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Decoding Cross-Chain Interoperability

Binance Research (Moulik Nagesh, Brian Chen)

Decoding Cross-Chain Interoperability
Image - Binance Research

In the growing multichain ecosystem, developers face challenges with non-uniform tooling, while users contend with the limitations of chain-specific decentralized applications (“dApps”), resulting in fragmented liquidity and less-than-ideal UI/UX. Cross-chain interoperability emerges as a key solution.

First-generation bridges, using the lock-and-mint model, have faced over US$2B in losses from security breaches, pushing the industry toward more secure, second-generation cross-chain messaging protocols. These newer solutions support native integration and have led to a shift in performance criteria from total value locked (“TVL”) to more transaction- and message-based metrics.

Serving as a generalized infrastructure layer for dApps to build on, cross-chain messaging protocols enable the exchange of not only tokens but also arbitrary data. This evolving ecosystem now supports over 60 chains and boasts over 900% year-over-year (“YoY”) growth in aggregate transaction count.

CCIP, Chainlink's latest venture into the interoperability domain, utilizes a triple-network architecture to ensure robust verification. With a strong focus on security, CCIP also stands to benefit from Chainlink's established presence to bootstrap initial growth, particularly in connecting TradFi with real-world assets (“RWAs”).

LayerZero, having seen a notable uptick in activity in 2023, employs a distinct framework that separates oracle and relayer functions, safeguarding against collusion and misconduct. Its lightweight endpoints, which avoid storing all block headers and transaction proofs, provide significant scalability benefits.

Axelar facilitates advanced cross-chain communication between Cosmos and EVM ecosystems via its General Message Passing (“GMP”) feature, a key driver of network activity. Notably, Axelar connects to 53 chains, showcasing extensive network support, and uses quadratic voting and key rotation to improve security.

Wormhole distinguishes itself as the sole protocol offering support for specific chains like Solana and non-EVM-compatible ones such as Sui. It also has the highest number of ecosystem partners, totaling 94, with Pyth being a significant contributor to its messaging volume.

Looking ahead, factors such as maintaining robust security, improving UI/UX, and capitalizing on network effects remain key themes for the growth of messaging protocols. Simultaneously, the progression toward tokenization and TradFi adoption may catalyze their usage further.


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