DEFI applications quickly spread to include non-Ethereum blockchains. Ethereum's market share, which was over 95 percent in the first days of 2021, dropped to 55%. As such, it has become an important need to transfer cryptocurrencies from one network to another.
Blockchain bridges allow coins and tokens to be transferred between blockchains. These bridges can be considered the first step toward blockchain interoperability, as there are obvious advantages to being able to transfer coins and tokens, as well as protocols, data, and NFTs between blockchains.
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It takes a special effort to keep a coin alive in an environment other than the blockchain in which it was produced. One of the solutions developed for this is to create wrapped versions of coins to be used on other blockchains. The most obvious example of this is wBTC, which has a market value of 11 billion dollars. The most critical aspect of the wrapping process is that the wrapped version of the coin is locked in its original network, thus preventing risks such as double-spending.
Blockchain bridges allow coins to be transferred between networks. Stable coins stand out as the most preferred option for transferring value between blockchains, as they have low price volatility and were originally designed to be transacted across multiple networks. Using blockchain bridges, we can of course transfer coins other than stable coins.
There are currently three blockchain bridges in the Hive blockchain that I know. Leo Bridge allows Leo, a Hive token, to be used on Ethereum, BSB and Polygon networks. Leo Bridge also made it possible for HBD to be traded on the Polygon network as of yesterday.
Also, we can transfer many coins like BTC, ETH, Matic, and Wax to Hive Engine via Tribaldex. Thus, we can generate DEFI income on Beeswap through the wrapped versions of these coins on the Hive Engine. Splinterlands also has its own bridges.
Although blockchain bridges seem to be a practical method of transferring coins and tokens between blockchains, they also have disadvantages. Hackers targeting bridges have had great success on their part. Hacking activities on Wormhole Bridge, Ronin Bridge, and Poly Bridge are the most famous thefts on blockchain bridges. Shallow liquidity and transfer costs are also factors that limit the use of transfers between blockchains.
Early blockchain bridges allowed the transfer of coins between Ethereum and other blockchains. Later, bridges that allow coin transfer between blockchains other than Ethereum also appeared. Multichain is still the most widely used multi-blockchain bridge. Reasonable fees and a transfer time of about 10 minutes are the reasons why this bridge is preferred. While Multichain does not allow us to move all coins between all blockchains, it does allow transfers between multiple blockchains via USDC, USDT, wETH, wBTC. Using centralized exchanges such as Binance as a bridge between blockchain networks is one of the methods I use from time to time.
Networks running on Layer 0 blockchains like Cosmos and Polkadot have an inherent advantage in interoperability. For example, coin transfers between blockchains that are part of the Cosmos ecosystem are carried out through the IBS system. Transfers made through IBC are low-cost and take place within seconds. To transfer between two Cosmos networks, a channel must be opened between them. Cosmos and Osmosis are among the prominent alternatives in this regard.
One of the Polkadot parachains, Moonbeam is one of the blockchains that has an advantage in interoperability. It provides multiple blockchain coin exchanges via Native Bridge.
Recently, transferring coins between blockchains using bridges or centralized exchanges has become one of the important means of achieving high returns in the field of DEFI. While DEFI returns are relatively low on Ethereum and BSC networks, applications on other networks that try to be assertive in this area can offer very attractive returns.
For example, we get a 20% annual return to HBD on the Hive network. However, when we invest the same HDB on the Polycub application using Leo Bridge, we have the chance to earn an annual return of 61%.
Moving coins between networks is not a method preferred by every investor. Over time, the DEFI ecosystem will surely become more secure and user-friendly. However, then the returns would not be as attractive as they are today. In any case, investors will have to get used to using multiple blockchains.
On the other hand, for blockchain builders, the importance of integration with other blockchains is increasing day by day. It may be beneficial for Hive to consider this issue as a strategic priority.
Thank you for reading.
Posted Using LeoFinance Beta
