Cryptocurrency markets are back in the spotlight as more institutional investors warm up to the fact that the new asset class is “here to stay.” For those who’ve been around for a while, however, the interest has shifted to the possibilities offered by the underlying technology. Currencies are only one of the assets that can be designed and shared on the internet protocols known as blockchains. According to the crypto research platform, CoinCheckup, the cryptocurrency market cap is $936.82 B.
The blockchain industry has been steadily evolving after the introduction of Bitcoin in 2009, as researchers and computer scientists discover and build new applications. Ethereum, the most popular blockchain protocol for smart contracts, has led the ongoing development of the space since 2015. It has become the default platform for developers to build hosts of new assets such as utility, governance, and non-fungible tokens, as well as a complex ecosystem of decentralized financial products (DeFi) that may not resemble anything in traditional finance.
However, as a nascent technology, Ethereum does face issues that hinder its potential. A first-mover advantage does not always guarantee dominance in the face of significant improvements to a core technology. A recent study reported that the use of a Hypergraph Transfer Protocol (HGTP) could present a breakthrough that solves the incumbent protocol’s well-documented scalability issues and how they affect popular DeFi applications.
An implementation of this kind of blockchain technology is already in the works. Lattice is a decentralized exchange built with both Ethereum and Constellation’s HGTP in mind which offers cross-chain liquidity pools. This means that participants in Ethereum’s DeFi ecosystem can easily take advantage of Constellation’s HGTP solutions directly from Lattice. By making HGTP available to Ethereum users it could “introduce a new paradigm of innovation within DeFi applications,” according to the study.
This paradigm shift is based on three main features that are brought by Lattice and Constellation’s technology.
Asset-specific Automated Market Maker and Matching Algorithms
Automated market maker (AMM) algorithms are not exactly new. These are customizable versions of the computer processes that determine the rates at which assets are exchanged in DeFi. However, HGTP presents the ability to make these algorithms asset-specific. A drastic improvement to the one-size-fits-all approach that has been adopted due to Ethereum’s limitations.
Researchers note that “Lattice removes the complexity in the fee structure and offers a fee scale which does not increase as network adoption increases, as with Ethereum. While keeping fees low, automated market making on Lattice benefits from Constellation’s DAG based database architecture which gives the exchange infinite scalability and faster transactions.”
Real Cross-chain Liquidity Pools
Lattice is able to offer “thicker liquidity” and access to faster and more cost-efficient features, representing a boon to both traders and liquidity providers. The paper’s authors argue that it’s technology set “new standards for true cross-chain liquidity pools.” The exchange’s swaps with other protocols are considered “atomic,” which is to say they happen instantaneously, as opposed to a complex “wrapping” process that is implemented in current cross-chain solutions.
Following the direction of CEO Ben Jorgensen, Lattice aims to be a community-owned protocol. This means that users have a say on important aspects of its functionality. The LTX token gives holders a say on everything from transaction fees, to token burning, to the implementation of new policies. This model is made easier to implement on an HGTP blockchain because of its integration of a reputation-based consensus algorithm. As researchers note, the way the protocol works is already “akin to a credit rating within the current financial system.”
In the context of network effects, it is said that in order to surpass incumbents, a newcomer has to offer a 10X improvement. The introduction of HGTP to DeFi services could represent the kind of upgrade that Ethereum has been to Bitcoin. It may “create a solution for all the weak notions of the previous version of the technology.” If this is the case, the future development of not just DeFi, but the cryptocurrency ecosystem, could come from faster, more cost-effective, and scalable alternatives such as those that implement HGTP.
The full report on HGTP and the Lattice DeFi platform can be found here.
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