As LayerZero Labs prepares to launch and airdrop of its ZRO token later in May 2024, the spotlight on interoperability within the blockchain space has intensified.
Interoperability plays an important role in the growth of blockchain ecosystems by enabling seamless communication and transactions across networks. In this article, DWF Ventures dives into the leading players, their network types, scalability, adoption metrics, and decentralisation strategies.
Leading Players in Blockchain Interoperability
The blockchain interoperability space features a handful of protocols, each offering unique approaches to solving cross-chain connectivity challenges. Here are the top contenders:
- Axelar Network.
- LayerZero Labs.
- Wormhole.
- Hyperlane.
- deBridge Finance.
- Chainlink.
- Particle Network.
- THORChain.
- Celer Network.
- Analog.
These protocols are building new ways for cross-chain interactions, crucial for the long-term development of the DeFi space and blockchain industry in general. Below, you can see a comparison chart for these projects, composed by DWF Ventures:
Network Types
Interoperability solutions are categorised based on the network types they operate on, including:
- Cosmos SDK Blockchain.
- Messaging Protocols.
- Chainlink Oracle Network.
- Substrate SDK Blockchain.
Let’s take a closer look at each network type below.
Cosmos SDK Blockchain
Although a Layer 1 blockchain, Cosmos provides a modular framework for building interoperable blockchains within its ecosystem, enabling secure interchain communication through the Inter-Blockchain Communication (IBC) protocol. Cosmos-based solutions, such as Axelar, employ IBC to provide trustless and decentralised cross-chain messaging, allowing assets and data to move fluidly across independent chains while maintaining sovereignty.
Messaging Protocols
Messaging protocols focus on facilitating cross-chain communication by relaying messages between different blockchain networks without requiring direct connectivity. Solutions like LayerZero and Hyperlane utilise advanced security models such as ultra-light nodes and modular security configurations to ensure reliable message delivery.
The primary feature of messaging protocols is enabling seamless interaction between smart contracts on different chains, which enhances composability across ecosystems.
Chainlink Oracle Network
Chainlink built a decentralised oracle network that opens up flows of off-chain data into on-chain environment and smart contracts, also providing cross-chain capabilities via Chainlink CCIP (Cross-Chain Interoperability Protocol).
Chainlink oracles ensure accurate data transfer across blockchains by aggregating multiple data sources and providing tamper-proof feeds, which is critical for decentralised finance applications and enterprise integrations.
Substrate
Developed by Parity Technologies, Substrate is a flexible framework for creating customised blockchains within the Polkadot ecosystem. Substrate-based chains can interoperate via Polkadot’s Relay Chain, which offers shared security and cross-chain messaging capabilities through the Cross-Consensus Messaging Format (XCM). This framework allows developers to build tailor-made chains while benefiting from Polkadot’s interoperability features.
Cross-Chain Scalability: Hub and Spoke vs. Point-to-Point
Cross-chain scalability is fundamental for blockchain interoperability, determining the efficiency and adaptability of multi-chain solutions. Two primary architectural designs dominate the space, each with distinct trade-offs in terms of scalability, complexity, and flexibility.
Hub and Spoke Model
This model centralises cross-chain communication through a single hub that serves as the intermediary for all connected blockchains. Several projects such as Axelar Network adopt this approach, allowing new chains to integrate by establishing a single connection to the hub, rather than requiring multiple direct links to other chains.
The Hub-and-spoke model is particularly beneficial for enterprise-grade apps that require robust and streamlined connectivity. Scalability is enhahced by reducing the number of required connections and simplifying integration efforts. At the same time, the model introduces a single point of dependency that is a hub.
Point-to-Point Model
In contrast, the point-to-point model establishes direct communication channels between separate blockchains without relying on a central gateway. This approach, itilised in protocols such as LayerZero and Hyperlane, employs this architecture to enable peer-to-peer interactions between chains.
An obvious advantage of the point-to-point model is flexibility: blockchain protocols establish custom, application-specific connections, providing more control over data flow and security on a per-connection basis. However, as the number of connected chains increases, the number of connections grows exponentially (e.g., 50 connections are needed to set up a network of 10 blockchains), complicating network management. Overall, this model fits dapps such as cross-chain DeFi protocols and Web3 gaming platforms that require real-time transactions.
Which Cross-Chain Scalability Model is Better?
Comparing actual protocols, Axelar’s Hub and Spoke design offers superior scalability due to a single-point integration and reduced complexity of multi-chain interactions. Conversely, the point-to-point model used by LayerZero and Hyperlane would require more inter-blockchain connections and routes for achieving full connectivity. Read more about this verdict in Oxpostman’s analysis.
Adoption: Who’s Leading?
When it comes to what blockchain interoperability solution is more populr, judging by the volume of on-chain transactions and the sizes of network graphs, Axelar Network, LayerZero Labs, and Wormhole lead the race. In particular, as of May 14, 2024, Axelar has processed more than $8.66 billion worth of cross-chain transfers and 1.85 million transactions for 64 blockchains.
Decentralisation: Trust-Minimised Protocols
Decentralisation is vital for blockchain interoperability, providing the required security and resilience, especially in protocols that tend to centralise. In cross-chain communication, trust-minimised protocols prioritise decentralisation to safeguard against single points of failure.
Among the leading interoperability solutions, Axelar Network stands out with its Delegated Proof-of-Stake (DPoS) consensus mechanism, supported by a network of over 75 active validator nodes. This structure distributes control across multiple validators, each responsible for securing the network and validating cross-chain transactions.
In comparison, LayerZero and Wormhole mechanisms are less trust-minimised. Currently, LayerZero has 30 decentralised verifier networks (DVNs) with unique configuration, while Wormhole has a network of 19 Guardian nodes with super majority signature (e.g. 13 out of 19).
Overall
Blockchain interoperability breaks silos between chains and enables more connections, which impacts the economic activity in DeFi and the broader crypto market. The current cross-chain stack is represented by various network types and connection models, creating a diverse range of solutions like Axelar, LayerZero, and Wormhole.
We expect to see continued advancements that enhance cross-chain communication, improve security, and democratise access to decentralised technologies.
As the crypto venture capital fund, we remain committed to supporting the growth of the blockchain interoperability sector. If you are building in this space, contact DWF Ventures here to explore opportunities in this space!
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