Cross-chain messaging platform Wormhole has launched native token transfers (NTT) as a solution to protect token traits and deal with liquidity fragmentation throughout completely different blockchains.
Sending tokens throughout completely different blockchain platforms as we speak often requires a token bridge. These bridges typically use both the “lock and mint” or “burn and mint” method when enabling these transfers.
This course of entails customers locking up the native asset into a sensible contract on one chain after which swapping it for an artificial model of that asset earlier than it’s transferred to a special chain. As soon as on one other chain, customers will once more have to undergo the method of switching the artificial asset to a local token.
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Nevertheless, in response to Nikhil Suri, product lead on the Wormhole Basis, as a result of interoperability protocols deploy wrapped belongings on behalf of a undertaking, these belongings are non-fungible between the completely different interoperability protocols, resulting in liquidity fragmentation, which may end up in a foul UX and sub-optimal markets.
“One other disadvantage of wrapped belongings is that they’re owned by interoperability protocol contracts, in order that they conform to a hard and fast token implementation. This limits flexibility for protocols trying to take their very own tokens cross-chain since their tokens received’t behave persistently on all chains and won’t retain any superior performance,” Suri instructed Blockworks.
One other manner of transferring belongings throughout completely different blockchains as we speak might be by having a unified liquidity pool shared by a number of completely different chains. Nevertheless, this kind of bridging cannot assure on the spot finality because the completely different chains should guarantee sufficient liquidity within the swimming pools to meet all requests.
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Not like current strategies for transferring tokens throughout chains, NTT entails protocols natively deploying their canonical token to a number of blockchains and utilizing interoperability layers to facilitate the transfers between these canonical deployments.
Which means that when new tokens are transferred utilizing the “burn and mint” or “lock and mint” methodology with multichain’s NTT, as an alternative of swapping the native token for an artificial asset earlier than sending it to a different chain after which switching it again once more as soon as it arrives on the vacation spot chain, customers will have the ability to immediately switch native tokens from one chain to a different.
“Compared to wrapped belongings, native token transfers be sure that tasks keep possession, upgradeability and customizability over their tokens on numerous blockchains. Which means that tokens can keep their distinctive traits regardless of which chain they’re transferred to,” Suri mentioned. “Native token transfers additionally keep away from liquidity fragmentation by transferring worth as an alternative of double counting it.”
Because of this, Suri believes that native tokens are greater than only a technical evolution, but additionally a step towards realizing the potential of blockchain know-how.
“They will function long-term options which might be capable of evolve alongside the protocols that leverage them,” he mentioned. “As we transfer ahead, interoperability will proceed to play an necessary function in shaping a strong and user-centric DeFi area and supply tasks with the sovereignty to outline what works finest for them.”
