Native Token Transfers Are the Next Evolution of Interoperability

Interoperability has long been one of the biggest challenges within the crypto space.

Nikhil Suri is the product lead at the Wormhole Foundation, which acts as a steward of the cross-chain messaging platform Wormhole. Prior to that, Nikhil was a software engineer at Jump Crypto, Uber and PayPal.

The ability to perform cross-chain transfers is critical to building a multi-chain future. To this end, “wrapped assets” emerged as a way to facilitate transfers between blockchains and have since been the state-of-the-art solution for users and developers.

However, wrapping assets has serious limitations. Interoperability protocols have been hard at work iterating on newer methods to “natively” transfer assets between blockchains to address user and developer concerns. New approaches not only simplify development but also enhance usability, which ultimately creates a more user-friendly DeFi environment.

The state of wrapped assets

Creating wrapped assets has historically been developers’ method of choice for bringing assets to new blockchains, growing their user base, and benefiting from unique functionality on different chains. Wrapped assets are tokens that represent another token on a different blockchain, with their value pegged 1:1 to the asset they represent.

Wrapped assets created an entirely new paradigm in decentralized finance (DeFi) by allowing assets to be used on networks where they otherwise would not exist. For example, bitcoin {{BTC}} can be brought to the Ethereum blockchain by “wrapping” it as an ERC-20 token, which enables bitcoin holders to utilize their tokens within Ethereum’s DeFi ecosystem.

See also: Uniswap Approves Axelar for Cross-Chain Interoperability | Video

Wrapped assets also enabled protocols to expand to new blockchains with extremely low friction. A project with a token deployed on a single chain could, with the click of a button, expand to any new chain by deploying a standard “wrapped” representation of a token via an interoperability protocol.

However, this low friction is a double-edged sword. Since interoperability protocols deploy wrapped assets on behalf of a project, those assets are non-fungible between different interoperability protocols.

For example, users can transfer ether {{ETH}} from Ethereum to Arbitrum via the Wormhole Token Bridge,…