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I always say that the most valuable asset I have and that no one will ever be able to take away from me and very few will be able to match it, is having been young during the greatest technological revolution in the history of mankind.
Just out of high school, PCs appeared. A decade later cell phones appeared. And a decade later, the mother of all current monstrosities appeared on: the Internet. Those who are in their 60s know what I'm talking about. The daily sensation of vertigo that we had was really alarming, distressing, anxious, full of dynamics, especially for those of us who, like me, were in the world of systems and technology.
Screenshot from https://www.youtube.com/watch?v=sLAan2iZs_YIn particular, the Internet issue caught us all off guard. We quickly discovered that the software being developed was much more advanced than the available hardware. It took a long time for the hardware to adapt to the rhythm of millions of developers who flooded the incipient network of networks with new proposals.
But the thing was much more traumatic than millennials who were born with the Internet integrated into their lives can imagine today, in the same way that we were not very impacted by a television set. In the same way, the boys who are born today, when they are 30 years old, will see the crypto sphere as a part of their daily lives, and who knows what will be their lot as a technological advance of that moment, when the millennials are 60 years old.
The same is happening today with the irruption of the Internet of money and the different crypto ecosystems. The seeming chaos of thousands and thousands of new designs every day overwhelms and traumatizes us. It seems that once again, software and hardware are not going hand in hand. In addition, we are still at the stage where many islands coexist that speak different languages ??and have different forms of communication, both in languages ??and in consensus protocols. It seems that the chaos is increasing and that they will never all agree to communicate.
To understand this in perspective, let's see a short story of the evolution of the internet, and then link it to the topic of this post.
ARPA (Advanced Research Projects) was born in 1965 as a byproduct of the Cold War between the two superpowers. But everyone agrees that the Internet was born in 1969 when ARPAnet was created, the network that allowed several American universities to interconnect. Robert Kahn and Vinton Cerf developed a communication protocol known as TCP/IP (Transfer Control Protocol/Internet Protocol) which was only adopted by ARPAnet in 1983. This simple fact was a turning point that accelerated the evolution of the Internet with a quantum leap. But it was only in 1989 when Tim Berners-Lee presented his HTML, the language of languages, which allowed embedding objects, images, videos, and everything we know today was born there. The so-called World Wide Web (www) that we all use today without knowing what it is, was introduced in 1991. Nobody wonders how many computer programs are launched when a www address is inserted in a search box. No one needs to know either. Internet is an intuitive component of our life.
So, the analogy with the current state of the crypto sphere emerges at a glance. We are still a long way from having an intuitive crypto sphere. The truth is that in many cases, notably in many DeFi platforms, and even in the very concept of DeFi, we are taking the first steps of ARPAnet. Of course, I am naturally optimistic and I believe that we are going in the right direction in the sense that for the first time in the flight of humanity there is the possibility that each person on the planet handles their own money without intermediaries. But the road ahead still presents a lot of challenges if we want ordinary men and women to access decentralized finance, just as today they can access the www without problems and from any device, and from almost anywhere on the planet.
Image by Anastasia Gepp from Pixabay
At the beginning of the Internet, there was no World Wide Web. There were only LANs (Local Area Network) that could only connect to devices that were in the local area. Much of the information was lost. The same is happening today in the third generation of the Internet, Web3.0, with regard to the inefficiency of connection between the different blockchains and the tokens they support, which, in turn, has repercussions on a general inefficiency of the crypto sphere and of DeFi.
This inefficiency becomes latent in the form of scarce liquidity in cross-chain pairs, and in the many (and intricate) steps required to make a trade, whatever it is, in the DeFi environment, if it is necessary to travel between blockchains. It is the same situation that occurred with the first Internet, the old Web1.0.
We know that the great promise of blockchain technology is decentralization. This is undoubtedly the most important value proposition of the ecosystem. For this, multiple networks and consensus mechanisms have been developed that allow multiple people who do not know each other to cooperate to maintain a network, breaking with traditional centralization.
