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Cross-chain DeFi Technology: The New Frontier

dApp on Algorand

The application of blockchain technology, its use cases and underlying capabilities have driven revolutionary changes across many industries. Although most enterprises nowadays seem interested in reaping the benefit of blockchain-enabled, the finance sector is considered the early adopter of decentralization.

Blockchain has enabled financial institutions to replace their centralized, legacy infrastructure with a robust peer-to-peer ecosystem, revolutionizing services such as banking processes, lending loans, digital asset trading, and execution of finance-related contracts.

DeFi is generally powered by blockchain and cryptography. However, industry leaders are now combining DeFi and Crypto with Web3 to provide the enterprises with a more powerful infrastructure to support the future of DeFi.

Evolution in these technologies, DeFi, Crypto, and Web 3, significantly impacts the DeFi ecosystem, stimulating changes for it. Talking about the most recent buzz in the Defi world, we find cross-chain Defi technology as the frontier. Hence, Let’s discuss cross-chain technology and understand how it supports the growth of the existing DeFi infrastructure.

What is cross-chain technology?

The blockchain ecosystem inherently represents a siloed infrastructure that restricts the two non-native blockchain networks from communicating with each other. To address this challenge of interoperability, cross-chain technology enables interoperability across the independent blockchains, allowing two independent blockchains to interact and share resources and arbitrary data for various purposes.

The challenge of interoperability showed up as the biggest obstruction in the mass adoption of blockchain in many industries. Now that most third-generation blockchains are powered with cross-chain technology, their ecosystems support the development of novel dApps to support industry-specific use cases.

How does cross-chain technology work in DeFi?

DeFi has experienced exponential growth with the massive rise in crypto investments and more industries identifying the potential of decentralized technology. Since second-generation blockchains represent a siloed decentralized ecosystem, it created many challenges such as high transaction cost, inadequate liquidity and slow transaction execution, hampering the mass adoption of DeFi. As a solution, cross-chain technology showed up in the blockchain world.

As the name suggests, cross-chain DeFi technology is the solution to the DeFi ecosystem’s inability to facilitate multi-chain smart contract transactions, powering the ecosystems with interoperability elements. Innovation-rich web3.0 blockchain projects like Polkadot are optimized to facilitate interoperability between non-interoperable blockchain networks via parachains and their native bridges.

With more cross-chain technology-enabled blockchain networks being introduced, DeFi space facilitates higher interoperability that interconnects independent DeFi platforms, DeFi marketplaces, and DeFi dApps to support a low-cost yet efficient DeFi economy. With that, cross-chain DeFi allows users to access diverse DeFi platforms via single-point access.

Cross-chain DeFi offers inter-blockchain connectivity, enabling instant token swap across unique and isolated blockchains. For example, if you already have a good amount of Ether (the native currency of Ethereum) in your wallet, but you want to invest these tokens on a DeFi platform built on a blockchain other than Ethereum, then you must use web 3.0 bridges like Polakdot bridges.

With interoperable bridges, users do not require a centralized exchange to convert their existing tokens into the currency of any desired blockchain network for further use. Instead, bridges allow the users to perform instant swaps that mint the token of an equivalent amount on the other blockchain whenever required.

Cross-chain DeFi vs Regular DeFi: key aspects compared

Interoperability

Cross-chain technology powers the DeFi ecosystem with interoperability, enabling them to benefit from the unique attributes of multiple Defi protocols. Cross-technology supports assets trading, lending and exchange across DeFi platforms running on isolated chains.

This technology further brought a solution to the enterprises, financial institutions, and businesses struggling to provide their users with a multichain experience, allowing them to move their financial assets seamlessly from one chain to another.

Scalability

Since cross-chain DeFi technology allows the users to leverage the speed and efficiency of the multiple blockchain networks, it holds the potential to facilitate better scalability compared to siloed systems. For instance, individuals can use a dApp built on Ethereum while leveraging the high TPS and low transaction from a different blockchain protocol such as XDC Network.

Collateral

With cross-chain DeFi, borrowers can shift their pledged financial digital assets from first-generation Bitcoin to second and third-generation blockchains such as Cardano, Ethereum, or Polkadot. Likewise, a lender can accept digital assets as loan security across multi chains. DeFi without cross-chain technology, on the other hand, limits the access and activities of both the lender and borrower to the specific blockchain protocol on which a specific DeFi platform runs.

Transparency

Powered with interoperability, cross-chain DeFi ensures end-to-end transparency between various interconnected DeFi ecosystems. Higher transparency supports real-time autonomous auditing of the collaterals, reducing risks regarding potential fraudulent tactics and manipulation of fractional reserve rights. DeFi infrastructure without cross-chain elements cannot enable transparency, which remains limited to a particular ecosystem on which the DeFi solution is built and run.

Storage

Relying on a single blockchain for “on-chain” data storage can be expensive for many DeFi applications, and some decentralized networks even create trouble storing large files. However, a Defi ecosystem can extend its storage capacity by utilizing the space offered in the interoperable ecosystems.

