Top 6 Cross-Chain Products You Need to Know
By Space Coast Daily // March 28, 2023
Cross-chain products are blockchain-based products that allow the transfer of assets or information between different blockchain networks.
Cross-chain products are becoming increasingly important as more blockchain networks are developed, and users want to be able to transfer assets and information between these networks seamlessly.
Wrapped tokens are a type of cryptocurrency that are designed to represent another cryptocurrency or asset on a different blockchain network. The idea behind wrapped tokens is to enable the use of assets across different blockchain networks, allowing users to benefit from the features and benefits of each network.
Wrapped tokens are typically created through a process called “tokenization.” This involves locking up the original asset and issuing a new token on a different blockchain network that represents the locked-up asset.
The process of tokenization involves custodians who hold the original asset and issue the wrapped tokens on the other blockchain network. Custodians are typically trusted third-party companies that hold the original asset in a secure manner and issue the wrapped tokens when requested by users. Custodians also maintain a 1:1 ratio between the original asset and the wrapped token.
The benefits of wrapped tokens include increased liquidity, as they enable the use of assets across different blockchain networks, and increased access to DeFi (Decentralized Finance) applications, as many DeFi protocols are built on the Ethereum network.
Despite their advantages, DEXs currently have lower liquidity than centralized exchanges, meaning that they may not have as many buyers and sellers or offer the same level of trading volume.
Examples of decentralized exchanges include Uniswap, PancakeSwap, and SushiSwap, which are built on the Ethereum and Binance Smart Chain networks.
Bridges are tools that enable the transfer of assets or data between different blockchain networks. They serve as a link or a connection between two separate blockchain ecosystems, allowing users to interact with each network and transfer assets or data seamlessly. You can swap busd to usdt on a trusted platform allowing for seamless cross-chain transfers of stablecoin liquidity.
The primary purpose of bridges is to enable cross-chain interoperability, which means the ability to use assets or data across different blockchain networks. This is important because each blockchain network has its own features, benefits, and drawbacks, and being able to transfer assets or data between them can increase liquidity and accessibility.
Bridges can be centralized or decentralized, and they can operate on different blockchain networks. For example, a bridge may enable the transfer of assets between Ethereum and Binance Smart Chain, or between Ethereum and Polygon.
The use of bridges and cross-chain interoperability is becoming increasingly important as more blockchain networks are developed and users seek to interact with multiple networks. Bridges enable the use of assets and data across different networks, which can increase liquidity, accessibility, and functionality for users.
An atomic swap is a type of cryptocurrency trade that allows two parties to exchange different cryptocurrencies without the need for an intermediary or centralized exchange.
Atomic swaps use a process called Hash Time-Locked Contracts (HTLCs), which enables two parties to agree to a trade without either party having to trust the other. HTLCs use cryptographic hash functions and time locks to ensure that both parties fulfill their end of the trade.
Here’s how an atomic swap works:
- Alice and Bob agree to trade Alice’s Bitcoin for Bob’s Litecoin.
- Alice creates a transaction that sends her Bitcoin to a new address, but with a time lock attached to it.
- Bob creates a transaction that sends his Litecoin to a new address, but with the same time lock attached to it.
- Bob uses the cryptographic hash sent by Alice to unlock the time lock on Alice’s transaction, allowing her to claim the Litecoin he sent.
- Alice uses the time lock on Bob’s transaction to unlock it and claim the Bitcoin he sent.
Atomic swaps are becoming increasingly popular as a way to trade cryptocurrencies without the need for a centralized exchange, which can be susceptible to hacks, fraud, and regulatory crackdowns. They also enable cross-chain trading, allowing users to exchange cryptocurrencies across different blockchain networks. For example, if you want to send erc20 to bep20 you can use atomic swap or bridge.
A cross-chain oracle is a tool that enables the exchange of data and information between different blockchain networks.
Cross-chain oracles solve this problem by enabling the exchange of data and information across multiple blockchain networks. They act as a bridge between different networks, allowing smart contracts on one network to access data and information from another network.
Here’s how a cross-chain oracle works:
- A smart contract on Network A requires external data to execute.
- The smart contract sends a request to the cross-chain oracle for the required data.
- The cross-chain oracle retrieves the data from Network B, where it is stored.
- The cross-chain oracle verifies the data and sends it back to the smart contract on Network A.
- The smart contract on Network A executes based on the received data.