Chainlink masters cross-chain exchange enabling direct exchange

• Chainlink explains the role of cross-chain exchange and how it removes middlemen in a recent blog post.
• It explains that most of the implementations rely on cross chain bridges.

Chainlink has taken center stage to address the cross-chain problem blockchains face today by introducing cross-chain swaps in a new blog posts. Chainlink explained how cross-chain exchanges work today and how cross-chain communication standards can open a new wave of cross-chain applications.

With the increasing spread of #blockchain network, it is clear that the demand for cross-chain infrastructure will only grow.

Secure cross-chain swaps are a fundamental primitive necessary to create a holistic #Web3 ecosystem. pic.twitter.com/gcL8CUm5mQ

— Chainlink (@chainlink) March 23, 2023

This mechanism allows tokens issued on one blockchain to be exchanged for a token issued on another blockchain. Cross-chain exchange functionality is already available through centralized exchanges. However, it poses more friction as it requires users to take advantage of escrow services and temporarily give up custody of their assets. This hinders the decision to come up with a world driven by sovereign ownership of digital assets.

As part of the effort to improve these exchanges of value and information, the Cross-Chain Interoperability Protocol (CCIP), an open standard for cross-chain interoperability, is being developed. This has been created to use Chainlink decentralized oracle networks (DONs) to “allow programmable token bridges and secure, arbitrary and trust-minimized messaging between blockchains.”

What CCIP is all about

The idea of ​​CCIP is to ensure that blockchain networks, both public and private, have universal connections between them. With this, isolated tokens can be unlocked and cross-chain applications can be created. CCIP can enable a secure and seamless data delivery on liquidity conditions to support more efficient liquidity routing.

In addition, the programmable token bridge can enable any Web3 developer to build for a cross-chain environment without having to directly manage the underlying bridge infrastructure. Cross-chain exchanges can then build better user interfaces, facilitate exchanges at a lower cost, and offer a wider range of assets due to the unprecedented connectivity offered by adopting an open standard.

How cross chain exchange works

Chainlink explains that most of today’s implementations rely on cross-chain bridges. Users who wish to perform a cross-chain must unlock their tokens on the source blockchain, and then deposit packaged tokens on the destination blockchain. After this, users exchange using a native decentralized exchange to buy the digital asset of their choice. This method is called the “lock-and-mint” bridge model. There is another approach called “burn-and-mint” where tokens are burned on the source and minted on the destination blockchain. There is also the “lock-and-unlock” model.

Another method of facilitating cross-chain swaps is Atomic Swaps, where time-locked smart contracts are used. Although this is known as one of the decentralized options to facilitate the exchange of chains, it is not a very generalizable or scalable model.

The blog post also states that Cross-Chain Infrastructure from bridges to exchanges makes it possible to unlock liquidity across chains in a secure way.

As more blockchains enter the Web3 industry and the use of new and existing blockchains continues to grow, liquidity is captured across these digital environments. Fragmented liquidity reduces market efficiency across all blockchains, reduces the utility of digital assets, and acts as a barrier to developers aiming to capture users across many blockchains.

According to Chainlink, cross-chain infrastructure like CCIP can help create a unified user and developer experience as Web3 continues to grow and more applications and tokens are built on top of these networks of blockchain ecosystems. Simply put, it removes the need to centralize intermediaries and enables the direct exchange of value and information between blockchain networks.

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