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Cardano Upgrade Aims to Improve Cross-Chain Features as On-Chain DeFi Crosses $100M TVL
“This upgrade will bring new cryptographic primitives to Cardano, encouraging greater interoperability and secure cross-chain dapp development with Plutus,” IOG said Wednesday.
Updated Feb 9, 2023, 3:57 p.m. Published Feb 9, 2023, 8:54 a.m.
An upcoming upgrade on Cardano will make enhancements to cross-chain functionality for decentralized finance (DeFi) applications building on the network, developers tweeted Thursday.
The proposal was submitted on Wednesday and will take effect on Feb.11 at 00:00 UTC, as per tweets from Cardano code maintainer IOG. The upgrade will initially be tested in a virtual testing environment that mimics real-world performance before it is eventually released on mainnet.
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In collaboration with @cardanostiftung, an update proposal was submitted yesterday to upgrade the #Cardano pre-production environment to protocol v8, which will take effect on Saturday, February 11, 2023 at 00:00 UTC.
— Input Output (@InputOutputHK) February 8, 2023
The upgrade is said to bring enhanced cryptographic features to Cardano while improving cross-chain decentralized application (dapp) development on Plutus – the smart contract platform of the Cardano blockchain.
Cross-chain bridges are software applications that enable transactions to occur between various blockchains. Such a feature on Cardano would allow developers to build applications that connect Cardano with other blockchains, which would in-turn give access to users other blockchains to interact easily with financial services offered by Cardano dapps.
Dapps rely on smart contracts instead of middlemen to offer financial services, such as lending and borrowing, to users, who often use that dapp’s token or are rewarded in those tokens.
The upgrade comes as Cardano-based DeFi applications crossed $100 million in total locked value (TVL) last week, an eight-month high. DeFi exchanges Minswap and Wingriders account for over 50% of this TVL, DeFiLlama data shows.
Interest in Cardano DeFi has heightened since the launch of the overcollateralized djed stablecoin earlier this month. As CoinDesk previously reported, djed is backed by other tokens and requires between 400% and 800% in collateral value to be posted before it is issued to a user.
This overcollateralized mechanism would allow djed's value to be stable during market stress and prevent a repeat of terraUSD, the algorithmic stablecoin linked to the Terra system's luna token, which fell in value by over 99% in May.
Shen, the reserve token meant to support djed's stability, receive additional rewards when holders of Cardano's ADA cryptocurrency stake their coins to mint djed stablecoins, which fuels liquidity for the upstart ecosystem.
This has the potential to increase user demand for shen, which may prompt a surge in price over the coming weeks as djed is integrated with more Cardano-based applications that add to its utility.
Such enhancements could ultimately benefit ADA, Cardano's native token, as well as the tokens of projects building on Cardano. As of Thursday, ADA trades at 38 cents and has a market capitalization of $13 billion.
IOG or the Cardano Foundation did not immediately return requests for comments at press time.
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