Most of the time that has elapsed since Satoshi Nakamoto mined the first bitcoins, blockchains have existed as walled gardens. Moving assets between different platforms has always meant using a centralized exchange, incurring friction, fees, and security risks.
Finally, there are signs that this is changing, with a spate of developments emerging from several corners. 2020 is proving to be the year of interoperability, and the burgeoning DeFi scene has become a critical driver for cross-chain interactions. There’s a widespread acceptance that if DeFi is to fulfill its true potential, then interoperability is a must, for several reasons.
Firstly, DeFi is still too dependent on Ethereum, and the full ETH 2.0 implementation is still some way off. With the original infrastructure starting to buckle under the weight of its traffic, DeFi needs some faster rails. Secondly, there is significant value locked in other platforms and assets. If DeFi is confined to Ethereum, it’s missing out on this value.
RSK – A Bridge to Bitcoin DeFi
Early this year, RSK was among the first projects to introduce an interoperability bridge, connecting its own Bitcoin-based smart contract platform to Ethereum. As a side chain of the Bitcoin network, RSK already allowed users to send BTC into its platform to interact with smart contracts. The RSK-Ethereum bridge extended this functionality to ERC20 tokens, bringing interoperability between the Ethereum and Bitcoin blockchains for the first time.
Since the launch, there have been further DeFi-related developments on RSK. The RSK Swap decentralized exchange, a fork of Ethereum’s Uniswap DEX, has launched its second version. Like other Uniswap clones, RSK Swap allows users to list ERC20 tokens and leverage automated market makers to provide liquidity to token pools.
Most recently, the project integrated Maker’s DAI stablecoin, allowing users to lock DAI in Ethereum so it can “cross” the interoperability bridge and mint an equivalent ERC777 token that can be used in RSK-based applications. DAI is also listed in token pools on RSK Swap, paired with RSK and RIF tokens.
DAI isn’t the only stablecoin compatible with RSK and its operating system layer, RIF. Money on Chain is a stablecoin project established on RSK, allowing users to mint its Dollar on Chain (DOC) coin using Bitcoin as collateral. The project also launched a similar product, RIF Dollar on Chain, earlier this year, where RIF can be staked as collateral for a dollar-pegged RIF Dollar on Chain.
Wormhole - A Bridge to Solana
Solana is another project that’s taken steps towards interoperability in the name of DeFi. In early October, Solana announced its “Wormhole” cross-chain bridge, connecting the Solana ecosystem to Ethereum. Similarly to the RSK bridge, it allows ERC20 tokens to pass into the Solana blockchain to interact with applications.
The bridge is a step up from Solana’s previous attempt to tap into ETH liquidity. The project had collaborated with centralized exchange FTX on a project called Serum to develop a DEX based on an order book.
Solana is now launching a hackathon to stimulate the development of applications that use the Wormhole bridge.
Binance Smart Chain
Binance launched its Binance Smart Chain in the third quarter of 2020. The new chain offers all the core functionality of the original Binance Chain, which debuted on mainnet in April 2019, but with additional features supporting dApp development.
The Binance Smart Chain (BSC) takes a different approach to interoperability than RSK or Solana. It offers compatibility with the Ethereum Virtual Machine (EVM) to enable interactivity with Ethereum-based dApps. The overall idea is to introduce new scalability to the original Binance Chain by adding smart contract functionality for tokens without clogging up the network.
Since launching the BSC, Binance has taken its characteristic approach of sponsoring developers who want to build with grants and access to its vast crypto ecosystem. These include several clones of Ethereum’s Uniswap and SushiSwap applications, called BakerySwap, BurgerSwap, and Pancake Swap.
By focusing on interoperability now, projects can ensure that even when Ethereum 2.0 does eventually arrive, there’s already an established user base for their DeFi platforms. The ongoing development of interoperable DeFi is even positive news for Ethereum, as it reduces the risk that an upgraded system becomes overloaded from the point of launch. However, the bigger benefit is in creating a DeFi ecosystem that holds greater value and usability than the sum of its parts.