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Modular blockchains could be the next hot crypto market trend in 2023

Modular blockchains could be the next hot crypto market trend in 2023

#Modular #blockchains #hot #crypto #market #trend Welcome to InNewCL, here is the new story we have for you today:

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The public blockchain sector has grown from less than a few million dollars to a $1 trillion industry over the past decade. However, one thing space has yet to solve is a decentralized and secure interoperable solution.

For example, let’s take Ethereum (ETH) with Bitcoin (BTC), the largest blockchain network. To date, centralized exchanges are the only viable solution for moving from one chain to another.

A centralized solution provider, BitGo, offers the largest liquidity pool for Ethereum users to gain BTC exposure via Wrapped Bitcoin (WBTC). The BitGo promissory note accounts for over 93.6% of Bitcoin bridged to Ethereum. Users have to rely on BitGo partner platforms like centralized exchanges or CoinList to exchange BTC and WBTC.

The dominance of the WBTC exposes it to obvious centralization and regulatory risks. RenBTC, a platform managed by Alameda Research, disbanded in December after FTX collapsed, and the same could happen with BitGo. Finally, the recent regulatory crackdown on Paxos for issuing a USD-backed token, BUSD, could also put services like BitGo in the U.S. SEC’s crosshairs.

Interoperability between smart contract platforms and other application-specific blockchains also needs to be developed. Sidechains and rollups in Polygon (MATIC), Arbitrum, and Optimism account for 90% of Ethereum’s cross-chain bridge volume. Near’s (NEAR) Rainbow and Fantom (FTM) bridges are the only independent blockchains with a significant Total Value Locked (TVL) on bridges with Ethereum.

Ethereum market share on TVL bridges. Source: Dune

Several large crypto projects such as Polkadot (DOT) and Cosmos (ATOM) have implemented modularity from the ground up to build a secure and scalable cross-chain platform, with the ultimate goal of building an interoperable “network of networks”. However, Cosmos has yet to inject enough liquidity into its ecosystem, and Polkadot is still in development.

The problem of bridge centralization

The 2021 hype cycle has witnessed the emergence of a “multichain future” in which various blockchain host-specific functions such as but will be connected through interoperable solutions. The first generation of bridges were very primitive and centralized, which eventually made them hot targets for exploits.

The next generation of interoperable solutions work as separate blockchains to enable decentralization and increase security. This includes intermediate transfer tokens such as Thorchain’s RUNE. However, daily remittance volume through Thorchain has remained below $20 million, suggesting that usage has not increased.

Threshold, which will launch a trusted and private portal for Bitcoin on Ethereum, will launch in Q1 2023. It will seek to replace centralized providers like BitGo in bridging liquidity between Bitcoin and Ethereum.

Some other protocols focus on interoperability between smart contract platforms.

LayerZero is an omnichain interoperability protocol that enables the development of applications such as DEXes and lending protocols based on them. These protocols can interact with monolithic chains like Ethereum, Cosmos Hub, and Solana. Stargate is the first DEX built with LayerZero and has $324 million in liquidity on Ethereum, Polygon, BSC, and Avalanche.

Celestia is a Layer 1 blockchain built with the Cosmos SDK. While the platform supports the execution of smart contracts, it is only responsible for ordering transactions and making a blockchain’s data more accessible.

It aims to act as an intermediate layer between Ethereum Roll-Ups and the mainnet by compressing the Roll-Up data on Ethereum Layer-1 for faster execution. Celestia does not check the block data but helps optimize gas costs and execution speed. This capability will extend to Layer 1 blockchains like Cosmos, Solana, and Avalanche.

The team will conduct an incentive test in Q1 2023 to begin public testing and reward testnet validators with a potential airdrop of native tokens.

Celestia Testnet Incentives Announcement. Source: Celestia’s Discord

See also: “Multichain future is very clear” – MetaMask to support all tokens over snaps

Fuel Labs, the team building Fuel Network, also developed the Fuel Virtual Machine (FuelVM) and the Sway programming language that increase transaction speed. The team launched its second beta testnet in November 2022, and the public testnet is expected to go live sometime in 2023.

While the interoperable space remains underdeveloped and subject to centralization risks, various teams are working on decentralized solutions that will be rolled out in 2023. These protocols will securely bridge liquidity across DeFi protocols and other Layer 1 blockchains. Furthermore, they will also help build a multichain future where the user experience is blockchain-agnostic and interacts seamlessly with each other.

The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.

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