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How multichain token systems can improve liquidity

How multichain token systems can improve liquidity

Digital assets are typically restricted to their native blockchain networks, and existing methods of transferring tokens from one blockchain network to another are highly vulnerable to hacking or involve using a trusted third party. 

However, multichain tokens enable users to transfer their assets to another blockchain directly without giving up custody of their tokens.

Experts in the blockchain space believe that cross-chain tokens can positively impact the industry by enabling greater user participation over multiple networks.

Marius Ciortan, director of product engineering at Bitpanda and Pantos, a European crypto exchange, told Cointelegraph, “Multichain tokens can establish a more fluid and connected environment in the context of decentralized finance.”

Ciortan continued, “Multichain tokens, for example, can aid in developing more efficient decentralized exchanges by allowing users to trade assets across several blockchain networks. This can aid in improving liquidity and decreasing fragmentation in the DeFi ecosystem.”

Multichain tokens can also help connect blockchain networks, assisting developers in deploying their applications on multiple blockchains. Hoon Kim, chief technology officer at Astar Foundation, a layer-1 smart contract platform, agreed, telling Cointelegraph, “More asset and liquidity interoperability means more interdependence between ecosystems. This can expand the network to allow more innovation and increase the risk of failure when one asset loses its value.”

“But if an asset wants to increase its demand, we can see a future where more and more projects will aim to inject their assets into multiple networks and increase their utility,” Kim said.

Challenges with interoperability

Facilitating communication and interoperability among various blockchain networks heavily relies on interoperability protocols. However, interoperability protocols in the blockchain domain present several challenges that require resolution in order to ensure the seamless operation of the blockchain ecosystem.

The absence of standardization poses a significant obstacle to interoperability protocols. There are many different exchange protocols, and each one has a different design and framework. This means that the environment is full of different networks that don’t work together.

Since there isn’t much unity, it’s hard for developers to make apps that can run on different blockchain networks and still work. Because of this, people who work in…

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