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.
About Binance Research: Binance Research is the research arm of Binance, the world's leading cryptocurrency exchange. The team is committed to delivering objective, independent, and comprehensive analysis and aims to be the thought leader in the crypto space. Our analysts publish insightful thought pieces regularly on topics related but not limited to, the crypto ecosystem, blockchain technologies, and the latest market themes.
General Disclosure: This material is prepared by Binance Research and is not intended to be relied upon as a forecast or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities, cryptocurrencies or to adopt any investment strategy. The use of terminology and the views expressed are intended to promote understanding and the responsible development of the sector and should not be interpreted as definitive legal views or those of Binance. The opinions expressed are as of the date shown above and are the opinions of the writer, they may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Binance Research to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Binance. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. This material is intended for information purposes only and does not constitute investment advice or an offer or solicitation to purchase or sell in any securities, cryptocurrencies or any investment strategy nor shall any securities or cryptocurrency be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the laws of such jurisdiction. Investment involves risks.