With some chains speaking a different language, communication between is almost non-existent. Therefore, blockchain interoperability is necessary as new blockchains develop and continue to grow.

For instance, funds cannot be moved around between blockchains. So far, only centralized bridges and centralized cryptocurrency exchanges could handle this. The problem is that trust needs to be placed in a third party. It works, but it's not ideal. However, the people behind Wormhole have found a way to deal with this concern.

Another issue is that smart contracts and dApps on various blockchains also can't speak with each other. The rise of DeFi, smart contracts, and layer-2 solutions cause a severe limitation. Wormhole also works to solve this and manages to have multiple blockchains communicate with each other in the world of DeFi. 

By opening the communication channels between different blockchains, tokens and NFTs can move around freely. Cross-chain bridges make traffic of tokenized assets between blockchains possible. 

What Is Wormhole, and Why Is It Unique?

It is a comprehensive, decentralized message passing protocol that connects a variety of blockchains. As a result, funds and other digital assets can move between blockchains without the need to release control over your assets. In turn, this eliminates trust issues with third parties and centralized authority. Currently, it allows for various features. 

  • A token bridge — This allows for seamless bridging of assets between blockchains in the Wormhole ecosystem.
  • An NFT bridge — This allows all ERC721 and SPL NFTs to move between selected blockchains in the Wormhole ecosystem. 
  • A dApp bridge — Developers can use multiple chains for a transaction where you can leverage blockchain-specific strengths. For example, a developer can choose Solana because it has low transactions fees. On the other hand, Ethereum offers security. The developer can now opt to use both chains, which results in the most effective, fast, secure, and low-cost transaction possible. 

However, what makes the Solana Wormhole unique is the variety of blockchains in its ecosystem? First things first, though, a partnership between Solana and Certus One resulted in Wormhole. As a result, users have access to a wide variety of blockchains. All this without restrictions. Most importantly, by foregoing centralized options. Wormhole launched in September 2021. Nonetheless, the mainnet is live and up and running.

Solana now, among others, bridges with Ethereum. As a result, all ERC-20 tokens are accessible. Other blockchains connected through the Wormhole Network are defined later in the article. But what this also means is that all DeFi protocols on other chains can have access to liquidity that was previously locked up.

How Does Wormhole Work?

Wormhole works with the Core Layer and the Guardian Network. These two features form the foundation of Wormhole. Currently, they connect eight networks, two CEXs, and 19 DEXs. 

However, with the addition of Fantom, the amount of DEXs must have changed. Nonetheless, let's have a closer look at how these work.

Wormhole Core Layer

The Core Layer is the backbone of the Wormhole ecosystem. It has a simple yet powerful design. As a result, the Core Layer solves the communication problem between the various blockchains. But most importantly, in a decentralized way.

It deploys contracts on each blockchain, called 'core contracts .' Now, other contracts have the option to send messages off-chain. But, on the other hand, they can also confirm if the message they received is genuine.

The Guardian Network

The Guardian Network is what really powers the Wormhole. Its main role is to observe and sign messages that blockchains send via the core contracts. The Guardian Network consists of 19 validator nodes. They all observe the Wormhole supported blockchains. It takes at least two-third of all validators to validate a message. To clarify, this means observing and signing messages. In turn, with these signatures, messages from the core contracts can be verified.

The Guardian Network is made up of 19 validator nodes that power Wormhole. This set of validator nodes monitor several blockchains' states, and we refer to each validator as a Guardian. You can find the current set of Guardians in the Wormhole explorer.

The Guardian Validator Role

Since there are only 19 validator nodes within the set, Guardians are chosen from an exclusive list of well-respected infrastructure providers and a careful selection process. A guardian's primary role is to observe blockchain messages and sign payloads from core contracts. We at Staking Facilities are proud to have a role in helping support the Wormhole Network with a prestigious set of infrastructure providers.

Every guardian performs its responsibilities by itself, but later the contract combines these signatures from other guardians to validate these messages. It's important to note that it takes at least two-thirds of all validators to agree upon a particular state observation of the wormhole network.

The selection of the Guardian validators happened carefully. There are only 19 of them. Their task is to observe all blockchains supported by the Wormhole ecosystem. As a result, the protocol selected the Guardians from a very exclusive list. Only respected and well-known infrastructure providers and validators. Staking Facilities and Certus One, the Wormhole developers, are among them. 

