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Cross-chain DeFi vs. Regular DeFi-What are the Differences?

Have you ever wondered what it would be like to be a bank? What it would be like to perform the functions that a bank does Or, if you are not a heavy daydreamer like some, you might have wondered what it would be like if we eliminated banks.

It is an exciting question; our financial dependency on banks is so great that the question of choosing or thinking of an alternative sounds ludicrous.

The case is not the same anymore, and the days are limited to the banking sector ruling all over our financial transactions as there are some new players in town.

Players who promise not only quicker transactions but also the utmost safety and security. 

What is DeFi?

DeFi, which stands for Decentralized Finance, can be called next-generation technology.

DeFi isn’t a specific app, but it’s used to talk about a wide range of apps that work on a public blockchain.

It works on secure distributed ledgers similar to those used by cryptocurrencies and is based on peer-to-peer payments made possible by blockchain technology. It represents a new vision for banking and financial services.

This technology has revolutionized the finance sector. Investors can lend money on a peer-to-peer network and earn higher interest rates than they would in a traditional banking setup. Not only that, but there is also no banking fee involved in performing any transaction, and the transactions are completed quickly, making them more acceptable to the public.

What is Cross-chain DeFi? How does it work?

The blockchain system on which the DeFi works has heard all its praises, but it is not all sunny in the sector. There are some limitations that the users of this technology face.

The foremost issue faced by anyone dealing with the DeFi network is that it cannot communicate with two non-native blockchain networks. There was a big issue of interoperability. Users had to create multiple wallets or bridges and ended up paying gas fees on transactions between tokens.

Scalability issues, hefty transaction fees, and poor speeds have become increasingly evident as more individuals enter the decentralized finance world. Users desire a system that allows them to transfer assets between networks to solve problems on a single blockchain network.

Cross-chain Defi was introduced to address this issue and provide a solution.

Cross-chain DeFi technology gives the DeFi ecosystem the interoperability pieces it needs to support smart contract transactions on more than one chain.

With the introduction of additional cross-chain technology-enabled blockchain networks, the DeFi sector enables more interoperability that links independent DeFi platforms, DeFi markets, and DeFi dApps to allow for a cheap yet effective DeFi economy.

Previously, users usually had to make use of a centralized exchange to convert their tokens into the currency they desired to indulge in. But now, with the help of cross-chain DeFi, there is no need for a centralized exchange platform. Users can now diversify their exchanges on any of their desired blockchain networks, and it does not matter if it is a non-relative network of exchange. 

The distinctions between Cross-chain DeFi and Regular DeFi

Regular and Cross-chain DeFi although working on the same core principle, i.e., blockchain network and smart contract, have their fundamental differences. 

They are both built to provide decentralized financial platforms for users where the transactions are safe, secure, and quick. The main difference between them is how easy it is for different non-naval blockchain networks to work together.

Unlike in the traditional DEFI, there is little to no scope for transacting in the inter-blockchain network. Users have to use third-party platforms if they want to diversify their investments and exchanges across different blockchain networks.

To solve this problem, cross-chain DeFi was developed. Here, users are free to spread out their investments and can make trades on different blockchain networks that are not connected to each other.

Cross-chain DeFi technology has the potential to enable superior scalability compared to the siloed solutions of traditional DeFi. since it allows users to take advantage of the speed and efficiency of several blockchain networks. Users could be using a different application to perform their exchanges and could be leveraging high TPS and low transactions from a different blockchain protocol, which is hassle-free.

In regular DeFi, the data is stored in a single blockchain, and for many users, it turns out to be a little expensive. Some networks have issues storing files that are large in size. With the help of Cross-chain DeFi, users can choose networks where the storage expenses are according to their standards, and also select blockchains where they can easily store large files.

The scale to which activities can be performed increases with the introduction of cross-chain; borrowers from a particular blockchain can borrow, exchange, and provide collateral to a lender of any blockchain. The lender can also accept assets from multiple networks and expand their capabilities. In the case of Regular DeFi, the lender was restricted from accepting assets and collateral from that specific network.

Without cross-chain aspects, the DeFi infrastructure cannot enable transparency, which is restricted to the ecosystem in which the DeFi solution is created and run. Cross-chain DeFi makes sure all connected DeFi ecosystems are transparent. With more transparency, the collaterals can be checked on their own in real-time, making fraud and manipulation of fractional reserve rights less likely.

Most relevant cross-chain DeFi platforms today

The below mentioned are the most relevant platforms or bridges for cross-chain DeFi that people avidly use.

Binance Bridge

One of the well-known cross-chain bridges, Binance Bridge, strives to promote interoperability within the cryptocurrency sector. It enables anyone to transfer their cryptocurrency assets into Binance Chain and Binance Smart Chain wrapped tokens, and vice versa.

The conversion process for bridge tokens between networks is quite simple and takes only a few minutes. Binance Bridge can currently convert ERC-20 tokens and a few specific coins on other networks, such as LINK, ATOM, DOT, XTZ, and more.

