POOP - Bringing the Power of XC-20
Driven by the will to give users the power to influence decisions, exercise control over usage, and incentivize participation, the $POOP token is a fully transferrable utility-rich governance token that supports cross-chain communication in Polkadot.
POOP was deployed on Moonbeam a couple of weeks ago as an XC-20 token. But what is an XC-20 token, and how does POOP benefit from this token standard? Let's take a look.
Before we delve into XC-20 tokens, let me briefly introduce ERC-20 tokens.
ERC stands for Ethereum Request for Comment. It signifies a way to standardize the tokens within smart contracts on the Ethereum blockchain. Essentially, the ERC-20 standard is used to build tokens that interoperate within Ethereum's ecosystem of dApps.
The ERC-20 standard guides the creation of new tokens on the Ethereum blockchain to ensure interchangeability with other tokens used within smart contracts. A set of common instructions for all tokens is crucial for building DeFi apps, as they often have to interact with tokens. In addition, a standardized methodology for tokens makes developers' work easy and saves considerable time.
The ERC-20 standard is deployed on many networks outside of Ethereum as well. “ERC-20s are often the de facto standard for native tokens on EVM-compatible networks.”
However, this isn’t the case when moving outside of EVM-compatible chains. In such a scenario, wrapped tokens are created. Wrapping enables the creation of wrapped tokens whose value is pegged to the underlying token.
The entire process is usually facilitated by a bridge, which provides the infrastructure required to move assets between different chains. It involves locking the digital asset on one chain while new tokens of an equivalent amount are minted on the receiving blockchain.
Nonetheless, bridges create opportunities for exploitable bugs due to the complexity of the code. Additionally, they must maintain a 1:1 balance between wrapped tokens and their native counterparts. This is an attractive target for hackers looking to exploit the system through faulty smart contract logic or poor security measures.
Polkadot’s cross-chain communications (XCM), a shared communication standard, allows interoperability sans bridges.
Polkadot and XCM
Specialization and connectivity are vital properties of Polkadot. The network provides a rich toolkit for building blockchains through its Substrate framework.
Substrate allows developers to create specialized blockchains that are purpose-built for specific use cases. A leading multi-chain technology in the field of blockchain interoperability, Polkadot's architecture allows parachains to natively interoperate, enabling cross-blockchain interactions and transfers of any type of data or asset.
To know more about Polkadot and its architecture, read my linked article.
XCM format (not a protocol) defines a language around how the message transfer between two interoperating blockchains should be performed. XCM and the Cross-Chain Message Passing Protocol (XCMP) are central to Polkadot’s multi-chain functionality.
XCM allows full communication between Polkadot parachains. Instead of relying on third-party bridges (prone to hacks) to move tokens, XCM allows interoperability on Kusama and Polkadot ecosystems. Moreover, the exchange (of tokens/messages) is conducted with the same security as the underlying network.
XCM channels serve as a stable and reliable inter-chain messaging channel between parachains themselves as well as smart contracts. Put simply, XCM is a language for communicating between unique consensus systems, enabling messaging between chains.
XC -20 Tokens
Moonbeam, a fully functioning EVM chain on Polkadot, can interact with ERC-20 tokens. However, to ensure ERC-20s can interact with the rest of the Polkadot ecosystem, Moonbeam introduced the XC-20 standard.
The XC-20 standard creates compatibility between the EVM and the Substrate framework. XC-20 tokens conform to the ERC-20 token standard and are not only compatible with ERC-20 but have cross-chain capability (using XCM).
Essentially, Moonbeam (Polkadot’s unique interoperability framework, XCM+EVM) has introduced the path forward for both scalability & multi-chain functionality. The XC-20 format allows Substrate-based tokens to be used like ERC-20s within Moonbeam.
Let’s now understand how $POOP (deployed on Moonbeam) benefits from the XC-20 standard.
$POOP, a Substrate native asset
I have covered POOP at length in an earlier article. You can read it here.
Let's go through some of the benefits that $POOP offers through it being an XC-20 token.
- On-chain governance - $POOP can be governed via decentralized on-chain governance.
- Cross-chain transfers and interoperability - POOP can easily move between parachains capturing liquidity/& value on other parachains owing to the cross-chain communication functionalities of XCM.
e.g., A proposal to list POOP/PARA and POOP/USDT trading pairs on Parallel AMM is already up.
As an XC-20 asset, POOP (that conforms to ERC-20 standard) can be transferred to chains outside of the Dotsama ecosystem.
- Cross-Chain DeFi activity - XC-20 standard makes $POOP a regular ERC-20 token from the perspective of the EVM. This means POOP can be employed on all dApps, including Beamswap.
FYI - $POOP's plan is to become the gas/utility token of the upcoming L2 EVM chain (gaming and metaverse focused) on Polkadot. There is immense potential as it increases DeFi capabilities and the use-cases.
So, is it going to be $POOP’ing everywhere? (only time will tell)
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