up the rate of innovation on both islands.

[Tin Money/CoinMonks] Axelar: a “universal overlay network” (no confirmation)

Applying this analogy to the real world, it would be like having an interoperability layer that can connect fragmented pools of liquidity that reside on different chains (e.g.: Uniswap on Ethereum, Quickswap on Polygon, Raydium on Solana, etc .), while also smart contracts can communicate with each other regardless of the language of the underlying chain (e.g. Solidity for EVM chains, Rust for Solana, etc.).

From a UX perspective, this interoperability layer will be able to update the user’s state balances on different chains without the user having to select source and destination chains, insert destination addresses, and switch networks. One wallet address is all the user will ever need, and instead of having to remember the seed phrases or private keys of multiple addresses, this future interoperability layer will “link” them all together and cryptographically generate a single “master” seed phrase allows users to update the health balances of associated “child” addresses across chains.

In practice, this would be like being able to initiate a swap from a Solana DApp to trade $SOL against $ETH or buy an Ethereum-based NFT from an Avalanche DApp without switching networks and allowing both chains to approve have to. The interoperability layer sends you a single pop-up window that you can sign with your “master” seed phrase and, once approved, automatically executes any associated smart contracts for you (and updates status balances if necessary).

[DayCryptoTrading] BNB, Solana, Ethereum (from left to right): arguably the three chains with the hottest communities

Division of labor is a well-known concept in economics. In short, it says how skilled workers could produce more economic output than “general” workers in the same period, and as such segregation of duties is to be encouraged.

Increasing globalization has expanded the range of goods and services to which every nation has access. This allows each nation to specialize even further, resulting in greater overall economic output for itself and the world at large. Without globalization, each nation is forced to produce its own food, infrastructure, and other “basic needs.” There will not be Japan as the world’s largest automobile manufacturer, China as the world factory, or Singapore as the financial center of Southeast Asia.

Each blockchain network can be viewed as a separate nation with its own identity, language, and economic specialization. Just as open trade and globalization increase the economic output and overall wealth of all participating nations, a future where blockchains can seamlessly work together will encourage all chains to double their respective specializations, which will, by the same effect, increase the economic output and overall wealth of all participating chains.

Also published here.

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