What is cross-chain communication?
Cross-chain communication refers to the interlink and exchanges of data and other pieces of information on-chain, between blockchains. For example, when the Ethereum blockchain communicates with the Binance Smart Chain if you wanted to move assets.
In a centralized world with a traditional financial system, when you travel internationally, you can use your credit card that allows foreign transactions to purchase local merchandise and services without needing to worry about what the local currency is, this is known as interoperability. The same idea applies to the world of blockchain as well in the form of cross-chain communication. A more simple example would be that users of one email service (such as Hotmail) can easily interact with those who use a different email service (Gmail for example). Cross-chain is essentially interoperability in the DeFi space, where 2 or more different blockchain systems based on different protocol layers can communicate with each other.
Why is cross-chain important?
While Ethereum currently hosts over 90% of the assets in DeFi, there are many existing and emerging DeFi projects based on other protocols such as BSC and Polkadot. Compared to traditional financial services, DeFi protocols gave back the asset ownership to users rather than intermediaries and created a market that could be trusted by protocol rather than centralized entities. There are still some problems existing in the DeFi ecosystem. To start, current DeFi instruments are very complex for an average user, lending, trading, yield farming, building a portfolio, all these require large amounts of research and time for users to stay up-to-date ever for a seasoned DeFi user.
This poses a big entrance barrier to beginners and stops DeFi from getting new levels of adoption. Secondly, there are many different DeFi projects out there, so evaluating the risks and rewards of each project is difficult. Moreover, different blockchains and different projects often provide different dApps, making it difficult to navigate across multiple blockchains and dApps. With Ethereum being the major base layer behind many DeFi projects, users have to deal with the increasingly high transaction fees, and it is slowly getting too expensive for casual users to interact with liquidity farming and other dApps.
It is obvious that DeFi is powering a whole new space of the financial system, but without cross-chain interoperability, each DeFi project will eventually remain in their own space and remain an isolated economy. Cross-chain interoperability is essential for DeFi to grow into an ecosystem with great levels of adoption that can truly change the traditional centralized financial system.
How does APYSwap support cross-chain communication?
APYSwap has implemented cross-chain support for Ethereum, Polkadot and Binance Smart Chain, this cross-chain support can be expanded to other public blockchains supporting dApps as they come out in the future. Layer 2 protocols are used as a bridge for bridging Ethereum and Binance Smart Chain. Vaults can be generated by users on different chains, then they will be listed on the layer 2 marketplace for trading and registration on the initial public chain. In the case of Polkadot, virtual machines that are compatible with Ethereum-based smart contracts can be used to connect with the Polkadot ecosystem. Regular users would interact with APYSwap Vaults and the marketplace.
Therefore, the lack of cross-chain composability is a pain in the fast growing DeFi space. At APYSwap we are trying to solve this by bridging different DeFi projects together and creating a new level of user adoption.