Although DeFi adoption is far from the mainstream, it has been on the rise as the number of projects across blockchain networks continues to grow at speed. According to its Global DeFi Adoption Index, Chainalysis report revealed that while DeFi adoption has significantly increased over the past year in both emerging and developed markets, it only occurred in countries with higher incomes and more professional traders and investors. Since the advent of DeFi, its adoption has been powered by experienced investors and traders.
However, as these experienced users are spoilt for choice, there is a growing need for interoperability among the multiple DeFi projects out there. This will allows users to seamlessly conduct transactions between different decentralized finance projects built on different blockchain protocols.
What Is Cross-Chain Interoperability In DeFi
In decentralized finance, cross-chain interoperability simply means “cross-communication” that exists between different DeFi projects built on different blockchain networks. Here, two or more completely different DeFi systems can communicate with each other and exchange value. In the traditional financial, almost all the payments infrastructure is interoperable. If DeFi hopes to achieve the level of mainstream adoption of the traditional financial system, then interoperability is essential and indispensable.
For the traditional financial system, you can swipe your debit card to pay for a product regardless of the currency the store accepts. Within the blockchain space, two or more blockchain systems need to communicate efficiently with each other and exchange value. Within the DeFi space, interoperability is still a far cry from what it should be at the moment. Most of the existing blockchain networks work and exist in silos. Let’s look at why interoperability is important in decentralized.
The Importance of Interoperability In DeFi
Decentralized finance has disrupted the model of “currency” with its alternative peer-to-peer monetary system. DeFi is all about bringing the traditional financial services ecosystem to the blockchain space. Cryptocurrency disrupted the currency model, and now DeFi is seeking to do the same to the financial system. However, the DeFi quest to disrupt the traditional financial system without creating cross-chain interoperability will be a mirage.
Every blockchain protocol is like a separate economy, and if each of these economies cannot work together, the entire DeFi ecosystem cannot grow to disrupt the world of traditional finance. Today’s blockchains exist in silos that cannot communicate with each other and exchange value.
However, the DeFi space is growing quickly, and many next-generation DeFi projects are seeking to solve the problem of cross-chain interoperability. These DeFi projects are on course to revolutionize the DeFi ecosystem and accelerate its mainstream adoption process and development.
DeFi Projects Solving The Interoperability Problems
Sovryn:
Sovryn is an on-chain decentralized finance protocol deployed on a Bitcoin sidechain. The protocol is controlled by its community and stakeholders. It is built on Rootstock, an Ethereum Virtual Machine (EVM)-compatible Bitcoin sidechain. Sovryn leverages the security benefits of the Proof-of-Work (PoW) consensus algorithm. The protocol connects Bitcoin Network to the world of smart contracts.
With the Sovryn EVM compatibility, Ethereum dApp developers can bridge to Bitcoin Layer-2 financial infrastructure. Since Sovryn is EVM compatible, it can be used on all other blockchain networks.
Cosmos:
Cosmos is aiming to become the “internet of blockchains” by offering consistent interoperability between the various blockchains on the network. To achieve interoperability, Cosmos functions on the model of the internet with its Inter Blockchain Communication (IBC) protocol. It is built on the Tendermint Core that houses the Byzantine Fault Tolerance (BFT)-based Proof- of-State consensus mechanism and a peer-to-peer protocol like Bitcoin.
Fusion:
Fusion is also one of the promising platforms promoting cross-chain interoperability within the DeFi space. The platform has a set of finance-related application programming interfaces (APIs) designed to allow developers to build financial applications that can cross-communicate with other supported blockchain networks. This will undoubtedly promote the next generation of financial innovation in DeFi.
Conclusion
Interoperability within the DeFi ecosystem is essential to achieve its mainstream adoption and disrupt the traditional financial system. With the rising of projects like Sovryn, powering interoperability in the DeFi space is already within reach.
