Time will tell what will be in demand in decades — multi-chain infrastructure or cross-chain technology. Vitalik says against cross-chain because of its security issues
But Сonnext has the answer to that.
Couple words about multi-chain and cross-chain technologies. Multi-chain is a technology that requires projects to exist on at least two blockchains at the same time. Apps like Curve or AAVE are among those dApps but they are acting like different apps on multiple chains.
Cross-chain is a technology that improves the connection between blockchains by enabling the smooth information exchange between different chains. Best way to describe it to your grandma — actual bridges connecting 2 locations to have an ability to transport between them. Taking this back to crypto, for example when you see a wrapped token, you are seeing an asset that has been wrapped up with an extra layer of protection to “survive” in a new/hostile environment, since blockchains are natively not compatible with each other, and these tokens are not in their native blockchains. These are the actions bridges are responsible for. Their goal is to achieve inter-blockchain communication and the exchange of information. By the way there are 3 main types of bridges which currently exist — those ones which are locking assets at source chain and minting tokens at destination chain, those ones which are using liquidity pools and in the end so-called atomic swap systems — that’s native assets transferring but both chains must share the same hashing algorithm so that block could be validated on both chains. Spoiler — you will find the fourth type of bridges further down in the article.
Why do we need bridges may you ask? The further we go — the newer scalable, faster, cost-effective blockchains emerge. But Ethereum and BNB chains already formed their community around them. And it would be great if anyone could use other products on other blockchains, interacting with other users in other dApps without any limit. Transparency, freedom of choice, decentralization — that’s the main difference between Web2 and Web3. It should be a huge ecosystem rather than several smaller ecosystems with their limitations. We already saw that with dotcoms btw — in the very first days of Internet existing there was a big amount of various protocols which were incompatible and disconnected. It’s 2022 currently and no one cares now on which server website is running. It runs like clockwork and that’s it. Hope we will have the same experience here.
Currently you may imagine each blockchain as a different city. Ethereum is New-York — congested, expensive, proven over the years, world-famous. Full of its pros and cons but you know where all celebs and billionaires are based right? Solana is Los Angeles — cheap, growing, chilling, in anticipation of youth. And we need a route between them. Every billionaire should have a possibility to party hard and every dude can become world-famous. Connext is going to build such routes. And they are even more secure than Area 51. Same trustless and safe. But what they may face?
Well let’s determine the main obstacles. There are pretty much problems existing not only in cross-chain infrastructure building but in blockchain development overall. But it’s fine since we are still early, right?
1.Scalability trilemma — There was no way we could find consensus between decentralization, scalability and security for existing blockchains. Previously. But sharding and rollups are the way to solve it at least for Ethereum. You know the examples with Sharding(Polkadot) and Rollups(Arbitrum) usage. So we will see how ETH 2.0 is going to solve it once and for all — btw you can check my article about upgrading ETH to ETH 2.0.
2. Current Web3 is not user friendly for normies. UI is terrible and UX should be either reinvented or improved. It should be similar with Web2 applications and websites usage. We are leaving this issue for Biconomy — they are solving this today. And they even have their solution for cross-chain transfers which is named Hyphen with Gasless integrations (means sponsored transactions by developers for improved end-users UX). Let’s focus more on bridging and cross-chain infrastructure.
3. Liquidity problems. Those types of bridges that are based on liquidity pools can run out of liquidity on either side of the bridge. This can lead to a delay in bridging users’ assets until someone fills the pool with liquidity.
4. Your assets just can be stolen. There are couple ways — smart contract can be hijacked and YOUR locked assets can be unlocked and withdrawn. Another way — also hacked smart contract and assets which are on the native chain may be took from vault. This would cause the value of the wrapped tokens left on the destination chain to drop to zero.
5. Bridging speed. My own experience interacting with Optimism official bridge — up to 7 days for bridging from OP to ETH using Optimism native bridge(it’s a drawback of the optimistic validation system). Moreover, liquidity problems still exist. Dammit. Can you imagine those 7 days?
6. Multisig Security Breach for Multisig Bridges. Ronin used a multisig system to sign off on deposits and withdrawals to the protocol. In that case there are 9 authorized wallets, which can be controlled by individuals or institutions, a majority of whom need to sign a transaction or change in order for it to be implemented into the smart contract. Means that if 5 or more wallets were compromised — any transaction may be approved. Thats how hacker got an access to those assets. According to some reports, this was the largest break-in in DeFi history and worth $624m for SkyMavis.
