Without decentralized interoperability, the prosperity of stablecoins will not continue
Stable coins are the cornerstone of the digital asset market, with a market value of more than 100 billion U.S. dollars. Governments have invested a lot of resources to keep up with the trend.A report issued by the US President’s Financial Markets Working Group in November 2021 detailed Various measures to ensure stablecoin supervision Implemented within government guidelines.A sort of Global Central Bank Survey The Bank for International Settlements (BIS) report shows that 86% of central banks are now actively participating in the Central Bank Digital Currency (CBDC) in some way, which is a form of government-backed stable currency. Among these central banks, 7 have officially launched CBDC, and another 17 are in the pilot phase. according to To the Atlantic Council CBDC tracker.
Like all cryptocurrencies, stablecoins rely on blockchain technology to support peer-to-peer (P2P) digital transactions, giving them the bearer tool of cash and final settlement attributes. This underlying decentralized infrastructure brings promises such as faster transactions, lower settlement costs, enhanced transparency, and enhanced control over end users.
A number of different public and private market participants have developed multiple decentralized blockchain networks. In order to achieve its full utility, stablecoins must operate between many of them. Today, Dai (DAI), TerraUSD (UST) and USD Coin (USDC) Face unnecessary costs and safety risks when building a one-time bridge to achieve this goal. In order for the market to further develop and innovate, a universal interoperability network that securely connects all blockchain networks is needed. These universal interoperability solutions will also help CBDC and stablecoin developers overcome the costs and security risks associated with one-off builds.
The need for blockchain interoperability
Digital assets cannot reach their potential by running on isolated networks, and stablecoins are no exception. Interoperable design solutions will enable stable assets to play a key role in the economic transformation of many countries by improving the costs, time and management associated with cross-border transactions, remittances and even supply chain management. Interoperability solutions can facilitate the deployment of digital assets across blockchain networks and specific CBDCs.
USDC is one of the most important stablecoins on the market, and it provides us with a good example of cross-blockchain interoperability needs.After USDC was initially deployed on Ethereum, USDC’s Developer Center Consortium had to rebuild the USDC stack on other blockchain networks, such as Solana with AlgorandEtc., in response to the market’s growing demand for applications on these networks. When building these stacks, USDC developers are solving real problems and shortcomings: different technology stacks diversify the liquidity of their stablecoins.
A single interoperable network between different blockchains can make these decentralized applications (DApps) and assets available to the entire blockchain ecosystem without the need to redeploy the software stack on each new blockchain network. This will help reduce the pressure on developer resources at the protocol and application level.
Blockchain interoperability means that stablecoin transactions can be performed between stablecoin issuers and holders of different blockchain networks, including payment transfers and mortgages. This solution will greatly improve liquidity and ensure greater composability for the stablecoin market of more than 100 billion U.S. dollars. It will also eliminate the need for stablecoin issuers to list their stablecoins separately on each blockchain network as they currently do.
CBDC also needs interoperability. July 2021 BIS report Highlight the needs of both The necessity of multilateral cooperation and network interoperability between CBDCs. Although some governments want to implement protectionist policies, interoperability will benefit those governments that adopt a more open approach to facilitate international transactions involving CBDC, including cross-border trade flows, international remittances, and cross-border transactions.These benefits may be the Bank of France cooperate Cooperating with the Central Bank of Tunisia to conduct the seventh CBDC experiment in France.through Launched Nigeria’s eNaira digital currency, The Governor of the Central Bank of Nigeria supports the benefits of its newly launched digital currency working within an interoperable framework.
Security and decentralized core of interoperable design
The developers’ efforts on the world’s largest stablecoin outlined above illustrate the need for interoperability. They also highlighted the risks and costs of building temporary solutions in a world that does not yet have a universal interoperability agreement. Due to the complex requirements of connecting different blockchain networks, cross-chain interoperability adds additional security considerations. Exposure to multiple blockchains will expose these networks to more potential attack vectors.The world witnessed a devastating example in August, when attackers ran out of value more than US$600 million from Poly Networks, An interoperability bridge for decentralized finance (DeFi) applications.
Any blockchain network designed to deploy interoperability solutions should be built on the basis of ensuring the highest security standards in the industry, but at the same time not compromising its activity, efficiency or decentralization. Multi-party cryptography and decentralized consensus are key components that allow developers to build a powerful and extensible interoperating system. Combining these primitives can build a decentralized interoperability protocol that can securely protect cross-chain transactions and maintain security in the presence of multiple malicious participants.
Blockchain interoperability will open up new economic opportunities
With the accelerated launch of CBDC pilot projects and the continuous growth of stablecoins, world trade agencies, technical experts, blockchain developers and payment providers will follow the development and success of these CBDC plans and stablecoin projects. They are looking for ways in which these innovations can introduce new processes into domestic and international payments. The benefits of the universal interoperability framework for stablecoins will increase the scalability of international payment transactions between countries, thereby facilitating more efficient and improved cross-border trade flows, accelerating the speed of international remittance settlements, and enabling more through digital devices such as smartphones Financial inclusion. The development of a digital economy derived from such a system will help increase the economic GDP of many countries.
In order for society and the economy to obtain the full benefits of CBDC, universal interoperability is required to support the integration and functionality of the international payment system. Similarly, stablecoins issued on different blockchain networks can successfully promote digital payments only if they can be generally accepted by various blockchain networks. The universal interoperability network on which CBDC and stablecoins can operate effectively will bring more economic and trade benefits to end users, enterprises and governments.
This article is created by Sergey Gorbunov with Tepanic.
This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.
The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Sergey Gorbunov He is the co-founder and CEO of Axelar, a decentralized interoperability network that connects the blockchain ecosystem. He received a doctorate degree. From the Massachusetts Institute of Technology, where he was a PhD in Microsoft. Buddy. Sergey is the co-author of many encryption protocols, standards and systems. He is also a member of the founding team of Algorand, responsible for the design and development of the core platform, and leads the cryptography team.
Tepanic He is the chief venture capital officer of SCB 10X, which is the digital technology investment arm of Siam Commercial Bank, the largest and oldest bank in Thailand. She has more than 20 years of work experience in technology investment in Silicon Valley, New York and Singapore. Her expertise is investing in technology companies (private and public), especially fintech, blockchain and DeFi, deep technology (artificial intelligence, robotics, semiconductors, enterprise software and hardware, and Internet/media). Prior to this, Tai was a portfolio manager at Pictet Asset Management, where she invested in global listed technology companies, with a focus on Asia.