DOMANI Concept Explainer - The Difference between Crosschain and Multich
(DOMANI is an oracle-less Digital Asset Management platform that enables users to create, mint and manage ETF-style tokenized funds. The views expressed in the article below should not be taken as investment advice. Always do your own research.)
The mass adoption of Web 3 and DeFi 2.0 is imminent, with an influx of over 1 billion users expected to be onboarded within the coming years, we have seen the industry shifting their approach towards a Multichain or Crosschain strategy as they begin to bootstrap for the mass onboarding of future users. But there’s a clear distinction to be made between Crosschain and Multichain, one that might not be as obvious to those not native to DeFi, but one that will determine the success or failure of blockchains. Let’s take a look at the differences between the two.
Crosschain refers to the technology that improves the interoperability or connection between blockchains by creating seamless exchange of information between chains. In order to aid in the interoperability of chains, Crosschain bridges have been developed to help with Crosschain transactions without needing a centralized exchange or a complex conversion process. However, bridges pose significant vulnerabilities in the form of security risk and centralization. Bridges work by creating synthetic derivatives that represent an asset from another blockchain. For example, if you have ETH tokens but you want to use them on Avalanche, you’ll have to send in your ETH tokens to a bridge, which in return will mint synthetic equivalents in the form of WETH tokens. The actual ETH tokens never actually leave the Ethereum chain, and instead get locked in a smart contract that mints ETH tokens in a form that is compatible with the Avalanche network.
Crosschain transfers using bridges are convenient, but users have to give up all control over the original token when they submit the tokens into the bridge. Not only does this pose a centralization problem, there’s also significant concerns regarding how those tokens are stored in the case of a blackhat exploit or hack. This has already caused significant issues, as it was reported that in 2022 alone there were $2B worth of stolen assets taken from bridge exploits, amounting to a 69% of all stolen crypto this year.
Overall, the foundations cross-chain technology is built on are not totally sound, cross-chain bridges are not decentralized enough and they must be trusted. The idea of blockchain is to be decentralized and trustless, which begs the question, can multiple blockchains coexist?
The answer for the most part is a resounding yes, mainly thanks to a Multichain approach. Multichain strictly does not require bridges, thus the foundations are much more solid. The idea is for Multichain strategies to solve key scalability concerns on Ethereum.
Ethereum native protocols are struggling with costly gas fees, complicated onboarding and technical obstacles for developers, which have hindered the scalability of the L1 Ethereum blockchain. Keeping in mind the expected mass influx of users, an issue with scalability could be detrimental to a protocol to the extent that many Web 3.0 protocols are naturally expanding into alternative blockchain projects looking to solve the issues raised by Ethereum. These alternative blockchains are NOT an Ethereum killer, they simply provide a multichain approach in building the best possible Web 3 experience for end users. Long story short, successful alternative blockchain solutions is good news for all within Web 3.
DOMANI is committed to a multichain present and future. Having launched on Avalanche in December 2021, we have gone on to launch on zkSync and Algorand testnets, with a launch on Klaytn testnet coming towards the end of this quarter/start of the next. We want to build a better end-user experience as well as capitalize on the growing market share of alternative blockchains, in the search of expanding our reach and communities we operate in.
About DOMANI Protocol
DOMANI Protocol is an asset management protocol that facilitates portfolio tokenization, rebalancing, and a multiswap DEX to trade a multi-token position in a single transaction.