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Picasso Network: Connecting The Unconnectable

Composable Finance's Picasso Network is attempting to make Solana IBC compatible.

Can We Connect Different Crypto Galaxies?

written by thoughtcrimeboss

Composable Finance's Picasso Network is currently attempting the ambitious task of connecting the vast Solana ecosystem to the IBC(Inter-Blockchain Communication Protocol) ecosystem, potentially enabling an Cambrian explosion of new use cases for existing tokens and projects in both systems. This could also inspire entirely new projects and tokens that are specifically designed to take advantage of this new connection. When Cosmos first enabled IBC, it enabled Cosmos SDK based blockchains to become connected and interoperable. The design of the IBC protocol is based on the TCP/IP technology that underpins the internet. Just like when the open internet first took off and allowed previously disconnected intranets to connect to each other, ICP is allowing previously disconnected blockchains to connect, forming an internet of blockchains. ICP's trust-minimized approach makes it an ideal tool to connect blockchains compared to the traditional trusted bridges. Unfortunately the problem is that not all blockchains are natively compatible with IBC, so the internet of blockchains isn't quite the internet of all blockchains...yet. Composable has been working on changing this by collaborating with Professor Miguel Matos and the research team at INESC-ID Distributed Systems Group (associated with the University of Lisbon) to develop a solution to this problem. Is this just a pipe dream on a slide deck? No, not at all, we know they are capable because they have already connected the previously non IBC compatible layer 1 blockchains Polkadot and Kusama to the IBC ecosystem. Now that they are working on connecting Solana as well, the IBC and Solana ecosystems could both experience exponential growth, as the possibilities this will enable are literally endless. 

My Experience With IBC

I know the power of IBC because I have personal experience using many IBC compatible chains including Osmosis, Secret Network, Cosmos, Injective, and the infamous Terra/Luna. I was an early adopter of the privacy chain, Secret Network, which enabled IBC with their Supernova upgrade in late 2021. Before that upgrade, there were still a few different options for bridging value out of the Secret Network. There was a clunky and scary looking bridge to both Ethereum and Binance Smart Chain, an even scarier and hard to use bridge to Monero, or there was of course the old fashioned option of just sending your tokens to a CEX (centralized exchange). Trusting a CEX is something I only do if I absolutely have to, a personal policy that proved to be prescient when FTX collapsed. After the Supernova upgrade you could now securely send SCRT(Secret Network's token) to Osmosis using IBC and no longer had to depend on trusting those scary bridges or a CEX to exit the network. I remember how much of a game changer this was and the many exciting cross chain opportunities it opened up, even on a smaller niche blockchain. I can only imagine what magic will happen when Picasso Network enables IBC on a large tier 1 blockchain like Solana.

I was able to use the IBC capabilities of Secret Network to transfer value into Osmosis, where I used the slick Osmosis DEX to exchange my SCRT for UST (Terra, the stablecoin of the failed Terra Luna project) and then deposited the UST into the infamous Anchor Protocol to earn twenty percent interest. Thanks to the ease and speed of transferring value between these IBC chains, when UST first began to depeg in 2022 I was able to quickly escape the Terra Luna ecosystem before I lost more than a negligible amount of money. With IBC there were multiple paths I could take to get out of Terra Luna, which is a perfect example of why the more blockchains are interconnected the better. Using Osmosis for the first time back then showed me just what was possible when multiple blockchains can easily communicate with each other, I remember wondering how I was going to use Osmosis without first buying some OSMO(Osmosis’s token) on a CEX to fund the wallet with. That's just what I was used to, as in the classic chicken or egg style problem that occurs when you have a token in a wallet on Ethereum mainnet, but you don't have enough ETH for gas, so your ERC-20 token is effectively stuck in that wallet until you get some ETH. The frustrating part about this is you could swap your token for the ETH you need but you can't because the swap requires you to have ETH in the first place. So this might lead to a situation where you have to perhaps send $20 of BTC , paying a transaction fee to do so, to a CEX, where you then pay another fee to swap that BTC into ETH. Finally you have to pay yet another fee to withdraw that ETH into the wallet that you need gas in, when the whole time you already had X amount of value already sitting in the wallet that you couldn't touch. To my delight I quickly discovered that on the Osmosis DEX I could just use multiple different IBC tokens to pay for transaction fees, with no convoluted and expensive trips to the ol' CEX gas station required. It seems like such a simple thing, but it removes so much friction when you no longer have to worry about keeping enough gas in each chain's wallet. IBC and Osmosis are the poster child for cross chain composability, the power of which Composable obviously recognizes.

