Jul 23, 2021

The Multichain and Multilayer Future


Here at FlipMetrics, we are hyper bullish on the Ethereum network. However, we see Ethereum L1 as the center point of multiple layers and multiple blockchains, within the broad ecosystem.

To date, the most developer activity and user activity lives on Ethereum. It is, of course, not without its flaws, but it is the standard for blockchain centric computation.

Layer 1 alone cannot scale, and will not for a long time (or ever). Layer 2s and focused alternative Layer 1s will be an important part of the crypto ecosystem for a long time to come. Interoperability between these and Ethereum L1 (and between each other for that matter) will be very important.

A lot has to align when you’re working cross chain, in what should be a trustless system.

  • Portability of application
  • Liquidity fragmentation
  • Finality assurance
  • Shared information states

There’s so much to consider (these are just a few examples), and I’m no expert, but lets just say it is not easy. And the more applications spread out amongst various L2 solutions and alternative L1s, and the more those applications need to interact together, the more important the seamless interoperability becomes.

Let’s isolate the liquidity issues

Let’s say you have 1 million ETH pooled for trading. If that 1 million ETH are all on Ethereum L1, that’s fine and fairly easy, though fees won’t be fun. A good DEX aggregator can manage the cross-pool liquidity fragmentation and the user is happy.

Now, let’s fragment some of that ETH to Arbitrum, and some to Optimism, and some to BSC, Solana, Polygon, and so on. You either need a lot more ETH to come provide liquidity, you need much better capital efficiency, or you need to be able to execute trades across chains.

You can see how this can be a problem. Ideally, a robust multi-chain multi-layer trading ecosystem would improve on all three fronts, and I think it will. This is a single pair of a single asset with a core onchain activity. Ideally, the user could be filled for their trade in the origin chain, even if the execution of the trade is aggregated across multiple chains. Or at least, the user can aggregate the best price on the origin chain even if their custody ends up multichain.

You can apply similar problem sets for borrowing and lending, NFT marketplaces, and pretty much any other crypto activity.

The potential of a multichain ecosystem is so high, and the solutions still necessary to make it all work nicely are huge! Including with FlipMetrics. Naturally, we’ll support ETH L1 from day 1, and then we’ll try to get the best cross-layer cross-chain coverage we can get from there.

Building multichain tooling is a huge potential growth area for crypto, so I thought I'd share just a bit of how I'm thinking about it.

Have a great weekend!

Brian Krogsgard (aka @ledgerstatus), FlipMetrics cofounder

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