Overview

Stablecoins hold great potential for advancing blockchain and crypto applications, but first the issue of cross-chain interoperability needs to be overcome. 

Stablecoins and Blockchain Interoperability

Stablecoins are cryptocurrencies that are designed to provide cryptocurrency holders a safe haven or hedge in the face of market volatility. Because bridges between the crypto and fiat worlds are still maturing, many innovative stablecoin products have been developed that essentially provide users with the digital fluidity of cryptocurrencies as well as the stability of fiat currencies. Price volatility is managed by pegging the value of the stablecoin to another asset or basket of assets, such as a cryptocurrency, fiat currencies, or with exchange-traded commodities.

In this way, they provide the best of both worlds: the instant processing, security, and privacy of crypto payments, and the stable, volatility-free valuation of fiat.

It is no secret that many blockchain applications, at their inception, started out with the vision of finding use-cases in every setting and every industry imaginable. However, with time, people came to realize that there are trade-offs that were needed to be made between features such as efficiency, flexibility, security, privacy, speed, ease of developer use, and industrial use case when designing blockchain systems, which is why so many projects with different strengths, applications, and benefits can be seen today.

This brings up the question: how can these different systems, protocols, and solutions work together? This is where the concept of cross-chains comes in.

Cross-Chains

A cross-chain is the interoperability between two independent blockchains. Examples include PegNet, GoChain, and iUSD (the stablecoin of the IOST chain). These applications allow blockchains to communicate and transfer data between one another in a compatible and standardized way.

Implementing Cross-Chain Functionality

There are a few ways this kind of cross-chain functionality can be implemented.

1. We can have cryptographic authentication “baked” into every single operation. This can provide tight and secure coupling between platforms, but doing this requires protocol-level interoperability between the systems which naturally leads to both systems sharing similar strengths and weaknesses – not a combined set of the best of both worlds.

2. Sidechains that can read and validate events in other blockchains can be developed. As commonly seen today, the sidechain approach is limited because such chains are usually pegged to each other, with one being the master chain and the other being the side chain, so there is no meaningful interaction between any chain and an external chain.

3. A centralized or multi-signatory notary scheme can be used where a party, a group of parties, or a designated entity agree to carry actions on chain A when specific requirements are met on chain B.

Validators on the EOS Chain

The third approach is what has been adopted by EOS, a cryptocurrency that operates with no transaction fees and was designed to support large-scale applications in millions of transactions per second. In fact, the concept of cross-chain interoperability, formally known as Inter Blockchain Communication (IBC), was an important design consideration of EOSIO, the protocol that powers the EOS ecosystem. It helps blockchains communicate with each other without intermediaries and facilitates the transfer of data (including tokens and asset swaps) between compatible chains.

The validator approach is the technologically simplest way to facilitate most cross-chain operations. All that is needed is that the trusted notary, or validator, verifies to chain A that a certain event on chain B took place, or that a particular claim about chain A (or data contained therein) is true. This can happen automatically based on chain events, or reactively when asked to issue a validation or signature.

Consider the following example.

We know that EOSDT can be issued on smart-contract enabled chains compatible with EOSIO. People using these different chains can then exchange the EOSDT they receive on different chains in a centralized fashion 1 to 1 on supporting exchanges. Our solution is similar: smart-contracts on every blockchain of interest can be issued (for example, on the EOS, ETH, TRON, Polka, TON blockchains) and there will be a decentralized governance/accounting module based on open-source blockchain application development solutions with a custom set of validators and in-built consensus and rules for governing punishments/rewards for malicious/good validator actions. This module will act as a central hub where all transaction-related information across the different chains connected to the system is stored and used for determining the likes of payouts and balances. 

The applications and use-cases of blockchain, innumerable as they are, mean that cross-chain compatibility applications as described above are even more expansive. Blockchain projects have long faced issues and tradeoffs between different features in the past, including scalability, cross-industry relevance, security, ease of use, and even development costs. However, with an effective cross-chain validation model, such as EOS’s validator approach, new advancements in this space will surely soon follow.