According to Blockworks, cross-chain messaging platform Wormhole has introduced native token transfers (NTT) as a way to preserve token characteristics and address liquidity fragmentation across different blockchains. Traditional token transfers across blockchain platforms require a token bridge, which often uses the “lock and mint” or “burn and mint” approach. This process involves users locking up the native asset into a smart contract on one chain and then swapping it for a synthetic version of that asset before it is transferred to a different chain. However, this method can lead to liquidity fragmentation and limited flexibility for protocols looking to take their own tokens cross-chain.
Unlike existing methods, NTT involves protocols natively deploying their canonical token to multiple blockchains and using interoperability layers to facilitate the transfers between these canonical deployments. This allows users to directly transfer native tokens from one chain to another, ensuring that projects maintain ownership, upgradeability, and customizability over their tokens on various blockchains. Native token transfers also avoid liquidity fragmentation by transferring value instead of double counting it.
Nikhil Suri, product lead at the Wormhole Foundation, believes that native tokens are more than just a technical evolution, but also a step toward realizing the potential of blockchain technology. He said, "As we move forward, interoperability will continue to play an important role in shaping a robust and user-centric DeFi space and provide projects with the sovereignty to define what works best for them."