A Brief Info About Cross-Chain Swaps
Blockchains, on their own, are comprehensive digital environments in which an underlying network connects all apps. However, as blockchain networks multiply and become increasingly disconnected from one another, there is an increasing need for cross-chain infrastructure that enables users to interact with many blockchain networks.
Cross chain swaps are arguably one of the most crucial building blocks for the Web3 ecosystem since they facilitate the easy swapping of one digital asset for another, which is a valuable service. Cross-chain swaps are set to form the cornerstone of a linked, cross-chain world, much as decentralized exchanges were among the original elements of individual blockchain networks.
A Cross-Chain Swap: What Is It?
A method for exchanging a token issued on one blockchain for another is known as a cross-chain exchange.
Although users can currently access cross-chain swap functionality through centralized exchanges, doing so adds several layers of friction (e.g., having to move the swapped tokens back to a wallet on a different blockchain after they have been transferred to an exchange and swapped directly or indirectly through a medium of exchange like USD). Users must also engage custodial services and temporarily relinquish possession of their assets in order to complete this process. For something as basic as a cross-chain swap, this turns into a major obstacle to creating a world where sovereign digital asset ownership powers society.
How Are Cross-Chain Swaps Functions?
Exchanges between chains can function in a number of ways. Cross-chain bridges, which wrap and lock up tokens on a source blockchain to produce a 1-to-1 representation on the destination blockchain, are the foundation of many contemporary systems.
A user must issue wrapped tokens on the destination blockchain, lock up their tokens on the base blockchain, and then trade using a native decentralized exchange to purchase the desired digital asset. Cross-chain exchange protocols have the ability to automate this procedure from the backend, requiring the user to provide simply the digital asset they desire to receive and the asset they want to trade in. Even though this is a tried-and-true technique for enabling cross-chain swaps, users need to have faith in the underlying bridge implementation’s security.
Alternative approaches for designing bridge protocols exist. The bridge model shown above is a “lock-and-mint” example. Some bridge protocols might employ a “lock-and-unlock” strategy, in which native supply persists independently on several blockchains, or a “burn-and-mint” strategy, in which tokens on a source blockchain are burned and subsequently minted on the destination blockchain. Nevertheless, bridging protocol cross-chain swaps all adhere to the same structure: The user obtains an equal quantity of tokens on the destination blockchain in exchange for the locked or burned tokens on the source blockchain. They can only make the swap after that.
Cross chain swaps allow value and information to be exchanged directly between blockchain networks, doing away with the need for centralized middlemen. Put simply, they provide users with a more seamless, transparent, and safe means to transfer assets across several blockchains