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Fantom and Multichain
Fantom works by employing its own unique Lachesis consensus protocol, a type of Directed Acyclic Graph (DAG) featuring an asynchronous BFT consensus protocol (aBFT). It's also fully compatible with the Ethereum Virtual Machine (EVM), allowing developers to easily port their decentralized applications (dApps) from the Ethereum mainnet to the Fantom mainnet. Naturally, such bridges require sufficient liquidity of the utilized tokens to work reliably. As always, a risk of protocol changes on either the sender or destination chain might interfere with token transfers or affect tokens locked in the bridge. Similar to any bridge that involves staking and slashing, the expected rewards for validators should be greater in scenarios where they materially contribute to consensus than in scenarios where they attack or try to exploit the network (i.e., the expected value of honest block generation should exceed the expected value of fraud).
Due to EVM compatibility, the Fantom Multichain bridge is highly popular amongst Fantom users. Formerly Anyswap, Multichain is a cross-chain bridge aiming to enhance interoperability between disparate and previously siloed blockchains and dapps. Multichain created a simple wrapped bridge that works like Wormhole but also recently developed a cross-chain router that takes away some of the depegging risks. It can do this using 'single-sided liquidity pools' for native assets on different blockchains.
In fact, Multichain use is so popular on Fantom that is has become a centralized point of failure for many tokens/projects on Fantom (discussed more below). This bridge acts as a cross-chain portal between most well-adopted blockchain networks, using Fantom’s infrastructure as a crossover point.
The Multichain Issue
Yesterday, the crypto universe bore witness to an alarming development: users of the widely popular Multichain system encountered lag times in fund reception, an unfortunate aftermath of a recent system upgrade. This event, trivial as it might seem, underscores a substantial degree of risk that warrants serious scrutiny from the crypto investing community.
Compounding the perceived crisis was a swirl of conjecture, suggesting the Multichain team faced legal repercussions, leading to immobilization of certain financial assets. The ripple effect of these allegations and their implications on Fantom—a blockchain network with a considerable dependence on Multichain—can't be overstated.
Fantom has a noteworthy ~35% of its Total Value Locked (TVL) entrenched in Multichain, with a large chunk of the blockchain's assets emanating from this bridge. More precisely, 40% of all Fantom assets—excluding its native $FTM token—are issued by Multichain.
These assets, predominantly in the form of wrapped tokens, total an impressive $650 million. This figure is indicative of Fantom's significant dependence on Multichain as a bridge, the implications of which we'll explore further.
The vulnerability of Fantom's considerable exposure to Multichain becomes starkly apparent when viewed from this lens, especially in the context of the recent unsettling developments. The potential fallout from these occurrences could reverberate throughout the entire ecosystem and possibly destabilize its liquidity.
Thus, the recent Multichain challenges are not to be taken lightly. They serve as a vital reminder to all stakeholders within the cryptocurrency sphere to continuously assess and reevaluate the risks involved with the interconnected nature of blockchain protocols and their varying degrees of interdependence.
Maintaining a clear understanding of these evolving scenarios will undoubtedly aid in creating a more robust and resilient crypto ecosystem. As such, the crypto-investor community should monitor developments like these with an eagle eye and adapt their strategies accordingly. The dynamism of the crypto world demands nothing less.
