IBC and Liquidity Modules — Core Infrastructural Capabilities for bitsong-2
However, the upgrade will also introduce the Inter Blockchain Communication (IBC) and Liquidity Module. While these two modules are less front-facing than Fan Tokens and NFTs, they are nevertheless a vital component in the upgrade, launching some core infrastructural capabilities that will help to power the new BitSong ecosystem.
Inter Blockchain Communication (IBC) is a protocol that’s part of the Cosmos technology stack, allowing seamless communication between blockchains. It’s designed to overcome one of the core challenges of legacy public blockchains, which is that they were built to operate as silos, with no opportunity to transfer data or tokens between platforms.
IBC will enable BitSong to interoperate with any other IBC-enabled blockchain in the Cosmos ecosystem. Furthermore, with innovations such as the Gravity Bridge, IBC is also being used to power bridges to non-Cosmos blockchain ecosystems like Ethereum.
What does this mean in practice? IBC will allow us to list BTSG on any Cosmos DEX such as Gravity DEX or Osmosis or others that will be deployed in the future. It will also allow anyone holding NFTs, Fan Tokens, or BTSG, the possibility to use them in applications on other compatible blockchains. For instance, as the Cosmos DeFi ecosystem develops, someone could use the value stored in their BitSong-issued NFTs as collateral to take out a loan.
IBC is also a critical enabler for the Liquidity Module, which is also coming as part of the mainnet upgrade.
Once IBC is enabled, we can begin the integration of Gravity DEX as a module in BitSong, ensuring a continuous flow of liquidity for BTSG within the BitSong ecosystem. This launch is one of the most critical components of the upgrade, as liquidity is at the heart of the user experience.
The Liquidity Module is effectively the same type of model as used on decentralized exchanges like Uniswap. Token pools use automated market makers to determine a fair price, allowing anyone to swap any token for any other token for low, fixed fees. Liquidity providers can deposit their tokens into the pools to earn a share of fees paid by users.
However, the Liquidity Module offers some benefits over a standard AMM, by combining some of the more desirable features of an order book-based exchange. It uses a batch-based order book matching algorithm together with the AMM, offering more utility to a greater array of potential users.
The Liquidity Module redefines the concept of a “swap order” as it is in the AMM, to a “limit order with a short lifetime,” as it would be in an order book exchange. This model offers more freedom and flexibility on ways to provide liquidity. The combination of pool liquidity and limit order liquidity also provides users with a more enriched trading environment.
How does this work in practice? Let’s say Alice has acquired some of xArtist Fan Tokens. She can use the Liquidity Module to swap her xArtist Fan Tokens for BTSG, which she can then trade for other Cosmos Ecosystem cryptocurrencies in Gravity DEX. Or she could use the Cassini Bridge to swap for ERC20 BTSG and exploit Ethereum’s Ecosystem trading options.
She could also choose to cash out to fiat currencies, using our integrated FIAT Bridge (IBAN connected to a Blockchain Wallet). So the Liquidity Module is the element of the BitSong ecosystem that keeps token liquidity flowing continuously.
Please note that the first version of the Liquidity Module won’t support limit order options, but the code base structure anticipates and supports this as a feature expansion.
As you can see, both the IBC and Liquidity Modules are absolutely critical to the success of the Fan Token and NFT modules, providing the necessary infrastructure for users to transact within the BitSong ecosystem.
The mainnet upgrade is the biggest milestone in BitSong’s journey to date, so make sure you keep checking back for more news and updates in the coming weeks!