Interchain or multichain? People in the industry may not frequently ask that question today, but they will do so in the future. The question is whether projects will launch on different blockchains or have their own chain. AAVE and Curve recently launched on Avalanche. Will this be the standard procedure?
Will all the Ethereum native projects launch on other blockchains like Cardano, Solana, etc.? Or will they have their own customized chains and taking advantage of, e.g., the Cosmos SDK?
The fight is on: Interchain vs. Multichain!
What is multichain?
First, what is multichain? Multichain means that projects start to launch on different blockchains. And one day, (hopefully) all these blockchains will be interoperable with each other. Projects like AAVE or Curve launched on Ethereum in the first place. Why?
- Projects were able to take advantage of an existing and composable ecosystem. Maker was the invention of DeFi. Compound used the existing infrastructure of Maker to build its protocol. After that, Yearn Finance connected with Compound, Curve & Co to find the best
- Projects were able to take advantage of an existing and composable ecosystem. Maker was the invention of DeFi. Compound used the existing infrastructure of Maker to build its protocol. After that, Yearn Finance connected with Compound, Curve & Co to find the best yields for their users. The composable character of the DeFi on Ethereum (aka money legos) was why DeFi took off in summer 2020.
- Another reason is security. When building on Ethereum’s Layer 1, you take advantage of its security. And due to Ethereum’s high level of decentralization, Ethereum is without any doubt the secures smart contract network.
- But Ethereum’s security and decentralization have a price: sacrificing scalability. Even when ETH 2.0 is shipped, Ethereum’s DeFi ecosystem will likely not be scalable for the masses. But there are solutions: sidechains and Layer 2 solutions that are compatible with the Ethereum blockchain. So, it is very easy for projects to launch on sidechains and Layer 2 solutions as well. Scalability is not dependent on ETH 2.0 only anymore!
That all sounds great! But to get exposure to all other ecosystems in crypto, these projects will most likely launch on other blockchains as well. This is what happened previously when AAVE and Curve decided to launch on Avalanche as well.
But here is the thing: when launching on several blockchains, sidechains, and Layer 2 solutions, the protocols split their liquidity across different chains. This is the trade-off.
So, what if AAVE, e.g., could have its own chain that is connectable to all other blockchains?
What is interchain?
Interchain is the equivalent to multichain. In an interchain future, we would have multiple independent blockchains that are interoperable with each other. Instead of launching on several blockchains, projects would have their own customized chains. Because of this, protocols would not split their liquidity across different chains.
On Cosmos, the Cosmos SDK makes this possible. The Cosmos SDK is a developer tool allowing developers to build interoperable and customized chains. This enables a high level of independence! If a project, e.g., would like to change the Ethereum EVM, it would need to propose an EIP!
But this can take a lot of time and even get rejected!
An interchain future has its advantages – but also disadvantages!
Crypto nowadays: neither multichain nor interchain
Today, the crypto industry is neither multichain nor interchain. Yes, AAVE and Curve may have launched on Avalanche. And more projects indeed start to build their customized chains by using the Cosmos SDK. But considering the size of the crypto industry, this is just a mere drop in the ocean.
Interoperability in crypto is still lacking! Ever tried to transfer your funds from one blockchain to another?
A pure nightmare!
Networks like Cosmos tackle this problem. With the introduction of the Cosmos IBC, communication between different blockchains is possible – but not widely adopted yet.
So, we see developments towards an interchain and multichain future!
The future of crypto: multichain or interchain?
Now, will the future of the crypto industry be interchain or multichain? Time will tell! In my view, it will be a mix. Crypto is no zero-sum game! I believe that financial protocols, like AAVE, will stick to their strategy and launch on multiple chains.
Especially with institutional DeFi taking off, security and decentralization are more important than ever before! And projects, e.g., Regen Network, need a high level of independence and flexibility. They will take advantage of tools like the Cosmos SDK.
But finally, everything will be interoperable and connectible with each other!