Potential of Multichain in DeFi Ecosystem

Kushagar Konark

4 Jun 2022

What’s ahead for the the future of Web3 and DeFi ecosystem? Founders of Instaraise and ShuttleOne discusses the advantages of Multichain and explore the possibilities of including Metachain support in InstaDEX

4th june, 2022– Dibyo and Aditya interacted with ShuttleOne’s CEO Zhaung in an interesting conversation on how multichain capabilities are shaping the DeFi ecosystem.

Missed our episode of Instaraise Spaces on Twitter? Don’t fret, we have made notes of everything significant that happened during the session. If you have time, you are welcome to listen to the recording of the entire conversation here.

The latest edition of Instaraise Spaces, a series of interactive sessions between the Instaraise team and the larger crypto community was centered around the importance of multichain capabilities in today’s DeFi ecosystem.

Along with Instaraise co-founders Dibyo Majumder and Adita Gautam, Hong Zhuang L, founder, and CEO of ShuttleOne discussed the need for interoperability between different protocols and how the respective projects are addressing the crypto community’s needs.

The topics of discussion ranged from ShuttleOne’s Metachain to InstaDEX and how a collaboration between both projects can affect a positive outcome that benefits the entire crypto ecosystem.

Taking it a bit further, the trio also spoke about how traditional financial institutions are working towards incorporating crypto technology while attempting to strike a balance between the regulatory requirements and the technical benefits.

Changing Seasons in the Crypto Sphere, Good or Bad?

The session kicked off with an unavoidable reference to the ongoing crypto winter, as the market continues to maintain an overall subdued sentiment. The speakers agreed upon the fact that it is just a cycle that usually follows a rapid unrealistic growth, only to normalize and pick up the pace once again.

The crypto winter is not all that bad, as during every cycle preceding the slowdown expands the user base, a lot of whom will continue to be part of the ecosystem for long, hopefully forever. Meanwhile, the growth and rising adoption of web3 technologies mean that there is only going to be a positive outcome over the long term.

However, certain challenges in the ecosystem could hamper growth and need to be addressed soon. One among those is the siloed nature of the existing blockchain protocols. In the backdrop of Terra’s blockchain freeze following the LUNA crash and repeated outages faced by the Solana ecosystem, the participants concluded that multichain is the future, going forward to ensure uninterrupted, seamless delivery of products and services over the blockchain.

The Need for Metachain, in Zhuang’s Words

ShuttleOne’s Zhuang mentioned that people aren’t talking about the right things, as the community recovers from the LUNA debacle. He pointed out that Terra is just one of the many existing layer 1 solutions and there will be many more created in the future. They will all carry with them one or the other legacy problems that we have witnessed so far. Be it scalability issues, reduced decentralization, or security flaws, they will continue to exist as long as these protocols operate in silos.

At the same time, most of these layer 1 solutions do not address the need to bridge the gap between TradFi and DeFi, preventing the seamless, efficient flow of liquidity across barriers for the benefit of humankind.

He mentioned that ShuttleOne’s Metachain was born of that need, to become a layer 1.5 solution that allows users to move in and out of the crypto space and cross over different protocols through a secure, decentralized channel. Responding to a question on how Metachain is different from multichain bridges that exist, Zhuang said that even though projects like Kusama on Polkadot and Cosmos SDK-based Binance Smart Chain have attempted to solve the cross-chain compatibility problems, they have remained as “layer 0.5”.

It is mostly because they have failed to factor in fiat currencies and their potential to drive growth. The Metachain, ShuttleOne’s blockchain aggregation solution stands apart from these projects by enabling seamless transfer of locked value in crypto assets directly to the bank accounts and vice versa, which in Zhaung’s mind makes it layer 1.5.

While the concept of cross-chain bridges has been around for some time, Metachain takes a different approach while establishing a two-way connection between multiple protocols.

With security and integrity of assets as the main priority, the support for different native protocols and tokens is established through the direct involvement of ShuttleOne and the respective protocol teams.

The smart contract-driven Metachain bridge doesn’t rely on wrapped tokens, instead regulates the movement of native tokens across different protocols by locking them on the chain of origin before unlocking an equivalent on the destination chain. By doing so, it prevents duplication of liquidity on multiple protocols.

Working directly with native tokens also allows ShuttleOne to deploy network validators called Threshold Signatory Scheme (TSS) responsible for minting and transferring assets across protocols without compromising the security or decentralization.

