Top 3 Trustless Interoperability Protocols Bridging Blockchains

The diversity of distributed ledgers in this multichain world brings plenty of advantages, as dApps can scale more easily while choosing the most appropriate blockchain architecture, but it also creates problems.

Each new blockchain lives an isolated network that lacks the ability to talk to other chains, which means they cannot share information. As such, its not possible to send funds from one to another. Enter blockchain interoperability protocols, which perform the function of locking up assets on one chain and creating new ones on another as a way to facilitate cross-chain transfers.

The problem with early blockchain interoperability protocols is their centralized nature. They typically rely on custodians, which are trusted entities that keep the funds safe on the source chain, and mint tokens pegged to their value on the target chain. While these bridges are efficient, their centralized nature defeats the purpose of having decentralized money. Moreover, they become big targets for hackers, who know very well that they have millions of dollars worth of crypto under their control.

Fortunately, the crypto industry is known very well for its rapid innovations, and one of the newest is the concept of a trustless bridge, that allows cross-chain asset swaps without relying on any third parties.

1: Zeus Network

A fully decentralized and permissionless communication layer, Zeus Network provides a way for Bitcoin users to bring their tokens into the Solana blockchain ecosystem and utilize them within a range of DeFi applications. It provides additional utility for BTC while leveraging the key strengths of Solana, such as its rapid transaction processing and its ability to scale.

With Zeus, users can deposit BTC and mint zBTC tokens on Solana that can be used with its entire ecosystem of decentralized applications. It does this using a sophisticated yet elegant architecture that enables seamless cross-chain communication.

Key to this is the Zeus Node, which is a collection of decentralized nodes that are tasked with facilitating BTC to Solana transactions. Unlike traditional network bridges, which utilize a custodian that holds users funds in order to mint a pegged asset on the target chain, Zeus is entirely permissionless, avoiding the need for these trusted intermediaries.

The Zeus Node facilitates this by validating transactions through a network of Guardians, which verify each transaction while supervising each other to ensure no malicious behavior occurs.

Another key component is the Zeus Program Library, which provides the actual mechanism for bridging funds from Bitcoin to Solana. It enables digital assets to be minted that can live on both chains at the same time. So when someone moves BTC to Solana through Zeus, the BTC will be locked within the Zeus Program Library, where it can no longer be used. Then, it will mint an equivalent number of zBTC tokens on Solana, which can be used with that networks applications.

The BTC will remain locked until such a time as the zBTC tokens are burned.

This removes the need for custodians, which require users to trust centralized entities. As an example, the popular Wrapped Bitcoin or wBTC can only created by sending funds to a company called BitGo, which locks the BTC in a wallet controlled by itself, before giving the user the same amount of wBTC tokens to use on Ethereum. This is far from an ideal solution, as crypto is meant to be decentralized, and rejects the idea of trusted intermediaries.

Instead of using custodians, or single entities that have control over the locked BTC, the Zeus Program Library is managed by a collective, namely the independent Guardians that process and verify transactions. These nodes share custody of the locked funds, and no single node is able to unlock them. That can only be done by the user who controls the zBTC tokens, who is required to burn them to regain access to the BTC that was originally deposited.

2: THORchain

An alternative to Zeus, THORchain is a decentralized exchange protocol in the Cosmos blockchain ecosystem that launched in June 2022. Its goal is to enable permissionless digital asset swaps across Cosmos and other blockchains without wrapping tokens.

THORchain is a Layer-1 blockchain thats built using the Cosmos SDK and Tendermint framework, and it utilizes an innovation known as Threshold Signature Schemes to secure its asset vault. The combination of Tendermint and TSS allows THORchain to introduce a layered Byzantine Fault Tolerance (BFT) consensus mechanism that relies on a two-thirds majority to provide this security.

There are four main components to THORchains interoperability protocol, with the first being the Swappers that leverage funds held in liquidity pools to execute asset swaps across networks. Second, there are the "liquidity providers who deposit funds into these liquidity pools in return for a share of the rewards earned from transaction fees.

Third are the Node Operators, who serve as the networks guardians, ensuring it functions smoothly and securely, and fourth, we have the Traders, who are tasked with monitoring and rebalancing the liquidity pools by performing profitable trades across them.

THORchains cross-chain asset swaps always go through the protocols liquidity pools, in which various crypto assets are paired with its native token RUNE. To perform a swap, users first deposit the token they wish to swap, such as BTC. This will first be converted to RUNE, and then from RUNE to ETH (or whatever the desired token is). Finally, the ETH will be returned to the user who first deposited the BTC.

The permissionless design of THORchain means anyone can provide liquidity to its asset pools, and the non-custodial nature means that only the original depositor has the ability to withdraw the assets they contributed.

3: Stacks

Focused on Bitcoin interoperability, Stacks is a novel Layer-2 platform thats integrated with the Bitcoin blockchain. Its designed to bring smart contract functionality to Bitcoin, and it hosts a growing ecosystem of DeFi dApps that allow BTC holders to put their assets to work.

One of Stacks primary functions is to provide a bridge between Bitcoin and the Stacks network, and like the protocols above, it uses a number of novel components to enable this. They include Clarity, its specialized smart contract programming language, and the Proof-of-Transfer consensus mechanism that links Stacks to Bitcoin and ensures its security.

Stacks PoX consensus utilizes miners, who must deposit BTC to participate. This is what links Bitcoin to Stacks, enabling the L2 to inherit the number one blockchains foundational security. In addition, it also relies on participants known as Stackers, who stake STX tokens to help validate transactions on the network, earning rewards from the BTC funds deposited by miners, who themselves are rewarded with STX.

With its recent Nakamoto upgrade, Stacks introduced its sBTC bridge, which is an application that makes it possible to convert BTC to sBTC that lives on the Stacks network. Each sBTC is backed by one BTC, ensuring its collateralized. The BTC deposited by users is held in a script controlled by a group of Stackers, known as Threshold Signers. By locking up their STX tokens, they can participate by signing BTC peg transactions and minting new sBTC tokens, earning additional rewards in STX. As with Zeus Network, only the holders of the minted sBTC tokens can unlock the BTC held by the signers.

The sBTC bridge is said to facilitate the rapid transfer of BTC to Stacks, with sBTC tokens being minted and deposited in the users wallet within the completion of just three Bitcoin blocks. In addition, sBTC to BTC conversions are completed after six Bitcoin blocks are processed, meaning they should generally be confirmed within a few minutes.

Interoperability Without Trust

Trustless blockchain interoperability is key to advancing the progress of Web3 applications, which span a growing number of decentralized networks. By enabling the smooth, permissionless transfer of assets between chains, interoperability protocols can dramatically improve the real-world utility of dApps, without making any sacrifices in terms of security.

It means that dApps can work across multiple blockchains in a completely trustless way, a key capability that can encourage the broader adoption of Web3 solutions across different industries. It makes blockchain and digital assets more accessible and practical for every user.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Text source: Crypto Daily™

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