Whenever I use IBC chains, the problem is that it always feels like I am literally traveling to a different galaxy within the crypto universe. Anything I do there feels very separate from my activities in Solana or in Ethereum and Ethereum L2s. They are three very distinct crypto galaxies in my brain and rarely do I interact between them. If I did have to move value between the "galaxies", then I would usually use a CEX somewhere in the process, because that was the easiest way to accomplish interstellar travel between them. Unfortunately I'm still not exactly rolling in dough, despite having been involved in some form or fashion with crypto since 2017. So it is definitely inconvenient to always have to split what liquidity I do have up among these three galaxies. I have my stack on Solana, I have my stack on EVM chains, I have my stack on IBC chains, and of course there's the Bitcoin world. Let's not forget all the other L1s that are almost completely disconnected from each other. There are some smaller crypto L1s that have very few options for getting in or out, which is not good for growth at all. The wallets are all different and crypto liquidity is fractured all over the place. The walls need to be brought down so that assets are composable among all of them, and it's possible this might even help with some of the toxic tribalism that is so common in crypto. The tribalism makes sense in the current state of affairs, because if people are using the "enemy" blockchain, that is liquidity that can't benefit your blockchain because it's semi-trapped in the other ecosystem. If two distinct competing ecosystems become interconnected, then all of a sudden they can stop fighting and work together because a rising tide of liquidity lifts all boats that are in the same ocean. This is why you might notice how IBC blockchain communities aren't usually working against each other but instead are often finding different ways to combine forces. This is similar to Ethereum L2 communities, you aren't really seeing Arbitrum users scream at Optimism users on Twitter. What you do see however, is the communities of disconnected blockchains yelling at each other and competing as if they are playing a zero sum game where there can only be one winner.  Picasso Network is connecting these disconnected blockchains, allowing them to share liquidity and encouraging cooperation over competition. This will help develop the multi chain future that many others and I believe in, and will benefit all participants. 

So Many New Potential Use Cases

Let's look at one example of a project in the IBC world, called Shade Protocol, that could be of great value to Solana users. Shade Protocol created SILK, an overcollateralized private alternative to USDT and USDC that is pegged to a basket of currencies and commodities instead of the US Dollar alone. Why would anyone be looking for an alternative? Aren't USDC and USDT the kings of stability? Unfortunately that's not quite true. If you weren't paying attention, you might have missed the depegging of USDC that occurred in March of 2023 with the failure of Silicon Valley Bank. USDC got at least as low as 87 cents and it wasn't the only one, multiple stable coins depegged that day. This happened when it was revealed that Circle, USDC's parent company, had a significant amount of its cash reserves in the failed bank. There was a rush for the exits and if you held USDC that weekend you had to make a difficult decision between trusting Circle and holding on, or taking the loss and swapping out into something else. Personally, scarred by my narrow exit from UST, I immediately swapped all my USDC into bitcoin at the first signs of trouble. I decided I trusted the Bitcoin network more than I trusted Circle. 

