Reflecting on The Stablecoin Bridge Almanac & Bridge Token Standards

Four months ago, LI.FI published "The Stablecoin Bridge Almanac," highlighting a new bridging mechanism in the market: burn-and-mint processes controlled by stablecoin issuers.

Notable examples included:

• Circle’s Cross-Chain Transfer Protocol – $USDC

• MakerDAO’s Teleport – $DAI

• Frax Finance’s Ferry – $FRAX

We anticipated other stablecoins and stablecoin issuers to follow suit.

However, those not included in the list likely:

1) did not have the resources and expertise to build their own bridging mechanism from scratch and

2) were kinda frontran by Circle and the others in this race to take stablecoins cross chain. 

These players needed a simpler solution to overcome these challenges – our analysis pointed to LayerZero’s OFT standard as a potential alternative.

And while we were in the process of publishing Abracadabra launched $MIM as an OFT.

This was only the beginning of the domino and since then several notable stablecoins (and other tokens) have gone live as an OFT including: $USDO, $agEUR, and other tokens like $BTC.b, $CAKE, and $AURA.

There could be many reasons for this rapid adoption of the OFT standard but imo, it boils down to:

1) no strong alternatives in the market – if I remember correctly, only Wormhole’s xAssets was perhaps the only other token standard at that point that had seen decent adoption. 

Standards like the xERC20 and solutions like Axelar’s Interchain (ITS) hadn’t launched or were still in the research phase. 

2) LayerZero’s strategic positioning of OFTs as a viable solution for stablecoins, coupled with their strong BD efforts, also played a key role.

There were other standards capable of similar functions, but imo adoption hinges on clear communication about the technology's potential, especially in the early stages.

If you leave it to the adopters to figure it out on their own, they probably won’t be able to connect the dots. You have to constantly tell them the story and what’s possible with your tech, especially in the early days and LayerZero did a great job at that.

$MIM got the ball rolling, offering a live model working in production, and others could follow the blueprint.

However, the ecosystem has evolved (yes, in just 4 months) and there’s now a viable alternative for stablecoins in the form of xERC20s which offers a solution that’s unique in its own way: the token issuers can leverage multiple bridges instead of relying on one, distributing risk across bridges and avoiding vendor lock-in.

A prime example of xERC20’s advantages is Beefy Finance’s recent launch of their $BIFI token using this standard.

$BIFI leverages native bridges of various chains and third party bridges including LayerZero, Axelar, and Chainlink’s CCIP for burn/mint across chains with rate limits for each third-party bridges, strategically minimizing the risk exposure to potential bridge hacks.

At the moment, xERC20 and OFTs are the two main token standards that most projects are considering to take their tokens cross-chain. Both are great standards, with several similarities but strong differentiators in their story.

We’re at a critical juncture in the story of adoption of bridge token standards. It’ll  undoubtedly be interesting to see how it develops further.

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Read the The Stablecoin Bridge Almanac 2023 — https://coinmarketcap.com/academy/article/li.fi-the-stablecoin-bridge-almanac-2023

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