The existence of numerous L1s has contributed to the fragmentation of liquidity and siloed ecosystems. For the multi-chain thesis to play out, interoperability between protocols needs to improve.
There are generally three different approaches to interoperability - middle chains; light nodes; and ultra light nodes.
Middle chains act as the intermediary between two chains, facilitating cross-chain messages by providing consensus and validation services.
Unlike full nodes that contain the entirety of blockchain data, light nodes store only parts of the ledger’s transaction history. We examined the Inter-Blockchain Communication (“IBC”) Protocol and Cosmos.
Similar to light nodes, ultra light nodes perform validation. However, instead of storing all block headers in order, these are streamed on-demand by oracles. We used LayerZero and Stargate as case studies in this report.
The development of generic messaging protocols is key to true cross-chain interoperability and is essential for the long-term growth of a multi-chain ecosystem. Considering the nascency of technology and the risks associated with each solution, developers need to be aware of the trade-offs and take deliberate steps to mitigate risks to users.
Interoperability Solutions: Connecting Worlds
Binance Research (JieXuan Chua, CFA)
Nov 24th, 2022