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As blockchains flourish on their way to pollinating the world economy with the power of distributed ledgers, interoperability between networks becomes essential to sustaining this paradigm shift. Cross-chain trading is a challenge. Blockchains do not, in general, talk to each other very well - or at all - unless bridge mechanisms are implemented. As more value is created on different blockchains due to the various utility, security and operational capacities on offer, being able to trade across these gated economies creates a more inclusive space that fosters growth. You can liken it to the advent of globalization, when nation-states began to actively trade with one another, bringing propulsive economic growth in the 20th century. An interconnected world is a rich one, and the same is true for blockchain space. This article will dive deep into the technical processes used to move assets from one chain to another. How Custodial Exchanges Circumvent the Bridge Problem If blockchains can’t talk to each other easily due to their monolithic architecture, then how do such fluid asset swaps work on Binance, Coinbase and other CEXs? How come you can deposit ERC-20 USDT onto Binance and Withdraw BEP 20 USDT? Well, it’s due to the exchange functioning as something of a mirage about what’s really going on. In essence, sending your keys to an exchange is giving control of it to them, and they can choose what they are happy to honor out of their own asset pools reserve. It creates fluidity, but it comes at a cost; especially in terms of trading fees. There are also limits, just like a bank might restrict your withdrawal. If holding your assets on a centralized exchange, your asset is more fungible because it’s not your asset, it’s just another entity juggling its own position to accommodate your requests - with formal identification and KYC requirements for them to maintain your account. Clearly then, for the on-chain economy to mature, more efficient cross-chain communication needs to occur, to avoid innovation being stifled by simply a new set of gatekeepers. Wrapping Digital Assets Chief amongst the methods of inter-chain trading is the act of “wrapping” your cryptocurrency. Wrapping an asset essentially means exchanging the “true” version of the asset for a nominative token that represents it on a different chain. A simple example would be wrapped Bitcoin, or wBTC. wBTC is an ERC-20 token that can be deployed and traded in the Ethereum network. You can use it in DeFi protocols, swap it on DEXs like Uniswap, or lock it up as collateral for lending purposes. In all practical senses, your BTC asset is now live on Ethereum. Yet how do you get wBTC, or other wrapped tokens? Essentially, by giving a real BTC to a protocol or group like , wrapped wBTC is issued in exchange. The real BTC is locked inside with them while the wBTC plays in the green fields of the Ethereum ecosystem. BitGo that promises to keep it safe for you Bitcoin does not support smart contracts, so in this specific case, it is not locked within a smart contract as is the case with other compatible assets. Rather, it is kept by a custodian, and a smart contract is only used for the issuance and burn of ERC-20 compatible wBTC. Thus, after the wBTC has fulfilled its purpose, and if the original owner wants to regain his ‘locked’ BTC, a contract function is called, and the governing protocol now has to burn the wBTC and replace your BTC back in circulation. Of course, this comes with several risks, the main one being centralized control over the original BTC. The safer alternative here is to simply purchase wBTC without locking your own BTC. Under this method, the two tokens are never in circulation simultaneously, and therefore the integrity of the asset theoretically remains sound. How Wrapping Bridges are Secured MultiSig Wallets - The Not-So-Gold Standard Protocols that wrap BTC, and many other third-party custodial bridges like it that wrap other tokens, are governed by a multisig (multi-signature) wallet to increase security. These wallets require multiple cryptographic keys to open. Think of it like a bank vault that requires two or more keys to open. Usually, not every member of a network who is party to the wallet needs to provide a key for every transaction, but rather a set ratio, say 2/3rds. Once the requisite amount of keys have been input from the custodian, the funds can be moved. This has been, for a long time, one of the more secure methods of guaranteeing security over a pool of funds. Yet it has significant problems. One obvious one is that, should a large enough of the custodians seek to steal the funds, they simply can – as they have enough keys. The same is true if a hacker acquires enough keys to open the wallet. Another typical problem faced by multisig solutions is that sometimes keyholders can go the proverbial “AFK”, as users of the OKEx found out when one of its keyholders fell “out of touch”, leaving funds in limbo. As Vitalik Buterin commented in 2020, he hopes that “these wrapped BTC bridges are trusted” and that they can “at least move to a decently sized multisig” – implying that many of them are chronically undersecure. The issue with this, is that a more pervasive problem is that because each wallet or smart contract needs to have its number of keyholders and cryptographic access set up in advance, then it’s extremely difficult to adapt to new blockchain protocols as they arise. Therefore, multisig bridges, although they can be a decent protection of funds placed in a bridge, are still susceptible to the same issues as a standard centralized exchange, but also struggle to adapt to new blockchain protocols – as ground up cryptographic key distribution is required each time a new wrapping bridge is created. Wrapped BTC was all well and good when Bitcoin was the only cryptocurrency, and Ethereum the only smart contract platform. However, times have very much changed.  