A Cliché Is A Cliché Of Course, Of Course
I love clichés. Ever since I can remember, I’ve been looking for rules that can explain “everything”. Clichés are clichés because they are universal. They are (mostly) timeless and (mostly) true everywhere (across cultures). They are so self-evident and obviously true, that “everyone” keeps repeating them, even centuries after they were first articulated.
Naturally, I was drawn to natural science and STEM and eventually became an engineer. All STEM is based on universal rules, heuristics, first principles, and rules of thumb. But for every rule, there is an exception to the rule. So what is the rule for choosing rules?
A Fork in the Road
When we are talking with crypto projects, one of the most important questions facing the team is: where to deploy it? Each blockchain has its pros, cons, trade-offs, risks, and opportunities.
Ethereum has the greatest network effect, but is (still) slow and expensive. Solana is one of the fastest blockchains but it’s less on the decentralized side of the blockchain trilemma. Cosmos has a great community of users and devs, was designed for interoperability, but still has a way to go before coming head-to-head with Ethereum. And, once upon a time it was (seemingly) a great idea to build on Terra.
The answer to this deployment question has a multitude of ramifications: from technological tradeoffs to network effects that will determine and cap your project’s long-term potential. Choosing poorly can be a forking pain in the neck, leading you to a blind alley.
But why is that even a question? Today, you don’t ask someone “who is your service provider?” before calling their cell – you just call them and you are automatically routed through. Everything behind the scenes is abstracted from you. It is transparent. As it should be.
A Spoke In The Wheel
Doing the right thing at the wrong time is like doing the wrong thing. (Most of the time). In real estate, location is everything (location, location, location). But this is true in the broader sense for all products.
If a tree falls in a forest and no one is around to hear it, does it make a sound? Maybe.
But If you build the next big thing on a “nowhere” chain (or in a forest of competitors), it does not exist. If all your roads lead to Rome and Rome falls, you’ve reached nowhere. That’s why the first rule of investing is diversification.
Failure to Communicate
Almost 15 years have passed since the Bitcoin whitepaper, and blockchains are still mostly siloed, closed, walled gardens.
Siloed blockchains are limited in their functionality because they can’t interact with other blockchains. This limits the types of applications and use cases that can be built on the blockchain. The lack of interoperability creates a fragmented ecosystem, with different blockchains serving different purposes – making it difficult for users to access and use the services provided by different blockchains. Siloed blockchains also can lead to inefficiencies in resource utilization and capital inefficiency.
Failing to plan is planning to fail. Blockchains and smart contracts are much more complicated than “classic” code development. Some decisions you make along the way are like a one-way function.
For example, if you choose a centralized architecture and different components assume performance based on that structure, it is almost impossible to change course. Same goes for Tokenomics. Few projects have successfully overhauled their Tokenomics with their DAO’s approval, some comparing it to changing an airplane engine mid-flight.
Going Multichain – FOMO or Fo’ Sho’?
The naive, brute-force, and simple (but not easy) solution is going multichain. Yes, chain diversification decreases the risk of missing out or even fear of becoming irrelevant (FOBI?), but one thing is for sure – it has a high cost and introduces additional risk.
Don’t get me wrong – this can be an ok or sometimes fine solution, but it requires a lot of overhead and extra work. Large and experienced teams may be able to deal with the added complexity. For an early or small team, this can be a Sisyphean race to nowhere. Some of the most fundamental rules to SOLID software design are Separation of Concerns, Cohesion, Decoupling, and in general KISS (keep it simple stupid) and DRY (don’t repeat yourself). Manually building different versions for different chains will break most of the rules just mentioned and will remove vital time for building, improving, and innovating on the product. That said, this is a training wheels solution IMHO and should be replaced as early as possible.
I’m Sorry, You’re Breaking Up
To overcome this, two dominant solutions have emerged: a temporary fix and hackable hack called a blockchain bridge (or bridge in short). The other more wholesome solutions are protocols that are designed and planned with interoperability in mind from the foundation up, notably Polkadot, Cosmos, and Axelar.
