How Will Blockchain Bridges and Cross-Chain Interoperability Evolve from a UX Perspective?

The crypto/web3 space has matured considerably as a whole. Long gone are the days where Ethereum is the only platform for smart contracts — the emergence of multiple smart contract chains have provided us with faster and cheaper alternatives to Ethereum.

As a testament to this fact, Ethereum’s TVL (total value locked) dominance is quickly dwindling by the day — from 95% for the most part of 2020, now down to ‘only’ around 60% at the time of writing. In fact, this current cycle could mark the first time in which the “starting base” to DeFi and NFTs for the majority of new crypto adopters is not Ethereum!

Make no mistake, Ethereum remains a significant lynchpin throughout the whole crypto ecosystem. Major DeFi or NFT innovations mostly still start out from Ethereum before being ported over to other chains, largely due to Ethereum’s huge lead in developer count over other chains. The most capital is still on Ethereum, and even if its dominance isn’t as strong as it used to be, Ethereum’s TVL figure by far still trumps over any other competing chain.

With that being said, the crypto space is surely not going to go the path of maximalism — a scenario where only one dominant chain wins. Expect Ethereum’s TVL dominance to keep decreasing over the years, with other chains taking up this share. As such, blockchain interoperability becomes imperative to allow seamless capital flow amongst chains, instead of the silo-ed liquidity that we’re mostly accustomed to right now.

The Current State of Blockchain Bridges and Other Interoperability Solutions

Currently, the most widely preferred option to transfer capital between chains is via a centralized exchange. And it is completely understandable why.

Blockchain bridges are a pain to use, as simple as that: UX is as unfriendly as it gets. To prove my point, try asking a crypto newbie to do a simple cross-chain transaction on their own:

“So you go to Wormhole, click on source chain and select the current chain that you’re on. Next, click destination chain and select the chain you want to bridge to and paste your address. Then, select the token you want to bridge, approve the token, and click transfer. Wait for a few minutes for confirmation, then redeem your token on your destination chain. Ah that reminds me, for non-EVM chains you’ll need to download another wallet that is native to the chain. Also, you’ll need to see the whether the wrapped tokens that you’re going to be receiving in the destination chain will have a liquid market for you to exchange to “native” tokens. If not, then bridge it back to the source chain and swap it to a token that has a liquid market on the destination chain. That’s all, happy bridging!”

By the end of your long-drawn speech, I guarantee 95% of the time that you’ll be met mostly by blank stares and visible confusions. What is the destination wallet? Why wrapped token? Where liquid market? And there goes another hour of your free time on the weekends…

Long story short, one thing we can say for sure is that current interoperability solutions are just a UX nightmare. We do this all the time, so we might not notice their struggles since it is like second nature to most of us — but for them, they’re charting on unknown territory, and hence it is extremely important for us to make sure that their onboarding process is as beginner-friendly as possible.

Blockchain Bridges: The Back-End Infrastructure

In fact, we have indeed made strides on the UX of bridging. If first-gen bridges are of lock-and-mint architecture (ex: Wormhole), second-gen bridges are actually not bridges per se, but more like a liquidity router.

In simplest terms, it basically matches bridging demand of a supported asset from the source chain with its available supply on the destination chain, and then upon verifiable proof that the asset has been deposited into a “threshold address”, distributed nodes collectively release the equivalent amount of asset from the available supply on the destination chain.

This “second-gen bridge” significantly improves the UX, as now the user won’t need to worry about wrapped tokens and its available liquid markets on the destination chain. Simply select your source chain, your token, your destination chain, paste the destination address, and you’re ready to go! The most prominent example of this second-gen bridge is AnySwap (rebranded to Multichain), with two billion dollars in TVL at the time of writing.

But we’re far from being done. The end goal isn’t to develop the most efficient bridge, but it is to allow seamless capital flow among chains. Bridges alone won’t solve fragmented liquidity or silo-ed smart contracts.