Hundreds of blockchains are now being deployed, with the inter-chain economy destined to witness exponential growth. SSSS Methods One workaround to this has been SSSS (Shamir Secret Sharing Schemes) cryptographic strategies. In this case, one private key is split into shares. These shares then need to be assembled to reconstruct it. Then, a single private key is created which can then access the protocol. This is significantly safer than multisig solutions, but has a problematic single point of failure – and that is the machine on which the final key is assembled, and the single turning of the lock (by a single, perhaps malicious entity) to activate the function. MPC - Benefits and Drawbacks MPC (multi-party computation) is a more recently developed cryptographic principle to combat some of these issues. MPC is a method whereby, rather than several private keys being necessary to activate a function, rather a single private key is subdivided into multiple parts that need to be assembled simultaneously (as opposed to SSSS which operates in a final state) in order for a contract’s function to be executed. Moreover, each party does not have to reveal its individual input. The idea has been around since the 1970s, and recently blockchain bridge protocols, like WAN, have begun using it. One excellent advantage of MPC is that it is ledger-agnostic, whereas multisig solutions are ledger dependent and tied to a single blockchain as keys need to be generated depending on the blockchain accessed. MPC is then able to be agile and adaptable as it is built on a . single standardised signature algorithm (ECDSA) While Multi Sigs need to be hardcoded, MPCs do not. MPCs also allow for privacy, as it’s not possible to determine which user is providing which part of the key, whereas in traditional multisig transactions, it is possible to determine which keyholders have supplied the code. Furthermore, Multisig transactions have one, or several, points of failure – the machines in which the keys are imputed. Having one part of a MPC key, however, is useless to any would-be attacker. Finally, MPCs are far faster to transact, as Multisig transactions need manual verification, or turning of the keys, by each responsible party. There is one massive drawback, however, and that’s accountability. MPC’s privacy is also an issue. Should a portion of the keyholders required in the transaction elect to collude and steal funds, it would be impossible to verify who of the pool was responsible for the attack. MPC, being so new, is also problematic by dint of that very newness. “Anyone, from the most clueless amateur to the best cryptographer, can create an algorithm he himself can’t break”, as . Scheiner said Losing Peg With Wrapping There is an emotional issue too. When you send a token to be wrapped, you no longer own the token either. You just own a facsimile of the token that can redeem the real one when required. Where this can lead to other problems when it comes to these tokens keeping their peg. If there is a sudden mass unwrapping of wrapped BTC, in the case of a prominent DeFi protocol dropping interest rates on it for example, then suddenly the value of wBTC within the Ethereum ecosystem can drop, and your wBTC token may lose its peg - although the unmooring is likely to be brief, as wBTC and BTC are still held at a 1:1 ratio and, save for total failure or hack of the bridge, your asset is secure. Yet there is still risk associated with the wrapping of assets which, when combined with its cost to do so, can stunt fluidity, speculation and “hot-money” moving effectively through the market. This friction is what mitigates some of the value of these assets being deployed effectively, and can act as a generalised collar on the growth of the market as a whole. Improving Cross-Chain Communication Custodial bridges, even legitimate and secure ones, have issues. There are other routes being taken to link up the blockchain economy, however. Let’s dive deeper! Cross-Chain Atomic Swaps Atomic swaps are an excellent peer-to-peer method of exchanging cryptocurrencies that make use of to work. These are smart contracts that do not allow trades to complete until both parties verify that it has occurred. If the verification does not complete, then the assets are returned to their original owners. The time frame is fixed, and immutable, and guarantees that trades can complete. Because you are swapping assets directly for one another – then all assets can be swapped at whatever price is agreed in the contract, and there is no need for complex multi-pair transactions to get the asset you want in exchange for the asset you have. Hash Timelock Contracts (HTLC) So far, so good – but what’s the issue? Well, each HTLC needs to be set up individually between two parties every single time. Although atomic swaps offer a great chance to trade assets interchain, this necessity to look for a single counterparty every single time, and set up a contract governing the trade, makes them obscenely cumbersome for most cryptocurrency trades. Layer 2 Asset Transfers with ZK Rollups (for Ethereum) Layer 2 refers to the suite of solutions designed to help scale apps by doing transactions off the main layer of the Ethereum. These off-chain aggregators, such as Polygun, Arbitrum and Optimism, maintain a transactions record of asset-transfers and then bundle them up and send them to the main chain for verification. With ZK Rollups, as only a single cryptographic proof is required (called a SNARK) to validate all the transfers on the Layer 2, then it allows for significantly greater volume of cross-chain transfers to be enacted and processed in one fell swoop. The issue is, of course, that despite the ability to transfer assets across many smaller blockchains and sidechains using this method, they are still exclusively built for the Ethereum umbrella – which means ultimately asset transfers will run into the same problems. Solana’s Wormhole Solana’s wormhole is similar to a classic Mint and Burn protocol bridge. The difference between the wormhole and other asset bridges is that, rather than having its own governance inside the protocol, the bridge is overseen by “guardians” who borrow authority from Solana main chain to transfer assets cross-chain. In short, Solana nodes pick up the slack of validating consensus but also have to act as the guarantors of that trust, so this method is reliant on Solana’s continued promise as an emerging blockchain and on their ability to scale up and run out bridges between them and every other blockchain they wish to connect. Sidechains A sidechain bridge is one where, instead of connecting two completely different blockchains, connects just one blockchain to a designated parent bridge. For example, that helped the main AXS chain communicate fast enough with Ethereum for the game to work as intended. Axie Infinity created a sidechain called Ronin works by creating secondary chains or parachains that have specific use-cases depending on the type of interoperable bridge needed between two blockchains. These parachains are these overseen by the central Polkadot relay chain that acts as the validator for all actions that are occurring on these parachains. It’s an ambitious model, but Polkdadot’s generic bridge to allow all chains to connect is still being worked on. Polkadot Intermediary Asset Swaps Some projects have opted for continuous lending pools, where to exchange one asset to another, you require a third token serving as intermediary. Under this model, to swap token A for token B cross-chain, A will be swapped for C (the intermediary asset), then C will be swapped for B. Under this non-custodial and decentralized framework, swaps require wallets associated with multiple blockchains, but there are some concerns surrounding the additional friction of having to conduct two swaps in the back-end for a single swap that reflects in users’ wallets. One example of this model is THORChain. Built using the Cosmos SDK, , RUNE, to help facilitate asset swaps between any other two tokens using an AMM model. THORChain uses its intermediary token The Cosmos Inter Blockchain Communication Network The most promising long-term solution to interoperability seems to be the creation of blockchains like Cosmos, whose express aim is to connect other blockchains together. This is a generic protocol that can be used by the majority of other blockchains regardless of the architecture or programming language they use. As long as a blockchain meets a few basic requirements, including having a module system, a key-value store, a consensus state introspection, timestamp access, a port system and an exception/rollback system, as well as eventual data availability – then they can connect to the IBC protocol. Cosmos uses a bespoke version of the IBC protocol. In . When it wants to communicate its data, it sends packets over the IBC, and Cosmos’s Hub maintains a multi-token ledger of token-balances of all connecting zones. Each zone must use a deterministic finality algorithm, such as the one provided by Tendermint, in order to use the Hub. Cosmos’s Tendermint model, each blockchain (or zone) maintains its own state and has its own validating community Cosmos Tendermint is Byzantine-Fault Tolerant. That means that it can tolerate 1/3rd of the machines within it failing completely, even through outright malicious behaviour. It also uses state machine replication, methodically updating the central state across its machines. This means computers from far flung corners of the globe operating on different programming languages and using their own application logic, can connect to its secure consensus algorithm through its application interface, the ABCI. Any distributed system, from currencies, voting systems and more can take advantage of its network. It is therefore an off-the-shelf, stable, working consensus engine for any blockchain software that does away with the problematic monolithic design that is used by popular blockchains like Ethereum. Building on Cosmos and plugging into the IBC, projects like are taking inter-chain communication a step further by creating their own bi-directional bridges with blockchains not currently supported by the IBC. Some of the announced blockchains to be supported include all IBC-enabled networks, as well as Ethereum, Avalanche, Near, Polkadot, Cardano, OKChain, Binance Smart Chain, and other EVM-compatible chains, with non-custodial key management available via a single wallet, rather than multiple browser extensions. As portrayed, this form of multi-dimensional support unlocks cross-chain trading free of intermediaries or wrapped asset counterparts, bolstering the cross-chain future of the DeFi realm. Onomy Protocol Interoperability - The Missing Link With the market no longer having a singular blockchain ecosystem that can single handedly serve all purposes and with the blockchain network constellation continuing to expand before our very eyes, all signs point towards a shared system of cosmic travel, able to sustain the transfer of significant volume between distant stars. Adoption resides in making true interoperability real, with the importance of intuitive user interface being just as powerful.

