Polygon PoS Upgrade ✅ | Hyperlane V2 Live | Circle's CCTP Documentation | Satin Exchange x LI.FI & More!
Last Week In The Multi-Chain Ecosystem (16-22 Jan '23)
Welcome to LI.FI’s Cross Chain Insider newsletter. If you want to join this community of cross-chain aficionados learning about bridges, interoperability, and the multi-chain ecosystem, subscribe below:
LI.FI introduces ‘Cross-Chain Chad’ credential, a way for cross-chain enthusiasts to showcase their understanding and knowledge of the bridging/multi-chain ecosystem. Learn more here.
Hyperlane, an Arbitrary Messaging Bridge (AMB), introduced its V2 update with several new features, including a modular security stack, permissionless deployment, simplified developer experience, and more. Read more here.
3) Satin Exchange x LI.FI 🤝🏻
Satin Exchange has partnered with LI.FI as its advanced bridge and DEX aggregation partner. The partnership will enable Satin users to move assets across chains seamlessly.
As the launch Circle’s Cross-Chain Transfer Protocol (CCTP) gets closer, the team has released its documentation which contains essential information such as how CCTP works and the different use cases it enables. Read more here.
Biconomy is seeking feedback and suggestions on its Biconomy Relayer Network (BRN) mechanism roadmap. BRN is a decentralized multi-chain relayer network that adopts an allocation mechanism that depends on Relayer’s staked $BICO tokens.
LI.FI released its 14th monthly update, covering important developments from the past month, including 8 new integration partners, a new routing algorithm and support upgrade, and much more. Read in detail here.
Multi-Chain Ecosystem Updates
Polygon completed its PoS Hardfork on 17th January. The upgrade reduces gas spikes and addresses reorgs to reduce time to finality on the Polygon network.
Cubist introduces an SDK for multi-chain and cross-chain development. The SDK offers multi-chain support and seamless cross-chain development enabling devs to write smart contracts like they’re on one chain, and Cubist does the hard work of generating the bridge code that connects them cross-chain.
Stargate Finance has officially deployed in Metis Andromeda Mainnet, enabling Metis to swap native Tether (USDT) from/to Avalanche, BNB Chain, and Ethereum Mainnet. Stargate will also provide an Autonomous Pool Deployment (APD) for METIS between Ethereum Mainnet and Metis Andromeda, allowing seamless swapping.
What’s Popping on Twitter?
Circle released documentation for their upcoming project, Cross-Chain Transfer Protocol (CCTP), and it has stirred interesting discussions around its implications for the future of bridges.
Many believe that the launch of CCTP can make certain bridge types and designs redundant. Let’s take a closer look into what CCTP is all about, and stablecoin bridges like CCTP could potentially change the dynamics of the bridging ecosystem.
What is Circle’s Cross-Chain Transfer Protocol (CCTP)?
In September 2022, Circle announced the Cross-Chain Transfer Protocol (CCTP) to support USDC interoperability for developers & their users, a move that enables the movement of USDC across chains natively. According to Circle, “Cross-Chain Transfer Protocol effectively teleports USDC from one ecosystem to another, maximizing capital efficiency and streamlining the user experience.”
To understand the goal behind the launch of CCTP, we need to look at how USDC currently moves across chains. To move USDC cross-chain, it is required to be locked on one chain and minted on another, “creating fragmented liquidity and a complicated user experience.”
CCTP simplifies the flow of liquidity and improves the user and developer experience by enabling USDC transfers natively across chains, i.e., without locking it on one chain and minting a wrapped version on the other. Here’s how it works:
“Burn USDC on the source chain: A user accesses an app to initiate a transfer of USDC from one blockchain to another, and specifies the recipient wallet address on the destination chain. The app facilitates a burn of the specified amount of USDC on the source chain.
Fetch signed attestation from Circle: Circle observes and attests to the burn event on the source chain. The app requests the attestation from Circle, which provides authorization to mint the specified amount of USDC on the destination chain.
Mint USDC on the destination chain: The app uses the attestation to trigger the minting of USDC. The specified amount of USDC is minted on the destination chain and sent to the recipient wallet address.”
How does this impact the cross-chain DeFi ecosystem?
The launch of CCTP introduces a new flavor of bridging known as stablecoin bridges. Such bridges are built by the stablecoin issuers themselves, and since these entities essentially control the supply of the stablecoins, they can burn the assets on the source chain and mint them on the destination change whenever assets need to be ‘moved’ across chains. As a result, these bridges make it possible for stablecoins issuers (like Circle and Maker) to mint virtually unlimited amounts of stablecoins on the destination chain.
This improves the liquidity of the stablecoin and allows dApps/users to bridge large amounts in a capital-efficient manner. For instance, if a dApp wants to bridge 100M USDC from Arbitrum to Optimism, Circle’s stablecoin bridge, CCTP, can burn 100M USDC on Arbitrum and mint 100M USDC on Optimism. Examples include Circle’s CCTP for USDC, Maker’s Teleport for DAI, and Frax Ferry for FRAX.
This has considerable implications for the current bridging landscape:
Stablecoins like USDC, DAI, FRAX, USDT typically make up most of the volume for any bridge (liquidity networks, lock/mint bridges, etc.). Since stablecoin issuers can essentially mint an unlimited amount of tokens on any chain, they don’t need to worry about fees and managing pools across chains. As a result, this makes it possible to bridge large volumes of these stablecoins at a very low (if not zero) cost and also improves capital efficiency as there’s no longer a need to lock capital in pools to enable bridging.
However, bridges have unique strengths and trade-offs, and stablecoin bridges are no different. Here are some significant trade-offs related to CCTP, which are worth considering before we announce that bridges are dead; long live bridges.
CCTP is centrally operated by Circle. If you’re using CCTP, you’re trusting Circle to act in good faith for the ecosystem. However, some could argue that trust is baked into how USDC operates, so if you’re holding/bridging USDC, you’re trusting Circle regardless.
The need to fetch signed attestation from Circle. For apps to trigger the minting of USDC on the destination chain via CCTP, it needs Circle’s attestation that the assets on the source chain have been burned. In a way, this means apps require Circle’s permission to mint USDC, which allows Circle to decide (if they want/need to) which app can leverage CCTP. However, most bridges rely on third-party verification to enable cross-chain transactions. In that case, it can be argued that relying on the stablecoin issuer (like Circle) for verification is better than relying on any other external third parties.
Stablecoin bridges like CCTP are a significant development in the bridging ecosystem and can tremendously improve the capital efficiency and user experience of everything cross-chain. However, it is far-fetched to say that they will make lock & mint bridges and liquidity networks redundant. This is not to say that the introduction of stablecoin bridges will not impact these bridges. Instead, it means that other bridges can remain competitive despite the launch of stablecoin bridges by being innovative and flexible. For instance, a possible approach for liquidity networks could be to integrate CCTP and use it to bridge USDC instead of relying on LPs.
Moreover, such developments in the bridging ecosystem further enhance the case for bridge aggregation. Aggregators don’t need to bet on which bridge design will win in the long run. They can benefit from the competitiveness in the bridging ecosystem and offer the best routes to the users from the available option.
Key takeaway — bridges are here to stay, but since they’re in the nascent stages of development, likely, the most efficient bridge design has not been introduced yet, and innovations like CCTP that play around with the different features in the design space of bridges, help us get one step closer to finding the most optimal bridge design.
1) Bridging with a shared DA layer vs. Bridging without a shared DA layer
2) On multi-chain interoperability vs. rollup-centric Ethereum vision
3) Optimistic rollups vs. zk bridges (read through the comments)
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