Efficiency

Cross-chain technology enables the DeFi users to engage in micro-transfer approaches faster and more efficiently across evolving landscapes. This facility is highly relevant across industries such as blockchain gaming, e-commerce and brands.

What cross-chain DeFi platforms are relevant today?

Since cross-chain DeFi is the latest buzz, many interoperable and feature-rich DeFi platforms are being launched frequently. Following are some of the platform that holds higher value across trading and finance industries.

Cross-chain DeFi Lending platform

Cross-chain DeFi lending platforms are powered with the latest technologies to help users manage their savings and supply & lock them for interest-earning across multiple chains. Being able to access and interact with multiple lending platforms, users can effectively manage their funds, lend loans to the interested users, and gain higher profit.

A cross-chain DeFi lending platform is unique. It is integrated with new-age features such as automated market maker (AMM) interoperable smart contracts, multichain Defi Wallet, atomic swap, liquidity pools, unified dashboard etc. Compared to a non-interoperable DeFi lending platform, cross-chain defi supports mass adoption of DeFi across industries such as gaming and e-commerce, where multichain transactions and trading is essential.

Cross-chain DeFi Staking platform

DeFi staking platforms enable users to make additional profit on their funds by locking a specified portion of the platform’s native token. However, DeFi staking is a means to become a validator in any proof-of-stake (POS) blockchain platform.

Powered with the interoperability element, a cross-chain DeFi staking platform supports staking on various unique blockchain ecosystems, not just a single blockchain network. It implies that users can become validators for multiple blockchains and raise profit from their contribution to those staking.

Cross-chain DeFi Exchange platform

With the cross-chain feature, a DeFi exchange platform enables the users to lend and borrow a wide range of crypto assets across multiple DeFi platforms running on independent chains. Being able to seamlessly borrow or earn interest from different platforms, users can get the best of staking their digital assets to maximize interest and perform their duties as validators.

DAO-enabled cross-chain DeFi platform

New and futuristic DeFi projects that are being launched most recently are DAO-enabled. Regardless of the purposes a cross-chain DeFi platform intends to serve, which can be staking, liquidity, and decentralized exchange, DAO facilitates autonomy across the enterprise launching and managing the DeFi platform.

Users on DAO-based cross-chain DeFi platforms can invest, trade, and stake their digital assets without getting oppressed due to regulations imposed by a hierarchy-based centralized body.

How to create a cross-chain DeFi Platform?

Cross-chain DeFi solutions are optimized to enable interoperability for inter-blockchain transactions. For your DeFi project to be interoperable, you should develop and run it on a blockchain, which can originally provide interoperability to the dApps built on its ecosystem.

Building the cross-chain bridge requires setting up a brand new session with the visual code editor, writing and compiling the codes for the smart contract, and working on the user interfaces.

Hence, this guide explains the cross-chain DeFi platform development on the interoperable web3 blockchain, Polkadot and its identical blockchain, Kusama, with a Substrate framework.

1. Installing dependencies

Before developing the cross-chain DeFi platform, make sure you have a Polkadot-compatible test network to test your DeFi platform before the mainnet. Furthermore, you need to install the following dependencies:

  • Substrate framework
  • A reliable code editor, like Visual Studio Code.
  • RUST

Run the following command to install Rust:

curl https://sh.rustup.rs -sSf | sh

The development of the cross-chain DeFi platform may also require additional dependencies that you can install by executing the following code:

sudo apt-get install -y git clang curl libssl-dev llvm libudev-dev

Do not forget to set submodule.recurse to ease up the further development steps. Use the following command:

git config --global submodule.recurse true

Install the tools and git hooks required for the development using the following command:

make build-full

Build native code for the Polkadot test network

make build-full

2. Run

Start a development chain using the following command:

make run

Development

Type check using the following command:

make check-all

Purge the old chain data using the following command:

make restart

Update the ORML using the following command:

make update

3. Removing vulnerabilities

Here, you need to remove on-chain vulnerabilities that may cause considerable loss and instability on the network.

4. Bench Bot

Bench Bot regulates the synching branch with master and generates WeightInfos for runtime or module.
Generate module weights

Comment on PR using the following command:

/bench runtime module

Generate weights.rs to push changes into the branch.

Generate runtime weights
Comment on PR /bench runtime

Now, generate weights for modules * as module_name

5. Testing data migration

try-runtime on Polkadot

cargo run --features with-polkadot-runtime --features try-runtime -- try-runtime --chain=polkadot-dev on-runtime-upgrade live --uri wss://polkadot-polkadot.api.onfinality.io:443/public-ws -s /tmp/snapshot.bin

cargo run --features with-polkadot-runtime --features try-runtime -- try-runtime --chain=polkadot-dev on-runtime-upgrade snap -s /tmp/snapshot.bin

try-runtime on Kusama

#Use a live chain to run the migration test and save the state snapshot to file snapshot.bin.

