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Dec 10, 2023
Educational
What is Omnichain in Crypto? A Beginner’s Guide
by Orderly Network
what-is-omnichain-in-crypto-for-beginners

In the rapidly evolving landscape of cryptocurrency and blockchain technology, new concepts and innovations are continually emerging to address the challenges and limitations of existing systems. One such concept that has gained attention in recent times is “Omnichain.”

In this article, we will delve into what Omnichain means in the context of cryptocurrency and how it stands out in the ever-expanding realm of blockchain.

What is Omnichain in Crypto?

Omnichain refers to a comprehensive approach that aims to unite various blockchain networks into a cohesive and interoperable ecosystem. Existing blockchain networks often operate in silos — a well-known stumbling block for crypto projects, dApps and protocols, especially in DeFi. The Omnichain concept seeks to break down these barriers, fostering collaboration and communication among different chains.

The primary goal of Omnichain infrastructures is to create a seamless experience for users and developers across multiple blockchains. This includes the ability to transfer assets, execute smart contracts, and access decentralized applications (DApps) without the limitations imposed by interoperability issues. Essentially, the omnichain concept strives to connect various blockchain protocols, enabling a more interconnected and efficient decentralized ecosystem.

Key Features of Omnichain Infrastructures

Interoperability

Interoperability is a central feature of all omnichain infrastructures. In the world of blockchain, different networks often operate independently, leading to silos where information and assets are not easily moved across different chains. Omnichain as a concept aims to overcome this limitation by creating a standardized protocol, infrastructure, or framework that allows seamless communication and interaction between diverse blockchain networks. This interoperability is essential for achieving a more connected and collaborative decentralized ecosystem.

Scalability

Scalability is a critical concern in blockchain technology, especially as the demand for faster and more efficient transactions grows. Omnichain systems address scalability challenges by implementing solutions that enable blockchain networks to handle a higher volume of transactions. This may involve optimizing for efficient consensus mechanisms, adopting sharding techniques, or employing other scalability-enhancing technologies. The goal is to ensure that the performance of the omnichain system remains robust even as the number of participants and transactions increases.

Smart Contract Execution

Smart contracts are self-executing contracts with the terms of the agreement directly written into code. Omnichain infrastructures enable the execution of smart contracts across different blockchain networks. This feature enhances the functionality of decentralized applications (DApps) by allowing them to leverage smart contracts that span multiple chains. Developers can build applications that operate seamlessly across various blockchain protocols, increasing the potential for innovation and utility in the decentralized space. This is especially useful for DeFi applications, which often rely on liquidity pools for efficiency.

Asset Transfer

The ability to transfer assets across different blockchains is a fundamental capability of omnichain infrastructures. This feature facilitates the movement of digital assets, tokens, and other forms of value between disparate blockchain networks. For example, a user could transfer their tokens from one blockchain to another, or vice versa, without encountering the typical challenges associated with cross-chain transactions. For example, in an omnichain infrastructure, a user can easily move assets from Ethereum to Avalanche or the NEAR blockchain. This fluidity in asset transfers is crucial for creating a more interconnected and flexible financial ecosystem.

Security

Security is a paramount concern in cryptocurrency, and Omnichain solutions prioritizes robust security measures. This includes advanced encryption techniques, secure key management, and the integration of secure consensus mechanisms. By ensuring the integrity and confidentiality of data across different blockchain networks, omnichain systems enhance user confidence in the safety and reliability of decentralized applications and blockchain transactions as a whole.

Relevance of Omnichain Systems for DeFi

Now, let us explore the relevance of omnichain infrastructures in the context of DeFi.

Chain Agnostic DeFi Transactions

One of the primary applications of omnichain infrastructure in DeFi is facilitating chain-agnostic transactions. DeFi platforms often operate on specific blockchain networks, and users are limited to the financial services available within those networks. Omnichain breaks down these barriers by enabling seamless transactions across different blockchains. Users can leverage assets from one blockchain to participate in DeFi activities on another, opening up a broader range of investment opportunities and liquidity.

Chain-agnostic interactions is one of the reasons Orderly Network is embarking on an omnichain expansion. The overarching goal here is to create an infrastructure that supports and simplifies seamless asset management for users across multiple networks.

Enhanced Liquidity

Liquidity is a crucial factor in DeFi, influencing the efficiency and effectiveness of financial transactions. Omnichain contributes to enhanced liquidity by connecting liquidity pools and decentralized exchanges across various blockchain networks. This interconnected liquidity allows users to access a more diverse range of assets and markets, ultimately improving the overall liquidity landscape in the DeFi space.

Orderly Network is renowned for its deep liquidity which supports DEXs that are built on its infrastructure. However, Orderly Omnichain offers a shared liquidity infrastructure that enables any dApps built on Orderly access to unparalleled liquidity across all blockchains.

Optimizing Yield Farming

Yield farming involves users providing liquidity to decentralized protocols in exchange for rewards, typically in the form of additional tokens. Omnichain can optimize yield farming by connecting liquidity pools on different blockchains. This integration allows users to deploy their assets in farming strategies that span multiple chains, maximizing their potential returns and diversifying their yield-generating opportunities.

DEX Aggregation

DEXs play a crucial role in the DeFi ecosystem. Omnichain can aggregate liquidity from various decentralized exchanges operating on different blockchains, providing users with a consolidated view of available trading pairs. This aggregation enhances the user experience, allowing traders to access the best prices and execute transactions more efficiently.

Collateral and Borrowing Across Chains

In a multi-chain DeFi ecosystem enabled by Omnichain, users can use assets from one blockchain as collateral to borrow assets on another blockchain. This cross-chain collateralization expands the possibilities for decentralized lending and borrowing, providing users with more flexibility in managing their financial positions.

Interconnected Money Markets

Omnichain can create an interconnected network of money markets across different blockchains. This means that users can lend and borrow assets seamlessly across various protocols, increasing the efficiency of capital allocation and interest rate discovery in the DeFi space.

Risk Diversification

By enabling cross-chain transactions and interactions, Omnichain allows users to diversify their exposure to different blockchain networks. This diversification helps mitigate risks associated with vulnerabilities or disruptions on a specific blockchain. Users can spread their investments across multiple chains, reducing the impact of adverse events on their overall DeFi portfolio.

Orderly Omnichain is coming to Mainnet

Orderly Network rolled out its groundbreaking solution to the prevailing problem of fragmented liquidity in decentralized protocols. While CeFi models hold vast liquidity concentrations within a single order book, DeFi often struggles with numerous small liquidity clusters.

Orderly’s innovative approach harmonizes this disparity by introducing a shared liquidity infrastructure for all leading blockchains, whilst still retaining the essence of decentralization. Orderly Network employs a potent off-chain matching engine where orders are matched, yet custody and asset handling remain entirely on-chain, ensuring transactions are transparent and gasless. Leveraging the cutting-edge LayerZero technology, assets remain securely domiciled in the user’s chosen vault. Only messages are transferred, thus eliminating the need for bridges or wrapped assets, thus amplifying security.

Now, following several weeks in testnet, Orderly Omnichain is ready to welcome users and builders in the EVM ecosystem to experience our institutional-grade orderbook infrastructure infused with deep liquidity.

Conclusion

Omnichain represents a promising step towards a more interconnected and interoperable blockchain ecosystem. By breaking down the barriers between different blockchain networks, Omnichain opens the door to new possibilities, ranging from chain-agnostic DeFi transactions to enhanced supply chain management. As the blockchain space continues to evolve, Omnichain stands out as a solution that holds the potential to unlock unprecedented levels of collaboration and efficiency in the decentralized future.

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