Connext Launches NXTP Protocol to Improve Liquidity

Connext, a platform based on the Ethereum blockchain that allows users to conduct transactions across different Ethereum-compatible networks, announced the launch of NXTP, a tool that allows communication between different blockchains and their offshoots, known as layer 2 systems and sidechains.

The launch comes two months after Connext raised $12 million in a funding round.

Ethereum’s capacity, or scalability, issues have prompted software developers to move their applications to layer 2 networks from the main Ethereum network, which is known as a mainnet, or a layer 1 system. The result is that users are interacting more with a mix of layer 2 networks that are built on top of Ethereum, sidechains and layer 1 networks that are compatible with Ethereum.

The Connext network consists of a set of “nodes,” or people with routers who support the network and provide liquidity to it. The nodes pass data between the systems, earning fees in the process. The company launched its Vector protocol early this year, but that had difficulty handling transactions because of the complicated accounting those transactions required. NXTP was rolled out to fix those issues and boost the liquidity that’s needed to attract developers to the platform.

The growing field of “cross-chain interoperability” networks also includes Hermez, Loopring and StarkEx. Connext says one big advantage of NXTP is that it doesn’t introduce third-party validators to control user funds, which can pose a security risk.

Founded in 2017, Connext has now completed over $500 million in transactions across its network, according to the company. The $12 million funding round in July was co-led by investment firm 1kx and blockchain technology company ConsenSys and included more than 80 additional investors.

“Our vision for NXTP is that it will become the internet protocol of the Ethereum multi-chain ecosystem,” Connext founder Arjun Bhuptani said in a press release, “Now that it’s live, our focus will be on growing liquidity within the system, rapidly adding support for new chains/L2s, and transitioning the protocol to becoming entirely owned and operated by the community.”

In an interview with CoinDesk, Bhuptani laid out the company’s plans to increase liquidity. Bhuptani noted that the funding round in July included blockchain infrastructure providers like Stakefish that are capable of providing liquidity and have “great reputations in that space.”

Connext also has a pipeline of about 260 more people who have signed up to operate routers.

“The goal is to head towards making it as passive as possible to provide liquidity to the system,” Bhuptani said.