Blockchain Bridges: How Do They Even Work?

Hi Lalo Bazzi, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind Onomy Protocol? Ishan Pandey: Hi Ishan, thank you for the invitation! I formerly worked at Fidelity Investments, followed by Microsoft as a cloud strategist for government agencies. During my time there in 2017, the blockchain hype cycle led me down the blockchain path in the enterprise world - where I met fantastic future team members from Nvidia, AMD, Cisco, Google, and others. We went full time into blockchain in 2018 to build cryptocurrency mining hardware (like Bitcoin ASICs), garnering immense infrastructure support from miners situated globally with resources such as data centres, fiber networks, and highly efficient energy sources. Lalo Bazzi: The bear market lasted far longer than many anticipated, leading to mining no longer being as economical. Many of our partners were looking for additional revenue sources and use-cases for their infrastructure, so our team pivoted back to our roots - the cloud. We set out to build a decentralised cloud network that we bootstrapped using our previously-acquired partnerships. This is where we built many of the great technologies that power Onomy Protocol, including Equity, our custom consensus mechanism, and Natural Rights, a non-custodial private key management and device authorisation suite that leverages proxy re-encryption to enable a single sign-on the non-custodial wallet to manage assets from multiple blockchains. We came to be through our belief in three fundamental truths. First, the new paradigm of finance whereby national currencies will migrate on-chain is not only inevitable but imminent. Second, stablecoins are the vehicle that will onboard liquidity from traditional institutions with significantly less friction. Lastly, with many prominent and talented blockchain ecosystems, the future of decentralised finance is cross-chain. With our technologies and beliefs, the protocol set out to bridge traditional finance and decentralised finance by leveraging the proliferation of stablecoins by bringing Forex on-chain through a cross-chain DEX with a hybrid order book & automated market maker solution. Users may mint, trade, and lend stablecoins while accessing crypto assets from multiple blockchains - all on a single platform, the exchange. Over the last year, Stablecoin adoption has soared, with a market worth that has risen from roughly $10 billion to over $100 billion. In your opinion, what has been the primary driving force behind this sudden explosion and what regulations are we going to see around stablecoins? Ishan Pandey: Stablecoins are going to change the financial markets how the internet changed our society. Volatility - many would-be entrants to the crypto market are hesitant due to the immense volatility in the crypto market, despite seeing immense value in the underlying technologies. Stablecoins rid of the volatility concern and give access to the new paradigm of finance. Lalo Bazzi: Other than protecting one’s portfolio against volatile losses, stablecoins are also growing in utility. Stablecoins are now the crux of lending and credit markets, whereby yield is over 100x that offered by savings accounts at banks. As programmable money, on-chain fiat representations (like our Denoms) are used to build autonomous financial products and innovative markets, with significant yield opportunities offered to liquidity providers, yield farmers, and participants in the DeFi lending market. All of this is made possible as stablecoins become a trusted medium of exchange. From a regulatory standpoint, opponents in government believe stablecoins will weaken the power of nation-states, their currency, and central banks. Proponents of government believe that establishing a worldwide, accessible, and inclusive network of stablecoins will strengthen the currencies themselves and be highly beneficial for financial inclusion. The shared goal is KYC/AML on the on and off-ramps between crypto and fiat on either side of the coin. Innovation will be rampant during this period of regulatory ambiguity. As regulation steps in, innovation will be confined to only those who are compliant. The biggest winners will be those who can balance compliance with the fundamental beliefs of an open and permissionless system. According to you, what can potentially prove to be more advantageous for the existing cryptocurrency ecosystem in the future, let’s say 5-10 years down the line - Stablecoins or central bank digital currencies (CBDCs)? Ishan Pandey: I believe that stablecoins privately issued by compliant DAOs with adequate and transparent reserves will not only co-exist with CBDCs but capture significant market share as well. CBDCs truly legitimise the cryptocurrency ecosystem in a manner that accelerates adoption globally. We must also remember that not every single person on earth wishes to manage their own private key - CBDCs will likely be the choice for this group, whereby Central Banks will likely manage accounts. Of course, this is the antithesis of many fundamental beliefs and values held firm by proponents of an open and permissionless system! A very insightful speech by Federal Reserve Vice Chair for Supervision Randal K. Quarles about CBDCs and privately issued stablecoins