Opinion: the future of decentralized finance hinges on cross-chain DeFi protocols

Cross-chain protocols are a promising direction for the development of the decentralized finance sector. In an interview with ForkLog, Inal Kardanov, developer advocate for the Waves blockchain platform Waves said.

According to Kardanov, since the end of September the amount of assets locked in DeFi protocols has largely stagnated. By the end of October, the tokens of the largest DeFi projects hit price lows.

“The DeFi sector is starting to stagnate: most participants in the crypto market have already tested these products, and new users are not appearing. Applications that will work in any network could change the situation,” notes Kardanov.

In his view, cross-chain DeFi (InDeFi) are necessary for interacting across different protocols. Kardanov believes that, thanks to the development of decentralized cross-chain protocols, the volume of assets locked in DeFi projects will grow.

“Cross-chain DeFi will allow merging the advantages of different blockchain protocols. Imagine: you use Neutrino-based stablecoins in Compound, while directing the staking yields from Neutrino to a stake on Waves.Exchange,” he argues.

Inal highlights two paths for the development of cross-chain DeFi: building bridges between Ethereum and other networks, and launching new decentralized protocols.

Examples of bridges between Ethereum and other blockchains already exist: Rainbow by NEAR and Wormhole from Solana. However, this method has drawbacks: to move tokens from Waves blockchain to the Solana blockchain you must send them from Waves to Ethereum, and then from Ethereum to Solana.

“The Ethereum network is congested, and at peak moments transactions are very expensive. A greater number of integrations with Ethereum will worsen the situation. In addition, you will have to develop many complex interaction protocols, since each network needs its own bridge. For example, if you are in the Waves ecosystem and want to interact with DeFi products on Ethereum, Polkadot, Cosmos and Solana, you would need to build 4 bridges, each of which would be unique,” adds Kardanov.

Another approach to building cross-chain DeFi is decentralized protocols that allow moving tokens between networks without intermediaries. An example of such a protocol is Gravity from Waves.

Gravity has no native token: it will use the tokens of all connected networks.

“The main problem with cross-chain DeFi is that there are many initiatives on the market, but not a single ready-made solution. Yet it is a very promising direction that will reinforce decentralization: whales or developers of a particular platform will not be able to make decisions unilaterally. This will shift from competition to cooperation. Everyone will have to reach agreements,” comments Kardanov.

Earlier, Alexey Pupyshev, co-founder of the Neutrino and Gravity protocols, explained why governance-token airdrops do not threaten the decentralization of DeFi projects.

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