Interoperability is one of the biggest problems of most blockchain in the cryptocurrency ecosystem. If you are not familiar with the term, it is about the capability of a blockchain to interact with another blockchain.
Think of it this way. You have an Apple laptop that can only work with an Apple router, Apple flash drive, and even exclusive HDMI. Requiring yourself to get a hold of items works exclusively on the Apple laptop is too much of a hassle, isn’t it? This is also the same problem that most blockchains are facing.
Currently, Ethereum runs slow and can only process about 30 transactions every second. To trade decentralization for scalability issues, software developers behind Ethereum moved their applications from the main network (Layer 1) to the Layer 2 network. Certain tools are pretty much needed to move inside and outside of these two blockchains.
Although there are many options in the crypto space, we’ll talk about xPollinate, which is one of the crowd’s favorite. xPollinate serves as a bridge that utilizes a unique protocol designed by Connext, referred to as NXTP.
xPollinate
As you might have already known, liquidity pools work by holding money of two assets, allowing traders to trade from pillar to post quickly. How would it be like if there were a liquidity pool across various blockchains? Perhaps, users would be able to deposit their coins on the Polygon network and get USDC from the Fantom network, transferring funds from one chain to another.
Through xPollinate, this idea was made possible— with added perks of low fees and fast transactions, which were usually hard to enjoy from other blockchains.
The famous automatic exchange contract permits two different parties to trade tokens from two various blockchains called Atomic Swap, which even seems to be inferior to xPollinate since atomic cross-chain trading requires users to find someone else on the other network to swap funds with.
Ethereum Virtual Machine (EVM) and xPollinate
xPollinate is an extensible base protocol that allows communication between Layer 2 systems and Ethereum Virtual Machine (EVM) compatible chains. Furthermore, reports note that they are also working on non-EVM blockchains and DAGs, but since this isn’t fully completed, there’s not much to say about it.
At the time of writing, xPollinate allows switching popular stablecoins like USDC, DAI, and USDT across various networks.
Connext
The interoperability network behind the xPollinate project is called Connext. Basically, xPollinate is just one application built from Connext.
Connext network doesn’t exchange and doesn’t have a token. It essentially operates like a liquidity pool. Earlier in our example, we’ve mentioned that users in a liquidity pool would be able to deposit their coins on the Polygon network and receive USDC in return from the Fantom network, transferring funds from one chain to another.
Soon after, someone comes along and gives USDC to the Fantom network and then gives them the Polygon USDC you initially gave.
The Connext network is made up of sets of individuals with routers to sustain the network and provide liquidity, called nodes. These nodes transfer data across the system, acquiring fees in the process. Connext actually launched its Vector protocol early in 2021 but experienced difficulties handling transactions because of the complex accounting required. Later, NXTP got rolled out to rectify those issues and raise the liquidity to attract developers to the platform.
Connext designed a decentralized application (Dapp) that is better than other blockchain bridges and Atomic Swaps. The expanding field of “cross-chain interoperability” networks includes StarkEx, Loopring, and Hermez. According to Connext, having no third-party validators to oversee user funds is one of the greatest advantages of NXTP.
However, there are two risks that exist on this protocol, just as other protocols have: user error and security jeopardy. Developers are keeping an eye on possible bugs on xPollinate since it is open source. Risks do no harm as long as they are controlled, though. User error can be avoided through education.
Benefits of Connext Network
Connext possesses three special advantages compared to other systems. The NXTP protocol is fully:
- Trustless
In comparison to other interoperability protocols, Connext does not present a third-party validator set that controls user funds. It rather uses the lock or unlocks mechanism, making it nearly impossible for hackers to steal the user’s funds on the chances that all the nodes in the Connext network collude. This advantage is greatly beneficial for Layer 2 ecosystems where trustlessness is necessary.
- Flexible
On any system, the protocol works just the same. Hence, it can be extended to new L2s, L1 chains, and sidechains in just a matter of a few days, or even less. It can also be fanned to produce and layer new types of interoperability protocols, which leverages NXTP’s existing liquidity and infrastructure.
Given the diverseness of L2s and chains within the Ethereum ecosystem, a highly flexible protocol is critical to sustain growth and support all types of functionality. To put it simply, NXTP can be leveraged on any EVM compatible blockchain pretty simply.
- Low Cost
The protocol Connext came up with is significantly capital-efficient than other competing projects. The transactions on NXTP oughtn’t to touch Ethereum Layer 1 when going across Layer 2 or sidechains because it is designed to solve slow transaction times and extremely high gas fees.
In fact, the main net testing has shown a million-dollar volume being routed only by $600k in liquidity. This magnificent combination of properties makes the protocol low-cost for users and highly attractive liquidity providers.
NXTP
NXTP is designed to be the TCPIP of the Ethereum multichain ecosystem— a fully trustless protocol that can be used for valued transfer and contract calling between chains. Generally, the primary goal of Connext’s NXTP protocol is to serve as an interoperability protocol of EVM networks, bridging blockchains together.
Furthermore, NXTP has the capability to call for contracts through a liquidity provider network, somewhat like a cross-chain meta transaction that allows users to send funds from one pool to a similar pool in just a single transaction.
Although this might seem to be a very simple idea, it is actually a huge deal since it usually takes about 3-4 transactions and an expensive bridge to perform swaps.
From its founding back in 2017, the Connext network has now topped more than $500 million worth of transactions across its network. The company undertook a $12 million funding round last July, which was co-led by a blockchain technology company called ConsenSys and investment firm 1kx and other 80 additional investors.
