Right now, your DeFi product has to be multichannel to be competitive – that’s the hard (and exciting) truth of 2021. Whether you’re building a DeFi wallet, loan facility, or game, your target audience knows that. there is more to the crypto space than Ethereum. And they expect you to provide them with the best of both worlds.
It seems there will always be a debate about which blockchain is the best basis for projects. Strong security, low transaction costs and tremendous speed – there will always be a chain that offers greater benefits. As speculators wrangle over the next potential “Ethereum killer”, a new multi-chain reality is forming that has a less blatant competitive implication. Instead of a dog-eat-dog framework, the future of blockchain and DeFi will favor products that fit into a cooperative multichain user solution and eventually forget about those that remain isolated.
This trend is fueled, in part, by the Polkadot and Kusama ecosystem which was built with a multi-chain philosophy at the core. Parachaines connected to the chain of relays communicate easily with each other, raising the bar even higher for the entire space. With the second round of Parachain Slots Auctions just around the corner, they continue to set the standard for the multi-channel industry.
Projects that make it easier for the average user to connect more systems, such as the Moonbeam Protocol and the Phantom Wallet, are raising millions of dollars to simplify this new multi-channel reality for users. But how do you handle this as a developer?
We can clearly see that the market is shaped by user demands. Depending on their needs, your users turn to the blockchains that serve them best – and to the platforms that give them access. As a result, projects that support multiple channels gain a larger audience and more cash. This means that at a minimum, your DeFi product must support Ethereum and a “niche” blockchain – there are established leaders in trading, staking, non-fungible tokens (NFTs) and more. And the more channels you can interact with, the better.
When you are a developer pursuing these multi-chain goals, you may face several obstacles.
Related: What intrigue is behind the Kusama parachain auction?
Obstacles to the construction of multi-chains
High costs: Let’s say you want to build a cross chain bridge; you have to run a large number of nodes for all the chains you want to link together. It is expensive and very intensive in terms of maintenance. It can become costly for a developer to launch and run a node from a single blockchain. Now imagine that you have to connect two, three or ten.
It becomes extremely difficult in terms of hardware, maintenance and access to capital. You need a lot more resources and investment to get started, unless you can find other profitable solutions.
Security challenges: In light of recent bridge hacks, security remains one of the biggest challenges associated with multichain – when you trade assets, there are more opportunities for hackers. If we take a look at the recent PolyNetwork incident, we can see that bridges can become extremely vulnerable.
Hackers discovered network weaknesses in Poly’s cross-chain messaging and exploited them to walk away with user funds estimated at $ 600 million. This is an important lesson for new multi-chain DeFi solutions to understand the consequences of security failures.
Layers of complexity: Of course, connecting and integrating blockchains will add layers of complexity and workarounds needed to connect disparate chains. Each chain provides a new set of idiosyncrasies, mechanisms, and nuances that builders will need to become familiar with. This will likely mean that DeFi organizations will need to access a larger talent pool to access more skills. Blockchains are constantly evolving, and you will need them too.
Despite the additional barriers and challenges of building a multichannel, it is critical to the future success of DeFi products. There can be no isolated products in Web 3.0 because they do not exist in a vacuum but in a decentralized economy of the new generation. Projects need a robust and connected infrastructure to effectively promote themselves in this economy and generate enthusiasm in new audiences. But how do you get there?
We need to provide developers with easy and affordable access to nodes, APIs, and support for an ever-growing number of blockchains. With more ways to build, DeFi developers can break down barriers to entry and start contributing to the next generations of blockchain and finance. The faster we break down these barriers, the smoother our next steps towards a better user experience and mass adoption will be.
This article does not contain any investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research before making a decision.
The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Chandler song is co-founder and CEO of Ankr Network, a San Francisco-based Web 3.0 infrastructure company, and a Forbes “30 Under 30” winner. He previously worked as an engineer at Amazon Web Services.