can be found here. Lalo Bazzi: DeFi was introduced as a relatively new concept that is rapidly gaining traction worldwide today. What are your views on FATF proposed recommendations that bring DeFi DEXs under the definition of VASPs? Ishan Pandey: The FATF’s recommendations geared towards virtual asset service providers (VASPs) apply well enough within centralised frameworks, where a singular governing entity retains control over the functionalities of the offered products but also over users’ deposited capital. Lalo Bazzi: However, the further you go on the decentralisation spectrum, the more difficult it is to understand how these recommendations could be translated into actionable law. The newest FATF recommendations specify that a business entity develops decentralised protocols, but this is not always the case. Any natural person located anywhere in the world is able to deploy a smart contract onto the Ethereum blockchain, whilst collaborative contribution-based efforts have led to the inception of the most popular DeFi protocols out there. Thus, there is significant confusion regarding who can be categorised as a VASP. For instance, in a decentralised autonomous organisation (DAO), numerous contributors are operating in unison for product development, pooling their collective resources. Some DeFi protocols reward contributors and participants in governance tokens, giving them decisional authority over future decisions. In this case, are thousands of governance token holders actually VASPs? Is a one-time code contributor a VASP? How about financiers then? How do you define who needs to comply and to what extent, and how do you enforce compliance in a decentralised organisation? The FATF’s recommendations also discuss categorising those who directly or indirectly earn revenue generated by the protocol in question. Does this mean that tens of thousands of liquidity providers would be subject to VASP legislation? Furthermore, the FATF discusses imposing KYC/AML regulations on DEXes, yet another objective that’s difficult to attain given the pseudonymous characteristic of blockchain-based transactions. Would a DeFi protocol have to automate KYC by whitelisting addresses? If so, this brings additional risks of abuse in terms of data management. Similarly, forks of popular protocols can be deployed overnight by anonymous teams anywhere in the world, so enforcement is not only tricky but, in some cases, downright impossible. We seek to work with regulators and to remain compliant to provide stellar service to both retail and institutional users, but doing so requires a collaborative hand-to-hand effort with regulators who must understand the true complexity of the DeFi market, and consequently, issue applicable regulation that does not hinder innovation. The Cajee siblings who owned a South African cryptocurrency investment platform suspected of being a Ponzi scheme, has disappeared with an estimated $3.6 billion in Bitcoin. From a regulatory standpoint, what new reforms do we need in the crypto spectrum in order to curb such mishaps? Further, how can investors be educated to reduce such kinds of fraud in the industry? Ishan Pandey: It is truly unfortunate and upsetting that these events happen. Regulators should issue protective laws and should attempt to find offenders, regardless of whether they target centralised or decentralised cryptocurrency services. It is bewildering that these scams can grow to such size, reminiscent of the Madoff days. We must also agree that traditional institutions are not immune to cyber-attacks, phishing, social engineering, and many other attacks prevalent in the financial industry as a whole that cause massive losses to users. Lalo Bazzi: As you pointed out in your question, the ultimate solution is individual education and research. I urge everyone to truly understand the products and services they are using and remind everyone of the famed phrase “not your keys, not your coins.” When operating in the cryptocurrency world, keeping custody of your private key will protect you from these sorts of scams that can take your deposit and run. We plan to release an educational content series targeting newcomers to help educate the masses on the uplifting and exciting side of true ownership of assets and the new financial paradigm! A cyberattack has reportedly recently affected SafeDollar, a decentralised finance (DeFi) stablecoin based on the Polygon blockchain. What does this imply in terms of the safety of Stablecoins, and what are the best cybersecurity practices that should be kept in mind? Ishan Pandey: Speaking more generally than any particular protocol, no DeFi protocol should launch without undergoing a complete security audit by a reputable firm that is also certified to carry out formal verification and stress testing, instead of standalone smart contract audits. Open-source codes are also a must, especially when developing complex blockchains and financial applications that handle large sums of capital. DeFi protocols must also consider organisational security, with clear practices established to maintain operational security amongst those involved. Another means of deterring vulnerability exploits is to be open to feedback and run bounty campaigns that encourage reporting, rather than exploiting. Lalo