However, as decentralization progresses, so does the number of networks that appear, running a high risk of polarization. In other words, networks become economic-social islands where their communities coexist with a high degree of isolation from the rest of the world.
High decentralization leads to atomized centralization. Each network operates under its rules and standards, becoming more and more an isolated central entity and with a greater danger of concentration of power.
The danger of atomization continues to be the much-feared concentration of power.
The solution to this problem that gives my wife stomachaches is to obtain a “TCP/IP-type” protocol, and a new “HTML” that interconnects the blockchains and universalizes the crypto sphere, just as the WWW did. The solution that is needed must contemplate simple navigation, without many difficult steps until reaching the desired objective for the money that you want to invest.
Web3.0 developers, VCs, entrepreneurs, investors, have seen this problem for a long time. The first concept developed to approach a generalized solution in DeFi, albeit a partial one, was that of so-called “atomic swaps”.
Image by Alexander Antropov from Pixabay
Atomic swaps form a totally trustless type of exchange between cryptocurrencies. Throughout the process, users maintain control of their funds, that is, their private keys. This solves the problem of a user who wants to trade and has to deposit funds with an exchange to do so, thereby losing control of their private key. But in return, you need the other party to have enough of the currency that the user requires for the exchange to become a reality. In other words, the liquidity generated in the ecosystem is key to the continuous operation of the atomic swap.
The operating core of atomic swaps is the HTLC (Hashed Time-Locked Contracts) code. An HTLC is a smart contract that manages a payment channel, which is responsible for asking the recipient of a payment to acknowledge having received it before a deadline. For this, it generates a cryptographic proof of payment. If you don't, you lose the chance to claim it and the amount is returned to the payer. Atomic Wallet was one of the most popular decentralized wallets, specifically designed for the use of this blockchain protocol. The protocol is available to be used with more than 300 cryptocurrencies, for fast and secure transfers.
For the security of the storage of funds, Atomic Wallet provides the client with all his/her private keys, so he/she is the only one capable of controlling them.
Atomic swaps allow a transparent form of exchange since no third parties are involved. They also allow a high level of security, since the user's funds are not in the atomic swap but in the personal wallet of each one of them. However, atomic swaps have several drawbacks. First of all, its use is limited to cryptocurrencies capable of using HTLC. If one of the currencies does not have this functionality, the exchange will not be possible. Second, the aforementioned liquidity represents a problem that can only be solved by having a large number of users of the most diverse cryptocurrencies.
Users of atomic swaps are not only limited by the existence of the pairs they want to exchange, but they must also find a counterparty that wants to exchange the exact number of tokens, otherwise, the swap will not take place. As can be seen, this limits the scalability of the tool, since it is demanded by millions of users.
Problems arising from the use of atomic swaps led developers to work on so-called "bridges".
Image by JamesDeMers from Pixabay
A bridge allows the use of an asset from one blockchain on another blockchain. Since using the Ethereum Mainnet costs a fortune in fees and also suffers from terrible congestion, a bridge allows you to make a transaction on a cheaper and faster network. DApp developers can use the advantages of Ethereum without suffering from scalability issues and high fees.
Now, by using a bridge, you are not sending ETH to another network. The ETH you are “sending” is actually locked within the network. What the bridge does is mint an equivalent value of tokens on the other network. These tokens can be used however you want on the new network, and when you're done, the new token will be burned and the equivalent amount of ETH will be released on the Ethereum Mainnet.
How does a bridge work?
When a user wants to pass a token from chain A to chain B, what the bridge does is lock the token on chain A and mint a new token on chain B (a wrapped token). As long as the token is on chain B, the equivalent token on chain A is locked. When the user wants to have the token in chain A again, he/she goes to the bridge, and then, the token from chain B is burned and the token from chain A is unlocked. Through this process, the number of existing tokens in the market remains the same, the only difference is that instead of operating on network A, they operate on network B.