For ultimate seamless interoperability, liquidity must be made available to all chains, regardless of where its originating from, and smart contracts must be able to communicate with each other, regardless of its scripting language. Bridges are in fact just one part of the equation towards blockchain interoperability — they are meant to be a back-end infrastructure, not a user-facing front-end application.

To put this into analogy, imagine two islands separated by a sea — one has an abundance of coconuts, while the other is filled with bananas. Bridges are just that — bridges! To conduct trade, the coconut islander has to bring coconuts across the bridge to banana island, trade the coconuts with bananas over there, then carry the bananas back to coconut island. For the side of the banana islander, vice versa.

This is the state of blockchain interoperability today. However, what if both islands can agree on some sort of communications channel for the trade of coconut and bananas? That’s right, certainly it would significantly increase the trade volume of coconuts and bananas across both islands!

“Interoperability Layer”: The Front-End Application

Back to the analogy, let’s assume both islands are provided with internet connection. In this case, instead of having to physically carry coconuts to banana island to trade (and bring them back), they can simply arrange the trade prior, then bring the actual goods to each other following a time interval.

As such, the liquidity of coconuts will not be limited to the amount that the islander is able to carry across the bridge — in fact, the whole island’s coconut stock is now available liquidity for the banana islanders. Same goes to banana liquidity to coconut islanders.

Fast forward a few years. Banana islanders have now acquired the skill to make banana splits out of raw bananas. Coconut islanders traded more coconuts for banana splits, as they think they can improve this “creation”.

After a few months, coconut islanders have indeed enhanced the banana split by sprinkling chunks of coconut meat on top, along with mixing it with some coconut juice. Following on, banana islanders proceeded to trade even more bananas for this “coconut-enhanced banana split” — in the process learning how to make banana juice from it. This self-reinforcing cycle will keep going on and on, supercharging the rate of innovation on both islands.

Relating this analogy to the real-world, it would be like if there is an interoperability layer that can connect fragmented liquidity pools residing on different chains (ex: Uniswap on Ethereum, Quickswap on Polygon, Raydium on Solana, etc.), while also allowing smart contracts to talk with each other regardless of its underlying chain’s language (ex: Solidity for EVM chains, Rust for Solana, etc.).

From a UX perspective, this interoperability layer will be able to update the user’s state balances on different chains, without requiring the user to select source and destination chains, paste destination address, and switch networks. One wallet address is all the user will ever need, and instead of having to remember the seed phrases or private keys of multiple addresses, this future interoperability layer will ‘link’ all of them together and cryptographically generate a single ‘master’ seed phrase that will allow users to update the state balances of its associated ‘child’ addresses across chains.

In practice, this would be like if you can initiate a swap from a Solana DApp to trade $SOL for $ETH, or buy an Ethereum-based NFT from an Avalanche DApp, without having to switch networks and approve on both chains. The interoperability layer will send you a single pop-up for you to sign with your ‘master’ seed phrase, and once approved it will automatically execute all the associated smart contracts for you (and update state balances if applicable).

Going Cross-Chain: The “Globalization” Era of Blockchains

Division of labor is a well-known concept in economics. In short, it states how specialized workers could produce more economic output in the same timeframe as “general” workers, and as such separation of tasks is to be encouraged.

The rise of globalization has expanded the range of goods and services that each nation has access to. This allows each nation to get even more specialized, resulting in a higher overall economic output for itself and the world in aggregate. Without globalization, every nation is compelled to produce their own food, infrastructure, and other “basic needs”. There won’t be Japan as the world’s largest automobile producer, China as the world’s factory, or Singapore as the financial center of Southeast Asia.

Each blockchain network can be regarded as a separate nation with its own identity, language, and economic specialization. Like how open trade and globalization increases the economic output and overall wealth of all participating nations, a future where blockchains can seamlessly interoperate with each other will encourage all chains to double-down on their respective specializations, in which by the same effect will increase the economic output and aggregate wealth of all participating chains.

Also published here.