Before the great depegging, USDC and USDT seemed solid as a rock, but you have to realize these stablecoins are backed by US Treasury bonds, which may seem like a very safe backing mechanism, but there is always the risk that the US Government defaults on their debt. They aren't exactly the most financially responsible government in the world. If a default ever happened, USDC and USDT would crash immediately. Not only that, but because of the inflation of the US dollar, especially post-Covid, the dollar may no longer be the best asset to peg a stable coin to. This is why a Solana user might decide they want to store some value in the IBC enabled SILK stablecoin instead of USDC or USDT. SILK is native to the Secret Network, but is tradable on other IBC enabled chains as well. It is unique in that it is not a dollar pegged stable coin, rather it is pegged to a basket of currencies and commodities. The composition of the basket has been carefully calculated to both minimize volatility and preserve purchasing power as much as possible in an inflationary fiscal environment. The basket currently includes the fiat currencies USD, JPY, CAD, and EUR as well as 10% of bitcoin and 18% of gold. The BTC and gold are included because they are a superior store of value compared to fiat currencies and counteract the inflation of the fiat currencies in the basket, leading to a slow and steady increase in value without the volatility of holding BTC and gold alone. The basket approach is also superior from a regulatory perspective, as USD pegged stablecoins may be regulated differently than ones based on multiple currencies like SILK is.

Currently I don't believe there is anything resembling SILK on Solana, and it could be valuable for Solana users who want access to a stablecoin resistant to inflation. People shouldn't be forced to use the highly centralized, permissioned, and censorable USDC or USDT if they want to use a stablecoin. One of the main reasons people do choose to use these stablecoins over others is the high amount of liquidity available for them. Slippage is very low, enabling crypto users to easily get in or out of their stablecoin positions. The main problem with SILK and other alternatives is liquidity, you aren't going to be able to swap a large amount into SILK without experiencing major slippage. However, you could mint it by using various crypto assets as collateral, and that would avoid any slippage issues. If you mint SILK, then you do have to worry about getting liquidated if your collateral drops below a certain value. If Solana is added to the IBC ecosystem, then much more liquidity could flow into SILK and other alternative stablecoins that exist on both Solana and IBC chains. This would make them more attractive and accessible to users of both. 

Another interesting and powerful possible use case that opens up if Solana becomes IBC compatible, is that Solana users could potentially take advantage of the privacy that Secret Network offers. The open and transparent nature of most blockchains is often a good thing, but it has its drawbacks. Do you really want someone to be able to track and trace everything you have ever done by simply finding out your wallet address?

One of the core value propositions of SILK and other assets on the Secret Network is the privacy it enables. Before the Secret Network launched, private DeFi didn't exist. For the first time you could trade, lend, borrow, provide liquidity, and even use NFTs all with protocol level privacy enabled. If Solana users are able to send assets into the Secret Network, they could use this to gain privacy that was previously inaccessible to them. This would also increase privacy for users already on Secret Network, because the more people that are using it, the more private it becomes. If Secret Network dapps began supporting Solana and Solana tokens after the Picasso Network enables the IBC connection, then you would be able to send your SOL into Secret Network, use it in DeFi there if you wanted to, and eventually you could transfer the SOL or a different token back out to Solana. If the Solana user wants to, they can bridge back to a completely different wallet on Solana from Secret Network, which would lead to as needed de facto privacy on Solana by enabling the user to completely break any connection of their assets to their old Solana wallet. This is possible as long as you don't transfer out a unique/rare token or an easily identifiable amount of a token. For example you wouldn't want to bridge 0.42069 SOL into Secret Network and then withdraw 0.42069 SOL back out into a new Solana wallet because this would make it easy to connect the transaction to the original wallet. The more time you spend in the Secret Network, then the more privacy benefits you gain, especially if you withdraw a completely different token than you deposited. 

By using both networks, users can enjoy the benefits of both cheap transactions and speed on Solana while also enjoying the privacy enabled by the Secret Network. I suspect this use case could lead to a massive increase in liquidity on Secret Network from Solana users seeking to gain privacy, which could solve the main problem with Secret Network currently, which is lack of liquidity. Slippage is high on many DEX pairs, and this is also a problem on other smaller IBC chains. There are a lot of different IBC enabled blockchains, but only so much liquidity in the IBC galaxy to go around. The Solana token has a more than a 50 billion dollar market cap and there is currently more than 2 billion in TVL(total value locked) on Solana as well. A good portion of that could find its way into IBC blockchains seeking unique yield and arbitrage opportunities once Picasso Network makes it easier to do so.