During the conversation, Zhuang divulged ShuttleOne’s criteria for choosing protocols to support Metachain. The level of decentralization takes precedence, followed by security, adoption, and the rest.

Layer 1 Projects Tend to Have Limited Focus

Quoting Vitalik Buterin on multichain compatibility being the future of the crypto ecosystem, Aditya appreciated ShuttleOne’s effort on enabling such a future with the Metachain.

He rightly pointed out that most layer 1 solutions of today focus on solving one of the many legacy problems at hand. By doing so, they take their eyes off the ball and end up retaining the rest of those problems.

Giving an example of each protocol’s strengths, he mentions Solana for its high transaction processing capabilities, Avalanche’s EVM compatibility, Tezos championing the NFT ecosystem, and more.

Even though most of these protocols carry with them certain flaws, they are still well-received by the community. Developers rush to build projects on them and investors pump liquidity into these ecosystems.

With the efficient multichain bridging that Metachain offers, both protocols and projects stand to gain a lot by leveraging desirable qualities from all available ecosystems for the broader community’s benefit.

Reasoning their decision to adopt the Tezos protocol, Aditya mentioned the advantages of on-chain upgrades as against the challenges of forking and updating other blockchains.

He also spoke about the increased interest in blockchain research among banking institutions, especially in India while expressing the Instaraise team’s willingness to explore a further partnership with ShuttleOne to drive more value into the platform as well as the entire Tezos ecosystem.

Multichain NFTs on Metachain

Recently, ShuttleOne announced support for multichain NFTs on Metachain. During the session, Zhuang explained why they adopted the approach and how it is going to benefit the users.

Starting with the process where they framed a hypothesis in favor of supporting multichain NFT minting, the team used its previous experience implementing NFTs in trade financing and other business operations to make the decision.

With most creators not being aware of the technical aspects, they create NFTs with the sole purpose of gaining exposure and selling them. However, being on a single protocol, the exposure and access to liquidity remain limited, as compared to having a presence on multichain.

Metachain enables this by allowing the NFT creators to bridge their NFTs across chains and list them on multiple marketplaces for increased exposure and command more value.

The Instaraise Story and Benefits from ShuttleOne Collaboration

Dibyo provided an insight into the origins of Instaraise which was built to address the needs of project creators who wanted to adopt Tezos but were unsure about the approach.

Instaraise was created as a launchpad to help developers fundraise and gain access to the Tezos community. Having tasted success, the team decided to extend their offering to create a complete project launch funnel, where projects can go beyond listing and raising the necessary funds to provide trading opportunities on native DEX while safeguarding the interests of their community.

The upcoming InstaDEX with innovative features like Impermanent Loss Protection and Single Asset Liquidity provisioning safeguards users from potential losses due to market volatility and demand for crypto assets.

A gamified feedback model is thus incorporated for their benefit where the platform shares its profits to compensate for any losses one might incur.

A collaborative deployment of Metachain in Instaraise’s infrastructure will not only help a broad section of crypto users to use Instaraise and its solutions but also opens the doors for more liquidity flowing from other protocols.

The multichain approach also creates a big market, as Aditya mentions, “Being a Dapp on a single platform may make a project globally accessible, but at the same time, the growth will be constrained as they will have access to the users and liquidity from just one protocol, leaving behind many opportunities presented by other chains,

Appreciating the interest shown by Instaraise in adopting Metachain, Zhuang listed the benefits of offering seamless fiat-crypto-fiat on/off-ramp to the users, encouraging easy adoption, and attracting more assets from other protocols, and more importantly, the advantage of arbitrage across DEXs to further reduce impermanent loss, etc.

The Future as We See it

While DeFi has a huge potential to change global financial systems, it will increasingly come under regulatory scrutiny, especially after the LUNA affair.

As the debate continues, on whether regulations are good or bad, everyone in the discussion agreed that the governments and traditional institutions are now more open to incorporating and encouraging the industry, albeit with some caution.

The KYC and AML requirements that some consider a hindrance to the industry growth are also important for increased adoption.

As institutions now levitate towards public blockchains, changing their previous stance in favor of private chains, the interoperability between chains gains new significance.

Our focus at Instaraise is to create a sustainable, user-friendly DeFi ecosystem, starting on Tezos and eventually incorporating multichain capabilities through partnerships with the likes of ShuttleOne to enable free flow of liquidity across protocols and assets classes while erasing the boundaries between DeFi and TradFi.