#Add -m module_name can specify the module.

cargo run --features with-kusama-runtime --features try-runtime -- try-runtime --chain=kusama-dev --wasm-execution=compiled on-runtime-upgrade live --uri wss://kusama.api.onfinality.io:443/public-ws --at=0x9def608d5674f6d16574f53849218fe13d80ec1042ef7c2d4de7d4c50abab806 -s /tmp/snapshot.bin

#Use a state snapshot to run the migration test.

cargo run --features with-kusma-runtime --features try-runtime -- try-runtime --chain=kusama-dev --wasm-execution=compiled on-runtime-upgrade snap -s /tmp/snapshot.bin

6. Use parachain-launch for running local testnet

Use the following code to run the local testnet:

cd launch

#install dependencies
yarn

#generate docker-compose.yml and genesis
#Note: If the docker image is not the latest, you need to download it manually.
yarn start generate

#start relaychain and parachain
cd output

#NOTE: If you regenerate the output directory, you must rebuild the images.
docker-compose up -d --build

#list all of the containers.
docker ps -a

#track container logs
docker logs -f [container_id/container_name]

#stop all of the containers.
docker-compose stop

#remove all of the containers.
docker-compose rm

#Note: If you want to clear the data and restart, you need to clear the volumes.
#remove volume
docker volume ls
docker volume rm [volume_name]

#prune all volumes
docker volume prune

Use polkadot-launch for running local testnetCopy your DeFi platform related json to the polkadot launch:

#$polkadot-launch is the home of polkadot-launch
cp scripts/polkadot-launch/*.json $polkadot-launch/

Build polkadot:

git clone -n https://github.com/paritytech/polkadot.git  
cargo build --release
cp target/release/polkadot /tmp/polkadot

Build your DeFi platform

make build-[sample marketplace]-release

Launch parachain and polkadot related json configured file in the polkadot-launch:

polkadot-launch [sample marketplace]-launch.json

Release
To release your DeFi platform, you require a more optimized build config. The configuration generally takes 2x to 3x longer duration, but it produces thoroughly optimized codes to run:

make build-release

Top blockchain protocols supporting cross-chain DeFi Technology

While most third-generation blockchain protocols support cross-chain technology for DeFi, following are the top cross-chain technology-powered networks that are currently trending in the DeFi space:

XDC Network

XDC Network is an XDPoS-enabled enterprise-ready hybrid blockchain with interoperable smart contacts to support global trade and finance. DeFi solutions built on the XDC ecosystem are interoperable with the DeFi dApps running on other chains.

Polkadot

Polkadot is a fully interoperable blockchain network that enables interoperability via parachains, Substrate framework and interoperable bridge. DeFi solutions built on Polkadot are interoperable with other substrate-based parachains and external blockchain ecosystem chains Ethereum via Polkadot bridges.

Near Protocol

Knowing that cross-chain technology is an essential component of the DeFi ecosystem, Near protocol, has launched Rainbow bridge to enable interaction between Near and Ethereum (where most prominent dApps are developed). Therefore, DeFi solutions built on the Near ecosystem can interoperate with the DeFi solution built on Ethereum.

Avalanche

Avalanche is another interoperable and highly scalable ecosystem for launching innovative cross-chain DeFi solutions that can scale global finance and near-instant transaction finality. Since the DeFi ecosystem is rapidly growing beyond single-chain, Avalance allows its ecosystem-built DeFi solutions to interact with solutions running on various interoperable and non-interoperable DeFi solutions.

Cardano

Cardano is designed as a scalable, sustainable and interoperable blockchain, aiming to improve the infrastructure of various industries. Cardano further strives to revamp the traditional banking and finance infrastructure with its ecosystem’s ability to support the development of revolutionary cross-chain DeFi solutions. These solutions help finance and banking industries to transform their legacy business and embrace the potential of decentralized technology.

Launch your cross-chain DeFi project with LeewayHertz

The DeFi market has transformed dramatically over the years. With cross-chain technology getting huge traction, we expect to see major changes in the DeFi space. Corresponding to the changes, enterprises have started showing considerable interest in launching their cross-chain DeFi solutions.

LeewayHertz helps finance companies to leverage the trust, scalability, and transparency of cross-chain technology, revolutionizing their core financial operations.

Following are the cross-chain DeFi solutions and services available at LeewayHertz:

  • Cross-chain DeFi dApp development
  • Crosschain DeFi lenging solution
  • DeFi token development
  • Cross-chain DeFi exchange development
  • Interoperable Smart contract development for DeFi
  • Cross-chain DeFi wallet development

If you’re looking for a DeFi development company to build cross-chain Defi lending solutions, we’re ready to help you. Get in touch with our experts to discuss your project requirements.

Webinar Details

Author’s Bio

Akash Takyar
Akash Takyar
CEO LeewayHertz
Akash Takyar is the founder and CEO at LeewayHertz. The experience of building over 100+ platforms for startups and enterprises allows Akash to rapidly architect and design solutions that are scalable and beautiful.
Akash's ability to build enterprise-grade technology solutions has attracted over 30 Fortune 500 companies, including Siemens, 3M, P&G and Hershey’s. Akash is an early adopter of new technology, a passionate technology enthusiast, and an investor in AI and IoT startups.

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