The sheer number of blockchains (over 100) and tokens (lots) that become interoperable with Solana through IBC compatibility will potentially allow all kinds of new collateral types on borrowing/lending protocols and new trading pairs in both ecosystems. Of course it will take some time for dapps to adopt the new tokens, and for liquidity pools to form, but at least it will become possible with Picasso Network. Cross-chain arbitrage opportunities will become easier to take advantage of, leading to reduced slippage on DEX's, and innovative new ways to take advantage of yield opportunities across many different blockchains. Just imagine if you could take some SOL, easily bridge it into Secret Network, use it as collateral to borrow USDT at 1% from Shade Protocol, bridge the USDT back to Solana, and deposit it into Kamino Finance and earn 7% on it. Maybe you could take that yield, and loop it back through to borrow more and repeat the process. It’s hard to comprehend the pure scale of interoperability this connection enables. The IBC protocol connects more than 100 different blockchains already and facilitates over 30 billion in value transfer on an annual basis. If you add Solana, and then eventually Ethereum into that pool of interoperable liquidity, we are going to have a massive network of interconnected blockchains, all creating value for one another. Blockchains with niche use cases or low user counts will no longer have to worry as much about lack of liquidity destroying any value they might have, as liquidity will begin to flow in from users looking for unique opportunities on these smaller chains once it becomes easier to do so. The level of friction is going to decrease dramatically, and advanced DeFi strategies will be used that would have never even been considered before because of the prohibitive cost of actually getting your assets and yield back and forth between these ecosystems. Looping, trading future yield, finding lending pools for smaller assets, and being able to use all kinds of liquid staking tokens(LSTs) in a whole new slew of dapps will all become possible. 

     Solana users will also potentially be able to use their assets on DYDX, the largest decentralized perp exchange by volume, which moved from Ethereum to its own Cosmos SDK chain due to scalability issues. There are perp exchanges that are native to Solana, but spreads are wider on the Solana native exchanges than they are on DYDX, I believe both DYDX and the Solana perps exchanges will benefit from cross-chain liquidity flows. It will be better for traders as well because fees and spreads will probably decrease as it becomes easier for traders to switch capital between exchanges.

User Experience on Today’s Bridges

    In Composable finance's documentation, they mention how current solutions to blockchain fragmentation do not focus enough on cross chain user experience(UX). Yes, there are already ways to bridge from one chain to another but in many instances it is not an enjoyable experience but rather an anxiety inducing crap shoot that involves putting your trust in various bridges with varying levels of security. Bridges are notorious targets for hacks, and some of the largest hacks in crypto's history have involved them, such as the infamous Wormhole and Ronin bridge hacks of 2022 that netted the hackers 326 and 621 million dollars worth of stolen assets. On top of basic security concerns, bridged assets are confusing to new users, who might not realize at first that they are dealing with a completely different token on the other side. This happened to me once, thanks to Metamask's poor user interface(UI), I had bridged some USDT to Arbitrum and it was displayed in my wallet as "USDT" when it was actually USDT.e which is bridged USDT. Thanks to my ignorance and Metamask showing me an incorrect ticker, I then tried to deposit these USDT into a CEX. Of course it failed, and I then had to pay a $50 recovery fee for the CEX to give me my money. This is an example of just how important UI is when using multiple blockchains, there is no good reason I can think of why Metamask labeled my bridged USDT.e as USDT.  Now whenever I bridge assets I am usually terrified and have a multi step process to make sure I don't make any mistakes.

Step 1: Pick the safest and cheapest bridge.

Step 2: Search the bridge on Twitter/X to see if there have been any recent security incidents or hacks, because if a bridge is hacked the news is going to hit Twitter first.