Bazzi: Binance Markets has been barred from any regulated activity in the United Kingdom, expanding a global crackdown on cryptocurrency. What are your views on the UK’s regulator FCA banning Binance? Ishan Pandey: Failure to fulfil compliance guidelines leads to similar actions in the case of most heavily regulated markets. My understanding is that the FCA banned Binance not because it facilitated access to cryptocurrency trading but rather because of its derivatives service. They also had trouble with their stock tokens. It is only natural for regulators to crack down on assets that represent heavily regulated instruments when they are suddenly traded without restriction. Once again, a balance must be found between compliance and innovation. Lalo Bazzi: Despite a recent market fall and government crackdowns in some countries, cryptocurrencies are slowly but steadily gaining acceptability among businesses looking to get into the fast-growing market of digital coin users. Do you think in the next 5 years we will witness mass adoption of blockchain technology? Ishan Pandey: Oh, it is beyond a shadow of a doubt. We are past the point of no return. The Great Financial Migration is here, with institutions and enterprises worldwide frantically researching means of getting involved. It is an extremely exciting time that will empower people globally with enhanced financial product inclusion and accessibility. I predict that new forms of governing organisations, institutions, communities, games, design decisions, and more will spawn, drawing from the power of DAOs leading the way in the decentralised finance world. Lalo Bazzi: According to you, what future trends will we witness in the cryptocurrency/blockchain industry? Ishan Pandey: A cross-chain world whereby value may transfer freely between blockchains, rather than siloing assets to their native chain. Most of the DeFi future trends are easily merged within the great financial migration. Slowly but surely, institutions, enterprises, and retail users will seek blockchain networks’ safe harbor and perks, migrating the world’s financial markets on-chain. Lalo Bazzi: Disclaimer: The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence by asking the right questions and equipping readers with better opinions to make informed decisions. The material does not constitute any investment, financial, or legal advice. Please do your research before investing in any digital assets or tokens, etc. The writer does not have any vested interest in the company.

The World's 6.6 Trillion per Day Forex Market Will Migrate On-Chain - Lalo Bazzi

Last summer, discovered that 80% of the financial institutions surveyed had an interest in crypto, though only 36% were invested in the industry at the time, primarily in Bitcoin-related products. Many of these institutions valued the benefits of this new asset class and the opportunities presented by blockchain technology but remained sidelined due to regulatory uncertainty and the lack of necessary tools and infrastructure. a report from Fidelity Asset Management Fast forward a year, and participation across the broader decentralized finance market has scaled up dramatically. DeFi Pulse reported , demonstrative of increasing adoption beyond hobbyists and into the institutional space. a total locked value (TLV) across DeFi platforms exceeding $85 billion at one point By leveraging smart contracts, DeFi is increasingly replicating a range of traditional financial services, delivering the high throughput transaction volume that institutions require, at low cost, and without the inefficiency of existing intermediaries. While it’s still early, the disintermediation of the legacy system through the development of new decentralized infrastructure rails is underway. Making Blockchain Work for Institutions Let’s dive deeper and explore some of the projects leading the institutional landscape for crypto solutions and what they are building. 1. Stratis - Easing Enterprise Blockchain Adoption was designed to make decentralized adoption easier for businesses by offering several products and services for enterprises that work seamlessly with their legacy operations. Boosted by a recent , these include private sidechains, running full nodes, developing and deploying smart contracts, token launches, and a proof-of-identity application at scale. Blockchain-as-a-Service platform Stratis investment from digital asset fund Alphabit The Stratis ecosystem enables global firms to adapt their existing IT infrastructure by integrating blockchain features in a familiar programming language for everyday developers. The Stratis Identity solution delivers a decentralized method of KYC and AML verification for businesses to comply with regulations, its STO platform provides a compliant digital launchpad for business security token offerings, and its auditable smart contracts are especially suitable for the development of enterprise blockchains that are compatible with the DeFi space. 