If you've been chasing investments or yield across blockchains, you've likely heard of Multichain. It's one of the most popular projects for bridging tokens available. Without it, we wouldn't have today's simple experience when crossing chains. Until projects begin offering their own multi-chain capabilities, services like Multichain will continue to be essential. Let's look at how Multichain differs from other bridges and the mechanics of how it works.
What is Multichain?
Multichain is an open-source, cross-chain router protocol (CRP) that lets users bridge tokens across blockchains. The project was founded in July 2020 and, since then, has rebranded to Multichain. Binance also provided $350,000 to Multichain as part of its accelerator program, and Binance Labs led a $60,000,000 investment round. This round included the Tron Foundation, Sequoia Capital, and IDG Capital.
Multichain supports more than 42 chains, including BNB Smart Chain, Fantom, and Harmony. Users can transfer their assets seamlessly across blockchains through its Cross-Chain Bridges and Cross-Chain Routers. Multichain also has a governance token, MULTI, to let holders participate in the project's upcoming governance mechanism.
How does Multichain work?
At a basic level, Multichain uses two mETHods to bridge tokens. First, it uses smart contracts to lock tokens on one blockchain and mint wrapped tokens on another blockchain. When this isn't possible, it uses a network of liquidity pools across chains to trade bridged tokens. Usually, all this can be done in under 30 minutes without slippage.
Multichain supports ethereum Virtual Machine (EVM) networks and a selection of blockchain networks using different technology like Cosmos and Terra. Multichain also offers a similar bridging service for NFTs (Non-Fungible Tokens). Projects that want to bridge their tokens can work with Multichain on issuing them to new blockchains. This service is free and can be completed in under a week.
To facilitate all this work, Multichain has a network of Secure Multi Party Computation (SMPC) nodes run by various parties. Let's look at all of these a little bit deeper.
Bridging
When transferring across chains, Multichain uses a standard crypto pegging mechanism for some coins and tokens. Imagine you want to bridge BNB from BNB Smart Chain to ETHereum. Multichain will lock your BNB in a smart contract on BNB Smart Chain and then mint a pegged BNB token on Ethereum. This will be done in a 1:1 ratio. This option was the original service offered by Multichain when operating as Anyswap.
Liquidity Pools
Not all tokens can be bridged using the MPC mETHod above. Some tokens, for example, USDC, already exist in their native forms on multiple blockchains. To bridge your assets here, you will need to swap your coins.
As always, swapping involves the need for liquidity. Someone will need to trade with you for the coin you want, which can come in the form of liquidity pools. Other users can provide their tokens as liquidity in exchange for a share of the transfer fees.
Cross-Chain Routers
The Multichain Router takes a user's request and uses the appropriate mETHod from the two outlined above. This feature streamlines the bridging user experience. Any supported assets are transferable between multiple chains, whether they are native tokens or bridged by Multichain. Some projects with native tokens on a few chains, but not others, can bridge using Multichain with a hybrid approach.
SMPC Nodes
Multichain is secured by a network of nodes known as the Secure Multi Party Computation (SMPC). These nodes are independent entities that can collectively sign transactions. Using a Distributed Key Generation algorithm, each node independently owns part of the private key. The complete set of private keys will never appear, let alone the possibility of being revealed. This avoids single points of failure, ensuring decentralization and security. The Multichain MPC network 2.0 consists of open nodes run by the community and partners. This ensures strengthened performance and further decentralization.
