Bridges: The Gateways of Composability

Bridges: The Gateways of Composability

Francesco Ponziani

Francesco Ponziani

MELD Ambassador

June 2, 2022

MELD has seen explosive engagement over the last year with its ISPO launch through to its vision of banking the 2 billion individuals currently unbanked and the plethora of services it aims to offer them. Navigating such a technically complex and political landscape however brings about its challenges. To help with this, MELD has been cultivating strategic partners in order to facilitate their vision and unify the ecosystem. Here I break down some of these incredibly exciting partnerships.

The innovation of blockchain technology has taken the world by storm over the last decade, yet only a small percentage of people truly understand the dynamic and revolutionary nature of what is to come. Blockchain, at its core, was created to offer more fluid and inclusive financial freedom to EVERYONE. Everyone being equal, everyone having access, everyone paying the same fees. Our legacy systems fall short of providing this to the poorest people in the world, charging remittance fees of up to 20%. Blockchain is at a critical point now as it has the capability to offer wealth transfer at fees of less than 0.1%, yet  is now faced with regulation and interoperability. The next 5-10 years will be crucial for blockchain in order to pave an integrated path that works symbiotically with financial legacy systems and to someday maybe replace them altogether.

Chain Evolution  

Each blockchain is uniquely different. For example I cannot use my ETH on the Layer 1 (L1) Ethereum blockchain with DeFi protocols on Cardano’s base L1 blockchain. The blockchains simply can't talk to one another as they are constructed differently. The same goes with other blockchains. For example, if you hold ETH and want to interact with a DeFi protocol on Solana, you must first go to a centralized exchange, sell your ETH for USD then purchase SOL with USD, then send your SOL to the DeFi protocol. Seasoned crypto investors may not think this an issue however in reality this is messy and expensive. Imagine having to convert your USD, EUR or GBP to different currencies in your own country when trying to purchase products from different shops and paying the conversion fees in the process. There would definitely be high demand for a more unified system and crypto is no different.

Over the last few years solutions to bridge this gap have been solved by building protocols on blockchains that operate independently on separate layers. The ability to operate on an elevated second layer (L2) improves transaction speeds and offers scaling solutions to a given blockchain and can also be constructed in a way allowing them to interact with, not only the parent chain but also with other chains via L2 bridging protocols. This interoperability has revolutionized how wealth can be transferred between chains via cross-chain bridges. A key takeaway here is that none of the crypto is actually swapped or moves anywhere. If you own ETH for example and want to interact with a protocol on the Cardano blockchain, a cross-chain DeFi protocol will firstly lock your ETH into a smart contract on the Ethereum blockchain. An equivalent amount of newly minted wrapped ETH (wETH) is then made available to you on the Cardano blockchain. This wrapped asset is actually a Cardano native token however it is pegged to the real-time market price of Ethereum. This allows crypto holders to benefit from DeFi protocols of an entirely new ecosystem whilst using their existing non-native crypto. When you want to convert your wETH (Cardano native token) back to ETH, the wETH you have will get burnt and an equal amount of ETH is released, via the smart contract, back to your wallet. This is a simplified example, as what goes on under the hood is very complex and revolutionary. If certain DEX’s within the Cardano ecosystem offer trading pairs with your wETH such as wETH/ADA, then your original ETH that has been converted to wETH can be swapped for ADA in a decentralized way, essentially a cross-chain decentralized swap not involving any centralized entity.

Until recently, such bridging solutions were not possible on Cardano. Cardano has systematically and carefully been following a dedicated and constructive timeline. It wasn’t until Sep 2021 with the release of smart contracts and the subsequent months through a series of optimisations, that Cardano has been fully operational to adopt such a solution that will fully utilize the incredible architecture and cheap transaction costs this generation blockchain has to offer.

Akamon

Started in July 2021, Akamon is a product brought about by the strategic partnership between MELD and VENT, one of the first DeFi solutions built on Polygon’s scaling L2 protocol that enables users to bridge Polygon and Ethereum based assets to Cardano and back. Users will be able to cheaply bridge their assets cross-chain in order to interact with a plethora of amazing services available to them. Aptly named, ‘Akamon’ means ‘Red Gate’ in Japanese, where ‘Aka’ means ‘Red’, referring to MELD’s distinctive and well known branded color, and ‘Mon’ denotes ‘Gate’ meaning ‘Gate To a  Different World’ in Shinto, Japan’s native belief system. This eloquent analogy signifies the gateway between two blockchain’s (world’s) ecosystems powerfully unifying them. Such things as cross-chain yield generation and liquidity provision will simply increase business opportunities on both Cardano and Polygon by leveraging each other's unique infrastructure and liquidity, really opening up the floodgates for users to become interoperable between the chains.

Layer 2 bridging solutions are more vulnerable to security breaches than the robust layer 1 network. The MELD/VENT teams recognise this and are stringently ensuring security is their top priority, undergoing strict auditing and testing from top security firms. This work priority has been vigorously ongoing for months and will continue to be monitored and fine-tuned all the time, however the first version of the bridge was launched on testnet in May with mainnet planned for July and a second version planned for December.

MELD plans to launch a first-of-its-kind DeFi finance protocol allowing users to collateralise their crypto for FIAT borrowing and to access services such as zero-interest loans and their famed ‘Genius Loan’ where the principal is paid back by the locked collateral over a period of time. MELD continues to push the boundaries and scope of new ways to utilize Cardano’s unique smart contract architecture and set new groundbreaking standards in DeFi, and are now exploring options for under-collateralized loans.

The Akamon MELD/VENT collaboration will see an influx of people from new ecosystems capitalize on these revolutionary financial products and everything else Cardano has to offer, bringing them one step closer to true financial freedom. It is of my opinion that this wave of innovation and opportunity will see MELD positioned as the World’s leading financial institution.

Disclaimer

The opinions shared within this article are those solely of the MELD Ambassador. Note that the content within should not be considered financial, legal, or tax advice. Neither the author nor MELD Labs PTE Ltd. are financial, legal or tax advisors. None of this content should be used to make any form of financial, tax, or legal decisions. Do your own research and consult professionals as needed for official policies, restrictions, and requirements in your jurisdiction.

If you believe in the MELD vision, want to support this initiative, and want to help promote the future of finance then we want you to join the MELD Ambassador Program!

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