2. Onomy Protocol - Sustaining the CeFi to DeFi Migration is based on the fundamental assumption that the world’s financial framework is destined to migrate on-chain within the foreseeable future. It therefore proposes a reserve-based migration of traditional financial markets to the DeFi realm by delivering an interoperable, composable, and scalable blockchain infrastructure. Through a multi-layered approach, Onomy allows the . These stablecoins may be traded cross-chain, but also exchanged within the Onomy DEX, emulating the $6.6T per day Forex market. Onomy Protocol minting, trading, and lending of tokenized fiat currencies Powered by the ONET, a Cosmos-based blockchain network with 100x the scalability of Ethereum, Onomy reduces the costs and delays in transacting globally and provides both institutions and retail users with a frictionless and intuitive gateway to the DeFi realm. 3. Algorand - Base Layer for Asset Deployment The self-sustaining and decentralized blockchain network allows centralized systems to create and deploy tokens, NFTs, stablecoins, securities, and currencies with a low-cost payment infrastructure that delivers throughput capable of 46,000 transactions per second. Algorand Having already partnered with HSBC, Diem (Facebook), and SWIFT regarding the future of frictionless payment solutions, institutions are increasingly building on Algorand and connecting with fintechs, startups and DeFi platforms on the network. For example, SIAE, one of the largest rights management companies, has launched 4 million NFTs on Algorand. More recently, a partnership with security platform allows institutions to build secure wallet functionalities into applications. Curv 4. CasperLabs - Converging Blockchain Models is delivering a blockchain developed explicitly for enterprise usage, lowering the barriers of entry to institutional adoption. Its unique protocol enables flexible finality and adjustable block times, allowing for faster transaction settlement to suit enterprise needs. Secure custody is also available via its BitGo partnership. CasperLabs Casper allows enterprises to choose between public, permissioned, or private network iterations without sacrificing security or performance, with upgradeable contracts to improve applications over time, predictable gas fees regardless of network activity, on-chain governance, and WebAssembly support to ensure quick onboarding. 5. Concordium - Permissionless Chains & User Identity offers a privacy-centric, public, and permissionless blockchain built for business. Its built-in user identity at the protocol level provides regulatory compliance by design, allowing institutions with previous privacy concerns to harness the power of blockchain technology for the first time. Concordium With high throughput transactions for a global scale, Concordium also provides provable and fast finality, white-label architecture, and easy-to-deploy smart contracts on a future-proof network that is interoperable with the broader ecosystem. Legacy Firms Get In on the Act Not to be outdone by the range of crypto-native solutions building out the infrastructure needed to boost institutional adoption, legacy firms are getting in on the act too, with companies like JP Morgan making its version of the Ethereum blockchain Onyx available to traditional clients. Goldman Sachs recently became the to its blockchain-based network for repurchase agreements using smart contracts. latest addition What’s Next? Challenges remain, with scalability, interoperability, and regulatory clarity being mandatory if the shift toward institutional adoption of decentralized finance is to be maintained. Regardless of how the institutional crypto space develops, it’s clear that the benefits of DeFi will continue to disrupt the financial systems of the past, disintermediating legacy infrastructure that fails to adapt.

Analyzing the Institutional Landscape for Blockchain Solutions

Stablecoin adoption has exploded over the last year, seeing a . This was at least partly amplified by yield generating opportunities from the DeFi market boom and a growing interest in digital assets, providing the tokenized and frictionless benefits of moving between crypto and fiat over permissionless blockchains. collective market cap rise from around $10 billion to over $100 billion Broadly, there are two forms of stablecoins types available - centralized custodial stablecoins or decentralized non-custodial stablecoins, each with its own selling points. Centralized Stablecoins Centralized, custodial stablecoins are generally fiat collateralized off-chain. Stability is achieved via 1:1 backing of token liabilities with the corresponding asset, either directly or via a third-party custodian like a bank, creating a bridge between traditional finance and the crypto world. Industry leaders such as Tether (USDT) and the USD Coin collaboration between Circle and Coinbase (USDC) are examples of such centralized stablecoins, alongside the more recent examples of True USD (TUSD), Pax Standard (PAX), Binance USD (BUSD), and the Gemini Dollar (GUSD). In addition, Facebook and JP Morgan will soon launch their JPM and Diem centralized stablecoins. Such cryptocurrencies are essentially deployed onto a blockchain like Ethereum, balancing supply and demand to maintain the peg via a minting and redemption mechanism. Under this model, users can mint stablecoins by depositing the equivalent fiat to the custodian, redeeming or burning the tokenized versions to retrieve fiat back. With high levels of liquidity, discrepancies in the peg are rare and minimal. In any case, discrepancies would incentivize arbitrageurs to take advantage of any price dislocations until remedied. The centralized custodians profit and maintain the operation via the yield generated by fiat held in reserve alongside minting or redemption fees. tokenized IOUs As things stand, centralized stablecoins are popular partly due to them being the first stablecoin model to market, but also fairly intuitive to understand and use. Their external auditing requirements and single entity accountability leads to simple deployment of changes to the model, but this is often a double-edged sword. Minting and redemption costs can be high, being compounded by the custodian's operational, auditing, and compliance costs, as well as the slow and expensive connections to the legacy banking system. The centralized nature of the custodian also creates a single point of failure that is open to censorship. Decentralized Stablecoins Decentralized, non-custodial stablecoins can be further divided into crypto-collateralized and algorithmic stablecoins. Crypto-Collateralized Stablecoins Crypto-collateralized stablecoins, like those represented by the DAI model issued by or , swap the fiat-collateralized concept for cryptocurrencies, transfering the minting and redemption mechanism on-chain with incentive mechanisms to maintain the peg. This creates a blockchain-native alternative that takes on the decentralized and censorship-resistant properties of the network on which it is built. MakerDAO smart contracts Synthetix' sUSD Given the volatility of crypto, these models achieve stability by allowing lenders to generate interest from borrowers. To issue DAI, borrowers open collateralized debt positions, locking up collateral at specific loan-to-value (LTV) ratios and receiving a proportional amount of DAI as a loan. More recently, builds on this concept while taking inspiration from traditional banking models to deliver crypto-collateralized stablecoins, called Denoms. Onomy Protocol Onomy Protocol's . It derives its value from the ability to mint stablecoins from the Onomy Reserve, with the Onomy Decentralized Exchange providing Automated Market Maker (AMM) price discovery to rebalance the collateral ratios of the minting accounts. NOM native token provides the underlying collateral for Denoms Operating as a decentralized reserve bank managed via a DAO of participants, this protocol provides a non-custodial bridge between centralized and decentralized finance, with its stablecoins benefiting from non-custodial ownership of collateral with on-chain transparency that doesn't need to be entrusted to a third-party custodian or auditor, as well as price stability achieved through a multi-layered based on reserve rates, staking rates, minimum collateralization ratios, reserve collateralization ratios, and collateral liquidation fees. The general drawbacks to decentralized and crypto-collateralized stablecoins are the scalability issues of the dominant Ethereum base layer, oracle manipulation, volatility risks, and the need to dedicate too much collateral. In the case of Onomy, for instance, pegging mechanisms are kept in a closed loop within the system, voted on by NOM token holders to avoid external oracle manipulation. , it offers 100 times the efficiency of Ethereum-based protocols, with its interoperable bridges to external blockchains delivering the type of cross-chain liquidity required to on-board the $6.6T per day Forex market into DeFi. Built on Cosmos Algorithmic Stablecoins Algorithmic stablecoins are another alternative, bypassing collateralization, and relying on complex algorithms and smart contracts to manage price stability. Seigniorage Shares were an early example, and represents the latest example of a successful algorithmic stablecoin. Terra (UST) Essentially, these work by issuing new tokens when the supply is too low and burning tokens when the demand is too low, balancing between the two to manage market conditions and maintain a peg. However, the complexity in developing algorithmic stablecoin designs has led to a history of failed projects, with a structure that relies on future growth in demand. Moreover, they are open to greater vulnerability during unpredictable market downturns, and subject to oracle manipulation. They also don't include the same safety mechanisms of collateralized and decentralized alternatives, making this model fairly unsustainable over the long term. The Road Ahead Centralized custodial stablecoins are likely to become increasingly regulated and restricted. Over time, the non-custodial nature of decentralized stablecoins will continue to disrupt the market share of their centralized alternatives, growing to become one of the largest verticals in DeFi as the market matures and users realize that on-chain multi-fiat exposure is the only rational choice for monetary transfers, lending, and the securement of interest. As we embark on this great finance migration, stablecoins must scale for mass adoption and acquire the censorship-resistant properties of their underlying blockchains. This entails a decentralized design, cross-chain compatibility, and robust peg mechanisms that protect against volatility, deployed within a scalable, efficient, and trustless environment.

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