Multichain Stablecoins- Better Security, Speed, and Scalability
Introduction to Multi-chain and Cross-Chain Infrastructure
A multichain approach involves natively deploying infrastructure for a token or application onto several blockchains rather than a single one. This multichain system means having a project on at least two blockchains simultaneously. For example, $USDC and $FRAX exist separately on 10+ blockchains rather than being a wrapped version.
Natively $FRAX lives on Ethereum, Solana, Avalanche, BSC, and Harmony, among others — with more native integrations expected this year and beyond. Similarly, $USDC is also available on almost all leading blockchains. As multichain stablecoins can simultaneously operate on various blockchains, it reduces the friction of converting stablecoins.
An alternative cross-chain approach involves finding ways to represent or wrap assets. A classic example of this is $WETH, a token pegged to the value of the original asset $ETH. Investors can utilize $WETH across multiple chains and different DeFi protocols.
Finally, cross-chain protocols such as Synapse and Stargate allow users to bridge tokens from one blockchain to another. However, these cross-chain applications have become a security issue. Most of the losses in Web3 this year have come from bridge exploits where hackers exploit this space that crosses ‘zones of sovereignty.’
What is a Stablecoin
Stablecoins are crypto assets pegged, in one way or another, to a particular fiat currency — typically denominated in U.S. dollars. These include Frax, Tether’s USDT, USDC, etc. Because stablecoins do not fluctuate much, it is comparatively easier to maintain them across different chains.
The Advantage of a Multichain System
The flexibility to choose from several cutting-edge, next-generation blockchains is the prime advantage of a multichain stablecoin. By forming partnerships with leading chains, multichain stablecoins are well-positioned to allow users to benefit from the best the digital ecosystem offers — security, scalability, less volatility, and enhanced liquidity options.
Security
Tokens connected by cross-chain solutions are affected by the security of the blockchains they are on. For instance, a 51% attack on one chain has the potential to create instability across all of the connected chains. As more blockchains are bridged, interdependency increases along with the risk that a black swan event on one network will affect all of the interconnected blockchains. With a multichain deployment approach, the risk is compartmentalized to each blockchain. Ethereum co-founder Vitalik Buterin has often stated his thoughts about multichain models prevailing due to the inherent security risks involved in cross-chain solutions.
Speed and scalability
Multichain stablecoins offer advanced scalability, and higher transaction speed as users can select the network they want to utilize. For example, in the case of USDC, users may choose an alternative layer one, such as Fantom, or even a layer two scaling solution, such as Arbitrum. This is particularly useful when networks become congested allowing users to avoid paying high gas fees.
Conclusion
Having a wide range of stablecoins available across multiple blockchains remains critical given DeFi’s multichain nature. Multichain stablecoins make this much easier. They present current use cases that will help in general crypto adoption and provide a stable manner for users to onboard, off-board, and navigate the crypto world.
By working with several blockchains, multichain stablecoins are well-positioned to bring decentralization and convenience to traditional businesses. Unlike other cryptocurrencies, stablecoins have the potential to bring about the mass adoption of crypto through real-world use cases and business applications. For instance, at MoneySwitch, we use leading multi-chain stablecoins to solve the challenges faced by the cross-border payments industry.
Want to learn more about MoneySwitch and the changing reality of global payments? Please join us here, and for further information on how to help power the cross-border payments of tomorrow whilst earning yield on your stablecoins, visit us here.
