Kadena’s Interoperability Story: Part I

7 min readJun 21, 2021

The internet as we know it today is a compilation of protocols that establish rules that determine how data is transmitted between different devices in a network. There is a race in the crypto space to interoperate blockchains similarly. A network of blockchains would allow for network effects to improve the decentralized internet. When everything is connected, it brings more capital, a better user experience, and more minds brainstorming to improve the network. Defi is currently one of the hottest use cases in crypto, but it is not helping the world in any significant way; it’s simply creating new financial products that spike in price and crash like the economy in 2008. Until we see Defi volume on a platform that can scale without limits so that gas costs can be kept down, crypto and Defi will be more of a showroom of what the future could look like. This is why the launch of KADDEX is so exciting; it is the first Defi application to launch on the Kadena ecosystem. It is the first and only multi-protocol, multi-chain, and multi-platform DEX that will lead to a future where users will not even have to think about platforms and protocols but just access value wherever it is.

Most blockchains don’t have the throughput for world-changing use cases; safely achieving interoperability would change this. The crypto ecosystem is in a weird place where decentralization is forgotten to pursue profits, and things like Binance chain, layer 2 solutions, and proof-of-stake (PoS) are accepted without much consideration. Blockchains being decentralized is core to resiliency. Blockchain interoperability can significantly increase the scalability, speed, and extensibility of blockchains. Interoperability usually means the ability of different types of computer systems to exchange information. But in the blockchain context, we need to go further: transferring real-world assets and ensuring consistency between disparate systems; this makes the challenge much harder. By scaling proof-of-work (PoW), Kadena has positioned Chainweb to become the hub for all blockchains. The efforts in progress to build bridges with other protocols show Kadena has the only platform with enough throughput and security to lead the way for safe interoperability.

Interoperability may be the single biggest threat to Ethereum’s dominance; that’s why Ethereum makes it difficult to interact natively with other PoW chains. They want to prevent other PoW projects from being able to do non-interactive decentralized bridges on Ethereum. Most notably, Zcash has been trying to implement the Blake2 hashing algorithm on Ethereum, but it keeps getting shut down. Celo has been trying to get some new primitives added to the EVM, and they haven’t been able to do it. On top of that, the fact that Ethereum uses a GPU-only hash algorithm makes it basically infeasible to make fully decentralized bridges. A fully decentralized bridge needs to do on-chain verification of proofs. The ETH hash function is too expensive to do that; ETH’s hashing algorithm is monopolized. These are anti-competitive and anti-decentralization practices. Kadena strategically didn’t switch to a GPU-friendly hash algorithm because that would have made fully decentralized bridges more problematic.

Ethereum is where it is today because it is PoW. ETH is a more useful BTC as it improved a lot of its properties and introduced a smart contract language that leaves a lot to be desired. Despite the hype surrounding answers to Ethereum’s flaws, no network has been able to displace the network’s appeal in totality. Ethereum’s deficiencies are currently coming under attack from all sides more so than ever before. As a result, unsurprisingly, ETH 2.0 has been delayed once again.

With Pact 4.0, Kadena has made the most productive smart contract language in the market. Pact 4.0 brings built-in cross-chain events and upgrade back-compatibility: Pact has the best cross-chain story of any smart contract language thanks to defpacts, which automatically handle cross-chain transfers for any asset imaginable with zero developer effort.

Relays are systems inside a blockchain that can validate and read events and/or states in other blockchains. This gives chain A the ability to understand event changes on blockchain platform B without requiring a trusted party. The Kadena chain relay accepts and validates block headers from other blockchain platforms like Ethereum, Celo, or Terra. It accumulates assurance around the headers in the form of bonds from actors that have something to lose if the data is faulty. The Chain Relay provides a critical service as an attesting authority for block headers from the bridged chain. With this system, all ERC-20 tokens can be traded on KADDEX. All of the techniques used for the ETH bridge (bonding, endorsement, DAO, wrapping, registration) will be used, for Celo almost identically. As for Terra/Cosmos only the endorsements and wrapping change.

