Cross-Chain Indexes Coming to Polkadot With Launch of STP 2.0January 29, 2021
- STP is revamping its protocol on Polkadot, placing focus on synthetic assets.
- The protocol will facilitate cross-chain tokenization and multi-chain indexes.
- STP 2.0 is set to launch on Polkadot’s Moonbeam, hinting at DeFi’s future beyond Ethereum.
Standard Tokenization Protocol has unveiled “STP 2.0.” Protocol users will be able to access cross-chain synthetic assets in various forms on Polkadot.
STP 2.0 Backing Synthetics
Standard Tokenization Protocol has announced a revamped version of its decentralized network.
STP 2.0 will focus on synthetic assets, offering access to cross-chain tokenized synthetics, as well as multi-chain token indexes—something that remains largely unexplored in DeFi today. It will be built on Polkadot.
STP’s CEO Mike Chen told Crypto Briefing that the refreshed network would significantly improve its current interaction, which runs on Ethereum. He said:
“STP 2.0 will be built on Polkadot as it enables cross-chain capability, and the parachain infrastructure should allow for faster, cheaper transactions than the increasingly crowded Ethereum ecosystem.”
Synthetic assets are a relatively nascent innovation in the DeFi ecosystem, but they’ve exploded in a short timeframe.
They work similarly to synthetics found in traditional finance and primarily function by tracking the price of a separate asset. Chen explained that the benefits of using synthetic assets include allowing users to “freely gain exposure to assets regardless of geographic and financial restraints” while unlocking “more liquidity, more products, more strategies, and even more opportunities” in DeFi.
The tokenization of assets has been particularly popular within DeFi protocols like Synthetix, which offers users exposure to tokenized versions of Bitcoin, USD, gold, and more.
Though synthetic assets have already caught on in DeFi, few have achieved what the STP team is setting out to do.
The protocol intends to offer cross-chain tokenization, meaning that a user on the Polkadot network could hold a token that gives exposure to an asset’s price on Ethereum. Initially, STP 2.0 will tokenize ERC-20 tokens before including tokens on other chains.
It will also launch DeFi’s first multi-chain index.
By facilitating indices across blockchains, STP 2.0 will enable users to participate in various DeFi activities with an index that tracks different token standards’ performance. Chen said that newer chains had shown early promise for facilitating multi-chain indexes away from Ethereum:
“Multi-chain indexes are relatively new because most digital assets have been on Ethereum. Recently, we’ve seen the emergence of other blockchains like Polkadot, Solana, Near, Klaytn, and many assets being built on those chains. As a result, exposure to those assets will become more and more prevalent.”
Indexes already exist in DeFi. For example, Set Protocol launched the DeFi Pulse Index, which follows the price of DeFi blue chips such as Aave, Synthetix, and Yearn.Finance. But this index is also somewhat limited — all of those tokens currently run on Ethereum, which has faced criticism over the years.
Polkadot Catching Up With Ethereum
STP 2.0 will form part of the growing Polkadot network; an Ethereum competitor focused on cross-chain interoperability.
Polkadot was originally conceived by Gavin Wood, who was also largely responsible for the development of Ethereum and its programming language, Solidity.
Polkadot’s infrastructure includes several parachains intended to make the network more scalable by processing transactions. STP 2.0 will use the Moonbeam parachain.
Moonbeam launched towards the end of last year and offered compatibility with Ethereum smart contracts. Chen explained why this will be a key benefit to STP 2.0:
“By using Moonbeam, contracts can be written in Solidity and deployed to the Moonbeam parachain, allowing STP to integrate with the Polkadot ecosystem while leveraging the work done in Solidity.”
Ethereum plans to tackle scalability issues by building out Layer 2 solutions like optimistic roll-ups, and eventually, shards. Optimistic Ethereum “soft launched” earlier this month, while sharding won’t be implemented until the competition of Ethereum 2.0. This has presented many problems, especially given that DeFi mostly runs on Ethereum today.
Since the summer of 2020, network utilization hasn’t dropped below 95%, according to Etherscan.
It’s meant that gas fees are costly. Even a token exchange on Uniswap can cost in the region of $10, a huge mark-up on what it would’ve cost in 2019. Interacting with more complex smart contracts to participate in activities such as liquidity mining can be even more costly.
While Ethereum is currently the home of DeFi, moves like those from STP are making suggest that the race is far from over.
As Polkadot hosts projects building innovative offerings that aren’t yet available in other blockchains, the ecosystem could see a shift towards cross-chain interoperability in the years ahead. With cross-chain tokenization and multi-chain indexes, STP 2.0 is poised to benefit from Polkadot’s growth.
STP 2.0 will be introduced in the coming months. It’s planned to launch fully on Polkadot before the end of the year.
Disclosure: At the time of writing, the author of this feature owned ETH, SNX, and AAVE. They also held the DeFi Pulse Index token, which gives exposure to AAVE, SNX, UNI, and YFI.
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