Exploring the ultimate form of cross-chain bridges: how to solve the trilemma of liquidity, certainty and security

23-05-03 13:47

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Original title: "The End State of Bridges - Unified Stablecoin Bridges"

Original author: CHIA JENG YANG

Original compilation: Kxp, BlockBeats

We are still in the early stages of cross-chain infrastructure. For me, there are only two final states of cross-chain bridges, zero-knowledge proof cross-chain bridges and what I call "unified stablecoin cross-chain bridges" (USB).

ZK cross-chain bridge is a cross-chain bridge that relies on zero-knowledge proof to create a trust-minimized cross-chain exchange, such as Succinct.

USB works by aggregating the DEX on the send and receive chains. When a cross-chain transaction is initiated, the cross-chain bridge exchanges assets into intermediary standardized stablecoins, transfers the value of stablecoins through intermediary centralized/decentralized stablecoin issuers, and finally exchanges them for you want through the DEX on the receiving chain any assets you want.

Take the transaction from ETH to SOL as an example:

Why are these two options the best?

Hacking is still a major problem for cross-chain bridges. Vitalik pointed to the "fundamental security constraints" of cross-chain bridges as one reason - in essence, the higher the transaction volume and the more critical a cross-chain bridge is, the more tempting it is to attack that cross-chain bridge (since the payoff increases significantly) .

There are three core problems that need to be solved in the cross-chain bridge, and there is basically only one way to solve them:

· Liquidity

· Cross-chain certainty

· Cross-chain security

For USB, you don't need to create liquidity pairs for each exchange pair, but rely on one of the largest liquidity pools (stablecoins) as a settlement layer. This is conceptually similar to Thorchain's settlement system, except that one relies on stablecoins rather than RUNE as the settlement layer. Here, liquidity is not an issue because the "cross-chain bridge" that requires stablecoin liquidity is its own stablecoin issuer.

Cross-chain determinism: The problem with cross-chain exchanges is that all exchanges are not completed instantly, but are subject to the deterministic constraints of the receiving chain. Generally, this problem is solved if bridges or liquidity providers are willing to relax security restrictions in exchange for faster transactions, although this will increase/introduce risk for these parties. However, to create a trust-minimized and more efficient environment, stablecoin issuers rather than cross-chain bridges can scale more easily if they can take deterministic risk. This is especially true because of the potential for slippage in cross-chain transactions. Using a stablecoin as a settlement layer involves less slippage because there are fewer value differences to account for.

Cross-chain security: From a technical perspective, how stablecoin issuers decide to build their cross-chain bridges will affect how to think about the security of cross-chain transactions question. Options range from a ZK solution to an oracle-type solution like LayerZero, although it is argued that using a mechanism that relies on a cross-chain bridge from the stablecoin issuer should not increase trust assumptions. From an economic point of view, this is simpler. If one is used to the centralization risks of Circle or Tether, then any stablecoin cross-chain bridge solution (which may actually be semi-centralized) will inherit existing trust assumptions and will not be more or less secure. Low. In fact, we can argue that a centralized stablecoin issuer would in practice be obliged to repay any stolen capital if we view USDC as a tokenized receipt of the deposit token.

In a nutshell, this cross-chain bridge will use stablecoins to take economic and security risks, thus in the most liquid, safest and most stable way for cross-chain exchange.

ZK cross-chain bridges will also help reduce the trust assumptions required in cross-chain swaps, they are undoubtedly part of the future of cross-chain bridge design . However, even a trustless and secure ZK cross-chain bridge may be economically inferior to a unified stablecoin cross-chain bridge due to the need to accumulate liquidity for the exchange.

Two interesting points:

We have the opportunity to build a Stable currency for cross-chain settlement

We have the opportunity to build a unified stable currency cross-chain bridge

It should be noted that we should Gradually reduce reliance on non-native or wrapped stablecoins. Only native assets reduce trust assumptions because you are still dependent on the same entities you previously trusted.

What do we currently have to meet this need?

1. 1inch (Pantera Portfolio) - does not support cross-chain exchange.

2. Li.Fi: cross-chain bridge aggregator - it does not provide its own liquidity and therefore relies on the basic security of the underlying cross-chain bridge/ fluidity. While they can reduce liquidity fragmentation, this is done through multiple different underlying cross-chain bridge channels, all of which are at risk of being hacked.

3. Centralized stablecoin provider - Circle (Pantera Portfolio) provides native stablecoins on 8 chains. Tether offers native stablecoins on 9 chains.

4. Decentralized stable currency provider - DAI is working on multi-chain expansion, and is now in Arbitrum (Pantera Portfolio), Optimism and Starkware (Pantera Portfolio).

Interestingly, we don't currently have a participant that actually fills this need. One of the big bottlenecks is the relatively slow growth of multi-chain support on long-tail chains, which includes factors such as cost-effectiveness of stablecoin issuers. Without native stablecoin backing, the incentive for cross-chain bridge providers is to provide wrapped equivalents, further decentralizing liquidity. Even if cross-chain aggregators/multi-chain cross-chain bridges want to aggregate in a more altruistic way instead of issuing their own stablecoins, they will still inherit (and transmit) the security risk of that wrapped stablecoin. Of course, this ignores that native stablecoin issuance requires scalable collateral management, which is not something any protocol can easily achieve.

A prerequisite to this argument is that, at least for a while, the stability pool cross-chain bridge will continue to maintain a slippage/liquidity advantage.

Interestingly, existing cross-chain infrastructure players like LayerZero will have the opportunity to carve out a niche in this space. Given that cross-chain infrastructure players are already used by DApps with cross-chain activities, and many of them have their own risk management cross-chain bridges (such as Axelar's Satellite or LayerZero's Stargate), they are in a position to distribute such cross-chain stablecoins strong position. However, given the complexities required to manage the regulatory and financial risks of a stablecoin, it is more likely that one of these players will partner with a large institutional player to launch such a cross-chain native stablecoin for settlement.

In short, USB’s cross-chain stablecoin has the potential to solve the cross-chain bridge trilemma of liquidity, certainty, and security, thereby releasing More meaningful cross-chain transaction volume and composability.