Tokensoft Wrapped is bringing kETH and kBTC to Kadena for trading on KADDEX. Kadena and Tokensoft jointly developed the KIP-0009 standard improving on an ETH standard that allows the transfer of fungible tokens. Interacting with these assets will be quick and safe. The CEO Of Tokensoft, Mason Borda, praised Chainweb saying “it can be a high-throughput settlement layer for wrapped assets.” Tokensoft WRAPPED is creating tokens on many platforms, and there have been talks to settle all of their positions on Chainweb, an exciting proposition.

Pact can be written and deployed on the Tendermint blockchain, which can then be connected to other blockchains via the Cosmos network. Kadena’s Pact language is open source and can be integrated with other blockchains. Kadena is currently developing an integration to the Tendermint chain, an open-source consensus platform, to provide a free, open-source consensus layer. Porting Pact to Tendermint means that you can use the Tendermint consensus algorithm to reach a consensus of the order in which Pact instructions are invoked/carried out. Since Tendermint is the main consensus algorithm used for Cosmos, this would allow you to run Pact smart contracts on the Cosmos network. This is sort of like how other protocols will let you run Solidity contracts on their network. Another COSMOS/IBC enabled protocol is Terra, also a Kadena partner. Terra is gradually becoming a Defi hub with an algorithmic stable coin as its base. Terra believes that decentralized bridges are pivotal to growing Defi, so the Kadena partnership is exciting. While various projects are developing decentralized exchanges, Terra believes that KADDEX’s support of multiple protocols will deliver unique advantages given the background and track record of the team. This collaboration means that Terra could process wrapped Luna transactions on KADDEX and then bridge to Ethereum. Bringing Terra’s Luna stable coin to KADDEX makes cross-platform payments easier and advances the usage of Terra-based payments.

Polkadot is a popular interoperability framework that seeks to connect independent blockchains through parachains. Kadena didn’t choose to integrate with Polkadot. Polkadot chose to integrate Kadena because they see the value in scalable PoW and the advantages Pact has as a smart contract language. Polkadot allows some of these parachains to act as bridges to existing independent blockchains. There is a proposal still in the works led by Kadena’s engineer Emily Philmore which would serve as a long-term approach to extend Pact’s benefits to the Polkadot community while also furthering Pact as the standard for smart contracts: Pact Core. With Pact Core, Polkadot, or any WebAssembly-compatible platform can natively execute Pact smart contract code with the help of a minimal interpreter installed directly on-chain. Since Pact is a standalone interpreter, we can have a web app on a fast finality and PoW chain with one codebase.

Toward this end, Kadena and Polkadot have agreed that the best path forward for Pact Core is to open an RFC (Request for Comment) where community members can participate in the design process. The public discussion is here. As an alternative, Kadena plans to build a near-term bridge to DOT and Kusama so KADDEX can access value on those networks. Kadena’s fast finality layer, Kuro, can be adapted to operate as a Polkadot parachain in a design called KadenaDOT. (Parachains are the term that Polkadot uses to describe an external system, like a blockchain, that forms a constituent member of their ecosystem.) Kuro is an evolution of J.P. Morgan’s Juno blockchain, which was successfully deployed internally for the first generation of JPMCoin by Kadena’s founders. Kuro is one of the fastest enterprise-grade blockchains ever created with the built-in capacity to run Pact smart contracts. This is separate from Kadena’s direct partnerships and integrations on the financial side, where assets are bridged over. Polkadot is further down the line — ETH, Celo, Terra come first.

Safe interoperability is the future

The main problem with other competing interoperability protocols today is that they rely on some form of PoS as a consensus layer. A problem often discussed with PoS is that it favors the wealthy, and taking control of the network is just a matter of spending money. A problem that’s less talked about is that in the case of black swan event (it could be regulators, natural disasters, a war, but being a black swan, it’s hard to say) a crash that dominos into the staking needs of PoS can crash Defi and shake up its governance (who is the next whale if the biggest stakeholder cashes out during a panic?). It would be akin to a market crash taking out a bank in addition to collapsing a market. Scalable PoW is key in Kadena’s interoperability story as it sandboxes such collapse cleanly in the application layer, exactly what you need in a highly interoperable system.