Will Better Interoperability Save Modular?

Sebastien Couture -

Last week at Permissionless in Salt Lake City, I had the pleasure of moderating a panel titled “Interop: The Key to Modular, Permissionless Expansion.” We focused on the evolving landscape of blockchain interoperability and modular scalability. Joining me were:

  • Aidan Salzmann, Co-founder of Stride, a liquid staking protocol for multiple chains, mainly in the Cosmos ecosystem.
  • Zaki Manian, Co-founder of Sommelier Finance, a decentralized asset management protocol. Zaki stepped in for John Cole as an early contributor to Hyperlane.
  • Fig, Co-founder of Squid, a cross-chain liquidity protocol.

We dove deep into the complexities of cross-chain applications, user experience challenges, the debate between monolithic and modular chains, the role of liquid staking, and future advancements in interoperability. Here are the key takeaways from our insightful conversation.

The Unrealized Vision of Cross-Chain Applications

A few years ago, many believed that cross-chain applications commanding liquidity across different ecosystems would become standard. However, this hasn’t fully materialized. Today, interoperability is mainly used for cross-chain transfers and swaps, which, while helpful, don’t quite meet the original expectations.

  • Complexity of Cross-Chain Development: Aidan pointed out that building applications beyond simple token transfers is inherently difficult. Developers face issues like asynchronous calls and larger attack surfaces, making secure cross-chain apps hard to implement.
  • User Experience Challenages: Fig noted that users still feel stuck on individual chains. Wallet interfaces and manually switching between chains contribute to a fragmented experience.
  • Risk Management Concerns: Zaki mentioned that whales are cautious about engaging with multiple chains due to worries about security, potential downtime, and the reliability of sequencers, especially on Layer 2 solutions.

User Experience Remains a Challenge

Implementing interoperability protocols brings its own set of challenges. Both developers and users face technical and usability issues that need to be solved to unlock the full potential of cross-chain applications.

  • Technical Integration Across VMs: Aidan discussed the difficulty of getting different VMs to work together. For example, Stride connects to chains like Eclipse (Solana VM) and to others using the EVM, which requires significant effort.
  • Optimizing for Speed & Cost: Fig emphasized the need for fast and cheap transactions across as many chains as possible. Achieving this means overcoming technical barriers and ensuring reliable data across various networks.
  • Simplifying User Balances & Routes: Zaki stressed that users shouldn’t have to juggle multiple balances across different chains or figure out transaction routes themselves. We need solutions that hide these complexities from the user.

Monolithic vs. Modular Chains: Weighing the Pros & Cons

We debated the merits of monolithic chains versus modular architectures, considering what users prefer and where blockchain technology might be heading.

  • Advantages of Monolithic Chains: Aidan argued that monolithic chains like Solana are popular because they offer a better user experience. Users benefit from a unified environment with standard tokens and faster transactions.
  • The Case for Modular Chains: Zaki countered that while monolithic chains have been successful, there’s a trend toward modular solutions, especially in areas like gaming. Modular chains offer specialized features and can meet specific application needs.
  • Balancing Innovation and Usability: We talked about the need to balance the pursuit of advanced modular infrastructures with the immediate benefits of building on established monolithic chains. The choice often depends on the application's specific needs and its users.

Liquid Staking’s Role in a Modular Ecosystem

As the blockchain and liquidity become more fragmented, LSTs play an increasingly important role in managing liquidity and providing staking rewards.

  • User Demand for Staking Rewards: Aidan noted that users of roll-ups and Layer 2 solutions still want staking rewards, which LSTs can provide. Integrating LSTs into these environments gives users extra incentives.
  • Challenges with Token Integration: While offering LSTs can improve user experience, integrating them across chains is challenging. Issues like token standardization and compatibility must be addressed to make LSTs more accessible.
  • Potential for Customized LSTs: Some roll-up providers are thinking about issuing their own liquid staking tokens to better align with their ecosystem, though this could introduce complexities around neutrality and governance.

The Future of Interoperability: Enhancing UX and Embracing Innovation

We wrapped up the panel with thoughts on future developments that could shape interoperability and improve user experience.

  • Advancements in ZK: Zaki expressed optimism that zero-knowledge proofs could become a universal tool for interoperability, simplifying cross-chain interactions and improving security.
  • Improving Wallet User Experience: Fig emphasized that wallets are crucial for user adoption. Enhancements in wallet technology, like integrating MPC wallets, could enhance cross-chain usability.
  • Emergence of New Network Types: New networks and technologies could bring fresh use cases beyond trading and DeFi. Aidan mentioned that as cross-chain transfer UX improves, it will open doors for innovative applications and services.