Bridges have gained notoriety of their own accord. There are many downsides to bridges (here’s an outstanding “bridges 101” by Axelar’s team). Over 2 billion dollars have been hacked from bridges; the current champ is Polynetwork with $611M hacked in 2021.
That’s a Wrap!
Wrapped crypto assets are cryptocurrencies that are pegged to the value of another asset, such as a fiat currency or a commodity, through a process called "wrapping." The wrapped asset is typically issued by a centralized entity and can be traded on a blockchain network.
The biggest wrapped asset (depending on the definition) is WBTC. The upside and reason for the existence of wrapped assets is that they provide crypto users with access to the benefits of other assets, such as increased liquidity or stability, while still utilizing the advantages of blockchain technology.
That being said, there are several risks associated with wrapped crypto assets that investors should be aware of, and they’re listed below. A good rule of thumb is that with each additional smart contract involved, the risk or attack surface grows.
Counterparty risk: Wrapped assets are typically issued by centralized entities, which means investors are exposed to counterparty risk. If the issuer becomes insolvent or goes out of business, investors could lose their funds.
Security risk: Centralized entities that issue wrapped crypto assets may be targeted by hackers, which could result in the loss of funds. In addition, the smart contracts that underpin the wrapping process may contain vulnerabilities that could be exploited by malicious actors.
Price risk: Wrapped crypto assets are subject to price fluctuations, just like any other cryptocurrency. If the value of the underlying asset changes rapidly, the value of the wrapped crypto asset may not be able to keep up, as with Lido’s stETH scare.
But once in a while, along comes a solution that delivers the best of both worlds: native-interoperability.
Choosing Everything: The Inkredible Squid
One of the leading and fast-growing Interoperability protocols is Axelar. Axelar delivers secure cross-chain communication for Web3 with an infrastructure that enables dApp users to interact with any asset or application, on any chain, with one click. Axelar's General Message Passing (GMP) enables developers building on one chain to call any function on any other connected chain.
Squid is building perhaps the most ubiquitous application on top of Axelar’s infrastructure.
To solve the interoperability and wrapping problem, Squid is building and running a trustless cross-chain swap and liquidity router. At its core lie the foundational building blocks required to power seamless cross-chain payments. Squid's stack is powered by the Axelar network, and both teams are actively collaborating on building the initial blocks.
Squid utilizes existing DEXes to swap and send any native token between the supported chains which can be done via Squid’s SDK, Front End interface, or Contracts directly.
Squid has (successfully) put a lot of effort into creating a slick, simple, single-click UX, minimizing friction to as little as possible. Buying NFTs from any marketplace, using multi-chain DeFi, and playing a game on another chain, all without signing multiple transactions or downloading multiple wallets.
As of now, Squid already supports the native cross-chain swaps to 25 blockchains; Swaps are composable with Axelar's generalized message passing, so Squid can enable one-click transactions between any application and any user, using any asset.
Squid has undergone 4 audits: 3 by Ackee Blockchain and 1 by Consensys Diligence. Some of the major players in the crypto space have already announced they will be integrating Squid, including QuickSwap, Pangolin, Ledger, and BitKeep.
Squid recently went live on Ethereum, Moonbeam, Binance Chain, Arbitrum, Avalanche, Polygon, Fantom, Celo, Cosmos Hub, Crescent, Injective, Juno, Kujira, Osmosis, Secret Network, Terra-2, Agoric, AssetMantle, Axelar, Comdex, Evmos, Fetch, Ki, Regen, and Umee.
Life is full of multiple choices, and it's easy to get overwhelmed with too much stuff on your plate. It’s nice to know that sometimes you can get a helping hand (or a few tentacles) from a trusted Squid friend.
If you have any questions, feel free to ask the Squid team.
If you want to share your thoughts, please do.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice