Cross-Chain Technology is Changing How DeFi Looks at Liquidity

Cross-Chain Technology is Changing How DeFi Looks at Liquidity

Stuart Hollinger

Stuart Hollinger

Editor at Large

November 24, 2021

wBTC was a first in “wrapped token”. A wrapped token is a token(in this case an ERC-20 token) pegged to the value of another cryptocurrency. Via what’s called a “bridge”...

Cross-Chain Technology is Changing How DeFi Looks at Liquidity

January 30th, 2019 will go down as a momentous day in the history of DeFi. On that day, the wrapped Bitcoin ERC-20 token(wBTC) was released to the public via a collaboration between BitGo, Ren, and Kyber

wBTC was a first in “wrapped token”. A wrapped token is a token(in this case an ERC-20 token) pegged to the value of another cryptocurrency. Via what’s called a “bridge”, the original asset (in this case BTC) is put in a "wrapper" to be on another blockchain(in this case the Ethereum blockchain). 

Wrapped tokens were created for the purpose of interoperability, which means that a cryptocurrency such as Bitcoin and it’s value can be used on an entirely different blockchain–in this case, the Ethereum network.

The initial release of wBTC is a milestone in crypto history because it: a) allows Bitcoin holders to access Dapps on the Ethereum network, and b) brings billions of dollars in liquidity to the DeFi ecosystem!

Greater liquidity increases capital efficiency in crypto markets, which is generally good for all who participate. Higher capital efficiency means better price stability in the DeFi ecosystem, and helps smooth out the volatility generated by large trades and alleviates risks of trading in low-liquidity markets. 

As of today’s date, wBTC has a $7.5 billion market cap, which is a $2 billion increase from six months ago. By July 3rd, wBTC has tokenized 1% of all BTC on the Ethereum network. However, wBTC is just the beginning when it comes to wrapped tokens bringing liquidity to DeFi. Present-day, there are all kinds of wrapped tokens and wrapped assets, with new bridges and wrapped tokens being released daily, especially in the DeFi space.

One such example is being built by MELD Labs. ADAmatic is a two-way Polygon to Cardano bridge being built by MELD with the goal of bringing massive amounts of liquidity to the MELD ecosystem, the Cardano network, and DeFi as a whole.

With ADAmatic, MELD is taking an innovative approach to wrapped tokens, and taking the "next step" in the pursuit of accessing liquidity held on various layer-one blockchains. MELD is looking at various non-Cardano layer assets as potential liquidity sources for MELD services. 

Enter ADAmatic

In July 2021, MELD partnered with Vent Finance to announce that, together, they are building ADAmatic. As previously stated, ADAmatic is a DeFi bridge that allows users to bridge not only $MATIC, but also numerous Polygon-based and Ethereum-based assets, to Cardano and back. ADAmatic can be used independently of MELD, but the MELD product team is building it to bring more token choices and liquidity into Cardano for MELD users, as well as giving Polygon-based DeFi users on-ramps to the unique, DeFi-based financial services that only MELD offers.

Additionally, ADAmatic offers decentralized and secure porting of assets and smart contract interactions, cross-chain business opportunities for creators, cross-chain yield opportunities to the MELD community and cross-chain interoperability for everyone. ADAmatic will be especially useful for MELD token holders that want to be exposed to a non-Cardano based asset (like ETH) while holding $MELD. With ADAmatic, and subsequent products, MELD seeks to facilitate the wrapping and unwrapping of various non-Cardano L1 assets to open the floodgates of high liquidity into the MELD protocol.

To be released by the end of 2021, ADAmatic will leverage the highly scalable and efficient infrastructure that both Polygon and Cardano provide, and will support the creation of business opportunities that benefit from cross-chain liquidity enabled by the ADAmatic bridge. Polygon was chosen as a network to build upon because of the sheer growth of the number of projects built on the network in 2021. 

It was only natural to literally and figuratively “build a bridge” between Cardano and Polygon, especially when smart contracts are due to be live on Cardano in a matter of months. With smart contracts, all manner of native Dapps and new financial instruments will be available in the Cardano ecosystem. MELD Labs strongly believes that these ecosystems will become the powerhouse of DeFi and are confident that ADAmatic will play a key role in enabling cross-chain functionality for these dApps, like for projects launching on the VentUp Launchpad or the MELDed Assets service.

In a technical sense, ADAmatic works like this: once a user bridges their $MATIC over to Cardano, ADAmatic takes their $MATIC, locks it on the Polygon blockchain, and mints

people mMATIC on the Cardano blockchain in exchange. ADAmatic is a “trustless” bridge, meaning all interactions are programmed into smart contract, and there is no need for human intermediaries(also known as middle-men).

mMATIC is a 'MELDed Asset', i.e. a wrapped version of MATIC that lives on the Cardano blockchain. The company's Oracle aligns the price of their newly-minted mMATIC with the price of MATIC. At any given time, people can get back their locked MATIC by burning, to 'bridge back' the mMATIC that people minted.

Once people hold mMATIC people can use it to engage with the MELD protocol to do things like:

  • Access crypto-backed fiat loans and Line-of-credits
  • Earn interest by lending in the MELD ecosystem
  • Provide it as liquidity to earn a yield on trading fees
  • Take out a Genius Loan - a self-repaying loan only available via the MELD

The team is massively excited about the release of ADAmatic. The two-way trustless bridge allows DeFi users to bring over liquidity held on Ethereum and Polygon to the Cardano ecosystem. The team built this not only to help MELD users but to contribute to the improvement of both the Cardano and greater DeFi ecosystems. The core layer will be totally open-sourced, for the community, and by the community.

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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