Introduction: Shaping the Future of Blockchain with Cross-Chain Communication Technology

Blockchain technology is evolving rapidly, and at the heart of this evolution lies the cross-chain communication capability. In the Futaba Team's series titled "Planting the Seeds of Omni-chain Growth," we shine a light on this intriguing area, exploring how blockchain's cross-communication technology impacts application innovation.

Our focus is on a diverse range of Dapps (Decentralized Applications), examining their specific architectures and functionalities in detail. Through this process, we aim to deeply delve into the potentialities brought about by inter-chain interactions.

The topic for our second edition is "Liquid Staking." This innovative approach enhances token liquidity while maintaining security, thereby extending the benefits of blockchain to a broader user base. We will closely examine how Liquid Staking influences the future of interoperability.

The future of blockchain is bright, and it is we who are shaping it. Join us, the Futaba Team, on this exciting journey into the ever-evolving world of blockchain technology.

What Is Liquid Staking?

Liquid staking is an innovative approach in the blockchain world, offering all the advantages of traditional staking while enhancing the liquidity of staked assets.

In this system, users deposit their tokens with a liquid staking provider, who stakes these tokens on their behalf. In return, users receive a new token as a receipt, which represents their staked assets plus any rewards or penalties. These tokens can be traded or used as collateral in DeFi protocols, thus freeing up the liquidity of the staked assets. Liquid staking transforms the traditional staking model by making staked tokens accessible and usable across the DeFi ecosystem.

For more information on liquid staking:

Challenges of Current Dapps in Single Chain Environments

The landscape of decentralized applications is continually evolving, but they face significant challenges in single-chain environments. These challenges impact both the user experience and the fundamental protocol design. The key issues include:

1. Complexity in Pricing LST with Unique Variables: When LSTs are split across multiple chains, calculating prices with variables like inflation rates becomes complex.

2. Inability to Use Liquid Staking Tokens (LST) Across Chains: LSTs are confined to the chain they are minted on, limiting their utility in DeFi applications on other chains.

3. Redemption Restricted to a Single Chain: Users can only redeem their LST on the chain where it was created, affecting the user experience.

4. Fragmentation of Staking Tokens: Staking tokens bridged to other chains or rollups are not usable, leading to fragmentation.

Omni-chain Liquid Staking Solutions

To address the challenges in a single-chain environment, let's explore cross-chain Liquid Staking. This exploration will involve two stages, considering how interoperability technologies can be effectively utilized.

In this project, we initially aimed to make Liquid Staking omni-chain, enabling its functions to communicate in a one-to-many architecture. However, upon deeper consideration, we realized that Liquid Staking is fundamentally more suited to one-to-one communications, especially between chains that adopt Proof of Stake (PoS) systems like Ethereum and other chains. Therefore, we decided to shift our focus towards cross-chain implementation, recognizing it as the primary potential avenue for development in this area.

Glossary of Key Terms

Multi-chain

A state where smart contracts are deployed across multiple chains. However, these contracts operate independently and cannot communicate across chains.

Cross-chain

Cross-chain refers to a state in which contracts deployed on different blockchain networks can engage in one-to-one communication. For example, it enables token transfers through bridges and one-way data transmission using messaging protocols.

Futaba

Futaba is an infrastructure that safely retrieves data across different chains and utilizes it as variables in smart contracts. It enables the coordination and synchronization of data across multiple blockchains.

Messaging Protocol

A general term for infrastructure facilitating data transmission between different chains. It is also possible to transfer tokens across the blockchain.

Stage 1: Enhancing LST Utility with Cross-Chain Integration

In the first stage of enhancing Liquid Staking Token (LST) functionality, the focus is on transitioning LSTs to a multichain environment. This process will enable the use of LSTs in DeFi applications across different chains.

A prime example of this is Lido. By bridging LSTs issued on Ethereum, they can be utilized on the Polygon chain, significantly increasing the utility of the token. This cross-chain approach not only broadens the scope of LSTs but also amplifies their potential within the DeFi ecosystem.

Stage 2: Cross-Chain Stake and Withdrawal Capabilities

Not only does Liquid Staking Token (LST) become multichain, but the actions of staking can also be executed from other chains.

Deposit Process

1. From a Layer2 or similar chain, deposit any amount of ETH into a contract.

2. The contract uses a bridge capable of General Message Passing to transfer assets to the Ethereum chain.

3. Perform liquid staking on the Ethereum chain.

4. Bridge the stETH back to the requested chain and transfer it to the user.

Withdrawal Process

1. From a Layer2 or similar chain, deposit stETH into a contract.

2. The contract uses a bridge capable of General Message Passing to transfer assets to the Ethereum chain.

3. Return the stETH or similar assets and conclude the liquid staking.

4. Bridge ETH back to the requested chain and transfer it to the user.

Bifrost Finance serves as a leading example of this capability. (Note: This solution is primarily centered around Polkadot.)

Revisiting the Evaluation Framework: Understanding the Four Pillars

In assessing the potential and impact of the Omni-chain Lending concept, we focus on four critical aspects:

1. Profitability: Economic benefits of Omni-chain implementation.

2. Community Impact: Ability to positively engage existing and new communities.

3. Innovation: Fundamental innovations compared to single-chain solutions.

4. User Experience: Improvements in user interaction and transaction efficiency.

Evaluation

Profitability: The economic benefits of implementing Omni-chain are significant, particularly for Liquid Staking Tokens (LST). Expanding the utility of LSTs is crucial, as it has a substantial impact on both user engagement and the distribution of rewards. From a profitability perspective, increasing the applications for LSTs enhances the overall value and appeal of the Liquid Staking ecosystem.

Community Impact: While the ability to participate in Liquid Staking DeFi (LSD) from chains other than Ethereum is a positive development, it may not have a significant impact on the community. This is because a substantial portion of users and funds associated with LSD are already concentrated on the Ethereum network. Therefore, while there are benefits to community engagement, the impact might not be as extensive as one might expect.

Innovation: In terms of innovation, Stage 1, which primarily involves bridging tokens, lacks novelty. However, Stage 2 introduces a certain degree of freshness by enabling LSD on multiple chains. Yet, it's important to note that this stage still relies on bridging and utilizes existing Liquid Staking mechanisms. Therefore, while there are incremental improvements, they do not constitute fundamental innovation at the core level.

User Experience: The user experience, particularly in terms of depositing and withdrawing across chains, is expected to improve dramatically. This enhancement in user interaction and transaction efficiency is one of the most significant benefits of the omni-chain approach. It simplifies processes for users and makes engaging with the DeFi ecosystem more seamless and user-friendly.

Challenges in Cross-chain Liquid Staking

• If you want to specify unique variables like the inflation rate in the price of LST, calculations become unfeasible when the token is fragmented across multiple chains.

  • This has design space that can be omni-chained.

• Cross-chain liquid staking is primarily conducted through one-to-one communication with chains that adopt Proof of Stake (PoS), such as Ethereum.

  • In other words, if the basic principles of blockchain, such as staking, do not change, it is difficult for other functions to become omni-chain.

• Given this, the current methods, where users optionally use bridges, could be sufficiently effective. When considering factors such as contract development and security risks, there is a possibility that the development may not be cost-effective.