At present, your DeFi product needs to be multichain to be competitive — this is the hard (and exciting) truth of 2021. Whether you’re building a wallet, a lending service or a DeFi game, your target audience knows that there is more to the crypto space than Ethereum. And they expect you to provide the best of all worlds.
It seems there will always be a debate about which blockchain makes for the best foundation for projects. Enhanced security, low transaction costs and formidable speed — there will always be a chain that offers bigger advantages. As the speculators argue over the next potential “Ethereum killer,” a new multichain reality is forming that has a less stark competitive implication. Instead of a dog-eat-dog framework, the future of blockchain and DeFi will favor those products that mesh into a cooperative multichain user solution and eventually forget those that stay isolated.
This trend is fueled, in part, by the Polkadot and Kusama ecosystem that was built with a multichain philosophy at its core. Parachains connected to the relay chain easily communicate with one another, raising the bar even higher for the entire space. With the second set of parachain slot auctions just around the corner, they continue to set the standard for the multichain 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 multichain reality for users. But how do you navigate this as a developer?
We can see clearly that the market is shaped by user demands. Depending on their needs, your users are turning to blockchains that better serve them — and to the platforms that offer access to them. As a result, projects that support multiple chains gain larger audiences and more liquidity. This means that at a minimum, your DeFi product needs to support Ethereum and a “niche” blockchain — there are established leaders for trading, staking, nonfungible tokens (NFTs) and more. And the more chains with which you can interact, the better.
When you’re a developer who is pursuing these multichain goals, there are several barriers that you might face.
Barriers to building multichain
High costs: Let’s say you want to build a cross-chain bridge; you need to run a large number of nodes for all the chains you want to bridge together. It’s expensive and very intensive in terms of maintenance. It can become costly for a developer to spin up and run a node of a single blockchain. Now imagine you need 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 cost-effective solutions.
Security challenges: In the light of recent hacks of bridges, security remains one of the biggest challenges associated with multichain — when you are swapping 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 the network’s weaknesses in Poly’s inter-chain messaging and exploited them to come away with an estimated $600 million in user funds. This is an important lesson for new multichain DeFi solutions to understand the consequences of security failures.
Layers of complexity: Of course, connecting and integrating blockchains will add layers of complexity and needed workarounds to connect disparate chains. Every chain provides a new set of idiosyncrasies, mechanisms and nuances that builders will need to familiarize themselves with. This will likely mean that DeFi organizations will need access to a wider talent pool to access more skillsets. Blockchains are constantly evolving, and you will need to as well.
Despite the barriers and added difficulty that building multichain represents, it is critical to the future success of DeFi products. There can be no isolated products on Web 3.0 as they do not exist in a vacuum but a decentralized economy of the new generation. Projects need a robust and connected infrastructure to promote themselves effectively in this economy and get new audiences excited. But how do we 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 the barriers to entry and begin contributing to the next generations of blockchain and finance. The faster we break these barriers, the smoother our next steps to better user experience and mass adoption will be.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Chandler Song is the co-founder and CEO of Ankr Network, a Web 3.0 infrastructure company based in San Francisco, and a Forbes “30 Under 30” laureate. He previously worked as an engineer at Amazon Web Services.