An Example Process of Verifying Transfers

Guardians verify transfers after they are requested. In the meantime, native tokens of the platform lock in a smart contract. On the target chain, tokens are minted in the same number as wrapped assets, like wrapped Ether (WETH). The signing of the contracts happens in a mulitsig. That message wraps together with these signatures in a structured called a VAA. 

Here is what happens when a transaction starts.

  • Send a message to Wormhole
  • The guardian network observes the message
  • Within seconds, the validators establish a two-third majority for validation
  • The guardians publicly broadcast the message
  • The message can be accessed on a different chain

For each bridged transaction, there is a small transaction fee. Likewise, the sender and receiver chains have their gas fees. Most connected chains have low fees. However, Ethereum can have gas fees up to $50, or more.

Understanding the Wormhole Token Bridge

The Wormhole token bridge is another essential part of the protocol. It is most likely the best-known part of the protocol. 

The original V1 bridge is now inactive. The current V2 layer is built on top of the core layer. However, the two are entirely separate entities. In addition, the Wormhole bridge now supports NFTs. Furthermore, according to their website, it has a TVL of $3.658 billion. 

The current bridge offers three options.

  • Tokens can be sent through the portal. Any possible combination of the eight blockchains is possible. First, connect a wallet. Then, choose a source network and the token. And lastly, select the target chain, send and redeem.
  • NFTs — select a source chain and a token to pay for gas fees. Pick the target network. Send the NFT and redeem the NFT.
  • Redeem — This is for source tokens if they have been sent but not redeemed.

At the time of writing, in 48 hours, there were 347,219 transactions on the bridge. To sum up, in total, there were 275,635 transactions. On top of that, there are 1,366 NFTs locked. 1,000 NFTs alone on Solana.

Blockchains Supported by Wormhole

Currently, there are eight blockchains supported by Wormhole. They form the core of the Wormhole ecosystem. Here is a list of all eight blockchains. 

  • Solana (SOL) — A fast and scalable layer-1 blockchain with low transaction fees.
  • Ethereum (ETH) — The second blockchain listed by market cap, after Bitcoin (BTC). A secure network, but with high network fees. 
  • Terra (LUNA) — A blockchain that offers algorithmic stablecoins which are pegged to their respective fiat currencies. Terra overtook Ethereum as the second largest staked crypto.
  • BNB Chain (BNB) — The blockchain formerly known as Binance Smart Chain. A parallel blockchain to the Binance chain. In short, BNB is the most used blockchain in crypto, according to their website.
  • Avalanche (AVAX) — Eco-friendly, fast, and low-cost blockchain. They claim to have the fastest time-to-finality of all chains.
  • Polygon (MATIC) — A sidechain to Ethereum. It offers faster speeds and lower costs. DeFi apps like Aave and Curve use Polygon. Furthermore, the native QuickSwap and Slingshot applications also use Polygon.
  • Oasis (ROSE) — High throughput and low gas fees combined with a secure architecture. Scalable and the leading privacy-enabled layer-1 blockchain.
  • Fantom (FTM) — Fantom Opera is scalable, EVM compatible, and secure. Furthermore, it is a leaderless, asynchronous, and Byzantine fault-tolerant blockchain.

Wormhole Use Cases

DeFi keeps growing bigger, year after year. Wormhole makes it possible for different blockchains to talk to each other. In other words, Wormhole allows for random message passing. Therefore, developers can now tackle problems from a protocol first design. 

Furthermore, the protocol's first design can be chain agnostic, which means that a single platform allows multiple chains. In addition, developers can take advantage of each blockchain's specific strength.

This, in turn, means that apps can be built on any chain, and developers can leverage a blockchain's particular strengths and integrate that into their dApp. This allows for more app consistency across multiple chains, such as:

  • Multichain DEXs
  • Chain agnostic wallets
  • Multichain DAO's with cross-chain governance
  • NFT projects

 Conclusion

DeFi exploded in 2020 and continued to grow in 2021. As a result, lots of development took place on Ethereum. However, this also caused a giant bottleneck. Furthermore, high gas fees took their toll in slippage or even aborted trades. 

Wormhole brings an interoperability solution between eight blockchains and opens many opportunities for developers. Projects are no longer restricted to working within specific blockchains. Flexibility in choosing blockchains for developing apps improves the overall user experience on DeFi.

In a nutshell, interoperability increases with Wormhole, which unifies the DeFi ecosystem. Wormhole managed to remove restrictions rather than adding them. To compete with Web 2, Web 3 needs to be fast, scalable, with low costs. Wormhole brings all of this and more to the table. It is trending, and for all the good reasons.

Published on:
March 14, 2022