Step 3: Triple check the URL to make sure I am on the correct page for the bridge.

Step 4: Look up the asset I'm going to be receiving on the destination chain and make sure there is actually some liquidity available so I don't get stuck in a token on the other side that I can't sell without significant slippage.

Step 5: Actually bridge the asset, and anxiously chain smoke while my asset is vulnerable within the bridge contract until it makes it out the other side.

Step 6: If needed, swap on the destination chain into a non-bridged version of the asset. I'm not trying to store any value in a bridged token for more than an hour or so, even though it may be safe I just don't like the idea. I don’t know why but USDT.e just doesn't seem as safe as USDT to me, even if there might be plenty of liquidity for it.

Some may consider my process as overkill, but it's the only way I feel comfortable bridging anything and in the current cross-chain environment, I feel that this level of caution is more than warranted. The only problem with this process is if a black swan strikes. In that case, when speed is of the utmost importance to avoid a catastrophic loss, then I might not have enough time to go through the whole checklist. Oftentimes it is still easier and cheaper to just deposit one asset into a CEX and then withdraw into another blockchain for a fee that is some times much less than the gas costs would be to do it all on chain. This needs to change, I don't ever want to have to trust a CEX with my assets just to get them from one chain to another. With the right improvements in cross chain technology, especially in terms of UI and UX, then much of the bridging process could be automated or abstracted away. Composable understands the UI problem at least and I hope that one day I will be able to easily and cheaply switch assets between chains in just a few clicks, secure in the knowledge that my funds will be safe both in transit and once they reach their destination. That has to be the experience if we are to ever reach mass adoption of multiple blockchains, because normies aren't going to be as forgiving as crypto natives when it comes to poor UX. 

How Will They Actually Do It?

How does Picasso Network actually intend on enabling IBC on Solana? Solana is not a Cosmos SDK based blockchain, so it is inherently incompatible with the IBC protocol. I think Composable does a good job of explaining the TLDR of how they are going to accomplish this in their docs

“The TL;DR of this innovation is that there will exist a guest blockchain inside of Solana deployed as a smart contract, providing all of the features needed to make Solana IBC-compatible. Validators on the guest blockchain receive messages about transactions on Solana, using this information to create blocks on the guest blockchain that reflect these Solana transactions.

The guest blockchain essentially serves as a replication of Solana, but unlike Solana, it is able to interoperate along the IBC and Composable’s trust-minimized bridge, In this manner, the guest blockchain can be considered as a sort of Layer 2 (L2) of the Solana network." 

This guest blockchain solution is an extremely innovative way to solve the problem of Solana not meeting all of the requirements that an IBC compatible blockchain must meet, but it still needs some security. The security will be provided by users staking either native SOL tokens, or they can restake Solana LSTs(Liquid Staking Tokens) such as jitoSOL, mSOL, or bSOL. This enables restaking in the Solana ecosystem for the first time, similar to what's going on in the Ethereum ecosystem with Eigenlayer. Using these LSTs to secure this guest blockchain enables an entirely new use case and source of yield for them. The utility of the Solana token is about to grow significantly with the enabling of IBC interoperability. You can use your SOL as collateral to secure loans on other blockchains, restake your SOL, or take advantage of new DeFI yield farming opportunities in all the SOL/IBC asset pairs that can open up because of this. 

The IBC and Solana ecosystems are both vast places full of innovative tokens and protocols. More importantly they both have strong communities, who didn't stop building throughout the bear market. No longer do they have to be separate walled gardens but they will become interconnected which will accelerate the growth of both ecosystems. Incompatibility has always been a major problem in the growth of technology, and when different technologies are made to be compatible with each other, it fosters growth, innovation, and enables novel use cases that I can’t even begin to imagine.  As an avid user of Solana and multiple IBC blockchains, I am very intrigued by the possibilities Picasso Network is going to open up, let’s see what happens!   

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#picasso network#composable#ibc#solana#cosmos#shade protocol#secret network
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