But even when bridges allow for a friendlier user experience, they still have issues, as my wife's tummy aches attest.
Now, the problems of the Ethereum Mainnet caused the appearance of a lot of new solutions, built as L2 networks on top of Ethereum, such as Polygon, Solana, Avalanche, Fantom. It is not that the proliferation of new networks can somehow be stopped. What we have to find is a solution so that everyone communicates with each other in the most possible friendly way. What is missing are the lubrication tools for the different connection steps, which allow us not to lose the enriching panorama of the multiplicity of networks that lies ahead. Each network exists because it brings a different vision and has its followers for that very reason. It is not about killing them because that would go against the decentralizing vision that we all seek. What we have to achieve is the way they communicate with each other without us noticing that this is happening.
Liquidity seems to be the most crucial problem in this process of invisible communication. How to solve the problem, if the tokens that are needed for the exchange are not available? The abundance of wrapped tokens can be very cumbersome when it comes to wanting to exchange them. Bridges often create their own wrapped tokens and then we are forced to deal with another token that we didn't want or need.
The problems derived from the use of bridges seem to find a solution in Symbiosis.
has thoroughly interpreted the DeFi problem and its proposal is very concrete: a scalable cross-chain liquidity engine. It's a very clever design that operates on a very different paradigm for making a swap. The goal of the platform is to simultaneously solve the current problem of swapping in DeFi: the fragmented liquidity across various blockchains and the very poor user experience of most platforms and their bridges. Symbiosis aims to simplify the cumbersome and time-consuming process of finding a suitable bridge to exchange the currencies the user wants to exchange. With one click, Symbiosis promises to perform the swap, regardless of which blockchain one is on.
The Symbiosis design differs from the traditional MMA model in that it does not compete with other MMAs for liquidity pairs. The conceptual novelty is the implementation of so-called capital-efficient liquidity pools. For example, to create a capital-efficient pool for BSC and ETH, a pair of the most liquid stablecoins of both networks is created, that is, BUSD/USDC. This is the most efficient way to do the swap because these two pools are historically the most liquid markets of the aforementioned blockchains. Eliminating the need to pair each token with another token like atomic swaps do or use intermediary tokens as bridges do, Symbiosis builds a scalable liquidity engine.
When a swap is made, the transaction is routed through an aggregator and then through a stablecoin or the pool's native token, whichever route is most efficient. For example, if a user wants to swap their token X on chain A for token Y on chain B, Symbiosis analyzes all aggregators and determines if the most efficient swap is between token X and the stablecoin, or between token X and the native token.
Although I don't need to do any swap at the moment, I decided to test the application, with the main objective of proving its “friendliness”.
So I went to Symbiosis.Finance site on my phone and clicked on “Try App”.
The next screen asked me to connect a wallet. I connected my Trust Wallet and the exchange screen appeared ready to trade.
I decided to exchange some AMPL for USDT.
In addition to the price and slippage tolerance, this screen shows the path that the trade is going to follow.
When confirming, the app asks if I want to change the destination of my funds or leave them in my wallet. I decided on the latter, which is the default option.
All was good until the smart contract call showed me the harsh reality that the network fee was $20. I decided not to approve the operation.
But still, the process with Symbiosis was friendly, fast, and seamless. We are on the right track.
Image by 4144132
Conclusion. What we need quickly, to be able to say that we place our trust in smarts contracts and that DeFi is really an ecosystem that allows all the inhabitants of the planet to manage their own money without intermediaries or control entities that must be asked for permission to operate, is a very friendly Web3.0 Internet interface that allows us to do what we want to do with our money with a single click. In my particular case, that will help me so that my wife does not have more stomach pains. Will Symbiosis be the remedy?
As usual, none of the things written in this post are financial advice and are not intended to replace personal research.
Thank you for reading!
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