Key points to remember:
- Cross-Chain DeFi Project Elk Finance is developing new products and services designed to alleviate key issues in today’s DeFi
- The Elk Finance team believes that the trio of issues, particularly bridge fragmentation, egress liquidity, and cross-chain messaging, present the greatest limitations to a multi-chain future.
- To overcome these limitations, Elk Finance is developing a suite of services and products designed to boost the wider DeFi ecosystem.
With the growing number of blockchain platforms over the past few years, bridges are becoming an essential part of the rapidly growing Decentralized Finance (DeFi) industry. Cross-chain solutions allow users to take full advantage of the increasingly fragmented cryptocurrency space by moving tokens between different distributed ledgers.
Elk Finance’s ElkNet service supports major blockchain networks including Avalanche, Polygon, Fantom, Huobi ECO, xDai, and Binance Smart Chain. However, the team behind Elk Finance is looking beyond the functionality of the bridge and believe their project has the potential to revolutionize the space and solve the most egregious issues plaguing the DeFi space today.
The current approach to blockchain interoperability has several flaws
Cross-chain solutions are undoubtedly an essential component of today’s DeFi – without them, blockchain fragmentation would become a much more apparent problem that would hamper the progress and development of decentralized applications. Blockchain bridges facilitate the transfer of data and tokens between different chains that would otherwise be incompatible due to different underlying protocols, governance systems, and other differentiators.
Many of the early adopters of the project see Elk solely as a bridge solution. However, the team behind Elk recently wrote a blog post, in which they listed several issues with the current state of affairs in the DeFi space and described how they intend to fix them.
The first problem identified by the team was the exponential growth of blockchain bridges, which has led to considerable fragmentation. Essentially, an inter-chain bridge makes it easier to transfer tokens between chains by locking the tokens in a smart contract on platform A and hitting a corresponding amount of tokens on platform B.
The Elk team explained how conventional bridges work using the USD Coin as an example:
“Conventional bridges work through a simple lock-and-release mechanism: To link the USDC from chain A to chain B, a user initiates a transfer by locking the USDC tokens in a smart contract on chain A, which says then to a contract on chain B to release the same number of USDC tokens. “
The growing number of bridges has created a situation where many tokens all represent the same underlying digital currency, but tokens created through different bridging methods are not interchangeable. This has negatively affected the broader liquidity of the crypto ecosystem.
In a similar vein to the problem described above, the Elk Finance team has also addressed the issue of exit liquidity and advocates that a certain number of tokens be blocked at all times to facilitate transfers. The team sees two possible solutions to overcome the issue of exit liquidity:
“There are ways to minimize the issue of egress liquidity, such as priming a bridge with egress liquidity provided by the protocol or restricting the number of tokens that can be transferred.”
The cross-chain messaging issue, as the team has dubbed it, is another issue that needs to be addressed before you can enjoy seamless interaction between multiple blockchains. The current process of relaying information between chains is slow and inefficient and relies on solutions like oracles, proprietary APIs that exist off-chain.
Elk Finance is working and various services and products are aimed at alleviating the issues listed above.
Elk Finance’s ElkNet, CHFT Cross-Chain Stablecoin, and Proxy Tokens Present Elegant Solutions to Common DeFi Problems
ElkNet is different from other cross-chain solutions on the market. It only allows transactions of the ELK token exclusively, which means ElkNed does not add to the blockchain fragmentation problem. The team explains it best: “Elk is best described as a ‘value transfer’ protocol: it’s designed to bridge value, not tokens (other than, of course, ELK).”
The ElkDex multi-chain decentralized exchange is designed in such a way that all of its liquidity pools are tied to ELK. Traders are able to seamlessly transfer digital value between different blockchains by exchanging their tokens for the corresponding amount of ELK, sending them through the chains via ElkNet, and redeeming them for their preferred tokens once. ELK migrated successfully.
In addition to alleviating the problem of decreasing liquidity caused by the fragmentation of digital assets, ElkNet also solves the issue of egress liquidity. Since it is always transferred in an exact 1: 1 ratio, this means that there is never a shortage of ELK on the Elk network.
CHFT, the world’s first cross-chain stablecoin, features a new ‘gyroscopic’ design, which means CHFT will be minted natively on supported crypto networks. While most stablecoins have their price indexed to the US dollar, the CHFT (as the name suggests) will have its price indexed to the Swiss franc (CHF). The typing process will require users to whitelist tokens as collateral. CHFT will be oversized with different crypto assets, which virtually guarantees that exit liquidity will be available at all times.
The final piece that complements Elk Finance’s larger vision for the future of DeFi are proxy tokens. Using this method, users will be able to easily move their tokens between the channels supported by Elk.
“Our proxy token concept offers a practical solution to the bridge fragmentation problem by decoupling a token from its underlying asset.”
A small allocation of ELK along with the asset the user wants to convert to a proxy token is a requirement to create proxy tokens. Once created, proxy tokens can be freely transferred over the Elk network to any of the supported blockchain platforms. Users can redeem the underlying (locked) digital asset on its native blockchain at a perfect 1: 1 ratio.
While the rise of Elk Finance can mainly be attributed to its gateway solution, the project has far exceeded its original base offering and is rapidly expanding the functionality of its network.
David is a crypto enthusiast and a personal finance expert. He has created numerous publications for different platforms. He loves to explore new things, and that’s how he discovered blockchain in the first place.