With the help of Binance Bridge, users just have to pay for gas on their native and destination chains. This interface is available to any user, even if they don’t have a Binance account.

The requests of users to transfer tokens are warped and coveted into BEP-2 and BEP-20 formats. After the conversion, these tokens can be used as native BEP-20 tokens for various protocols in the BSC ecosystem.

Avalanche Bridge

Avalanche Bridge is a bi-directional cross-chain bridge. This interface connects the Avalanche and Ethereum networks, providing uninterrupted exchange between the two networks.

Users who want to start a cross-chain swap or use ERC-20 tokens in decentralized applications on Avalanche can put their assets in the ChainBridge Smart Contract and make sure they are safe.

Proposals are submitted to the relayers of the bridge once an asset is submitted to the network. The Relayers will compare the data that needs authenticity according to the standards of the Avalanche’s data and, with the help of voting, decide whether to approve or reject the new data.

SmartBCH Bridge for Bitcoin Cash

SmartBCH runs in parallel to the Bitcoin Cash network as it is an Ethereum Virtual Machine compatible side chain.

Bitcoin Cash SmartBCH aims to bring Bitcoin Cash (BCH) into the decentralized finance sphere and to use it across different platforms.

Metamask is a platform that enables users to use this network service. They have to deposit their BHC, and at lightning-fast speed, they will get SmartBHC into their Metamask wallet.

Portal Token Bridge

The Portal Token Bridge, formally known as the Wormhole, is one of the best and most popular bridges for cross-chain DeFi.

It was first used for a two-way transaction between Solana and Ethereum. With updates, it can now be used for exchanges and transactions between a number of well-known and busy blockchain networks.

Compared to its competitors, it has the lowest transaction fees and is thought to have an easy-to-use interface.

This bridge employs guardian nodes, and these nodes act as some validator nodes who analyze and validate every transaction. When a user wants to perform a multilevel exchange, Guardian nodes burn the specified number of tokens on the original chain whenever a user requests to move a crypto token from one chain to another. Then, the exact number of tokens for the destination chain is made in a format that is tailored for that platform.

As this platform charges the lowest fees to perform transactions, it has seen its fair share of popularity among users.

The best blockchain protocols for cross-chain DeFi

The following is a list of some cross-chain protocols that are currently popular in the Defi space:

Polkadot

Polkadot is a blockchain network that enables interoperability. It uses a substrate framework, parachains, and an interoperable bridge. Parachains are blockchains with their own tokens that modify their functionality for unique cases. The Polkadot Relay Chain secures and connects to these chains. Additionally, they can use bridges to link to other networks.

Things like cross-chain computation and cross-chain registries are very much possible in the Polkadot network framework.

Avalanche

Avalanche is an interoperable system for launching unique cross-Chin DeFi solutions. The DeFi ecosystem is increasingly expanding beyond single-chain and Avalanche permits solutions utilizing its ecosystem-built DeFi solutions to communicate with those utilizing multiple interoperable and non-interoperable DeFi solutions.

Cardano

Cardano is another interoperable and scalable blockchain network aimed at improving various industries’ infrastructure. Cardano continues to innovate in traditional banking and financial infrastructure with ecosystem capabilities that support the development of innovative cross-chain DeFi solutions.

Near Protocol

With the help of its Rainbow bridge, Near offers cross-chain interoperability along with a layer-2 solution called Aurora. The goal of building a rainbow bridge was to make it easy for Near and Ethereum to work together. Because of this, any DeFi solutions built on the Near Network can work with any Ethereum solutions.

How can Prolitus help you with Defi Development?

DeFi is the future. It has started a revolution and is already, in a way, changing the financial sector as we see it. Decentralization of transactions, along with decreasing transaction fees, a quicker approval rate, and more safety and security, has attracted businesses from all around the globe.

We anticipate significant changes in the DeFi area as cross-chain technology continues to gain enormous acceptance. This service is relatively new to many, and it’s just the beginning of the revolution. But you don’t have to worry, as Prolitus has come to your rescue.

Hire a team of enthusiasts who are experts in the fields of blockchain, network development, NFT marketplace, DeFi, and wallet development. We make innovations that have the potential to affect the cryptocurrency industry significantly. As one of the most important market influencers in the cryptocurrency industry, our skilled developers create solutions based on client needs to fill in gaps and take advantage of opportunities.

Prolitus helps finance companies use the trust, scalability, and clarity of cross-chain technology to improve their core financial processes and make them more efficient.

If you feel optimistic about developing a Cross-chain DeFi blockchain network and need a helping hand, feel free to contact us.

In simple words, it can be said that DeFi, on the foundations of the blockchain and smart contracts, has created a new revolutionary infrastructure that delivers all the financial products and services we utilize in our centralized world.

DeFi is the next big thing, and there is no doubt about that. It is going to replace the traditional financial system. With Cross-chain, DeFi has opened up new possibilities for industries in performing multilevel transactions.

Want to join this bandwagon? Come chat with us.

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