7. Lack of interoperability. Usually you are able to maximize assets functionality only by using them on their native blockchains. This limits interconnectivity and makes switching between ecosystems costly. It would be great if we could use all the tokens we have on any blockchain without losing its utility (just like $USDC or $USDT right?). It is also limiting the overall growth of the sector.
8. Last but not least. Talking about interoperability once again. Interoperability trilemma — There are 3 types of verification by validators — native, external and internal. Trustlessness, Extensibility, Generalizability — we are always missing one component depends on verification system.
The solutions for those problems are found. But let’s dive into the Connext working method first. Connext aims to be a protocol for more generalized cross-chain interactions, rather than for just exchanging assets. The core locking mechanism is borrowed from atomic swaps but the approach of local verification was failing in supporting arbitrary data passing across the chain. That’s what Connext started with and that’s where they saw a core problem.
And here is what they did. There is a base NXTP protocol (It was created for cross-chain transfer and it makes transactions go through three phases — Route selection, Preparing and Fulfilling). At first they decided to add generalizability by plugging in natively verified protocols on top of NXTP. So the network would consist of several protocols which include NXTP as a base layer, generalized cross-chain bridges specific to a pair of domains, and protocols to connect them all together into one seamless system.
But then they found another solution of supporting arbitrary data passing across chains using optimistic verification. Locally verified systems are underperforming compared to optimistic bridges(here is that 4th type)if we are talking about anything out of funds transfers & contract execution range. It’s very likely that they will be used as a mechanism to mitigate latency. Unlike locally, externally, or natively verified bridges, optimistic bridges explore another tradeoff which is latency (instead of consensus between Generalizability, Extensibility and Trustlessness). For Nomad, this equals 30 minutes (for end-users it doesn’t mean they will have to wait 30 minutes till transaction approval). But in this case the amount of pros is much more than cons. The new functionality available is related to xApps — building cross-chain decentralized applications. It includes zaps, governance, yield optimization, DEX arbitrage, borrowing, metaverse-to-metaverse interoperability, improving UX with single seamless transaction, NFT wrapping and so on. For example, that’s a nice way to increase tokens utility which were bridged out of their native blockchains (DAO voting, harvesting rewards without being tied to a specific chain, lending and borrowing between different chains and so on). That’s it. This solution is not only an awesome way to make users life easier but it also simplifies xApps development by providing BUIDLers with interoperability protocols and specific tools.
Connext decided to make the bridging solution as secure as the blockchains themselves, which the bridge connects. The architecture was designed so that you are unable to lose your funds. Smart contracts don’t even let the chance for bad actors to steal your assets — different levels of permissions, Nomad’s latency, Modular Interoperability Stack. Together, all of this gives us a new level of security. Most likely we will see implementing circuit breakers — it detects failures and prevents the application from trying to perform the action that is doomed to fail (until it’s safe to retry). Usually a circuit breaker is used to check the availability of a database server/web service used by the app.
And the most recent update has launched all of this (Currently at the stage of Public Testnet). Amarok is making users’ transactions faster, cheaper, and more seamless. Moreover, transactions will always go through. For developers — xApps can be created now without sacrificing security while the API is powerful and lets you build your first xApp with 2 lines of code. And the Modular Interoperability Stack is the focus of this update. This is an attempt to solve the interoperability trilemma in the same way as ETH and Layer-2 are trying to solve the scalability trilemma by enabling add-ons on the top of the base layer — that’s what I already described above. Public Mainnet will be launched by the end of this month.
Connext is not only able to be a base infrastructure for other cross-chain applications, it can be integrated by itself. Here are some of platofrms which decided to do such integration:
1.Li.Finance is a cross chain aggregator. Using APIs and integrations with smart contracts, Li.Finance allows any-to-any swaps and loans. It allows Connext to scale vertically
2. Swing is about Web3 Liquidity Infrastructure. It’s a decentralized protocol that aggregates liquidity and bridges across blockchains, enabling traders and yield farmers to move crypto capital efficiently. UI looks smooth and friendly
3. LayerSwap — this is a bridge between CeFi and DeFi. Users save money on such transfers because of the way it was created.
Connext is a locomotive in cross-chain bridging since currently it already supports 16 chains and is not only available for assets bridging. With an ability of building cross-chain dApps we can enter an era of truly cross-chain world. Trust me, you are not gonna miss it. Thanks for your time. We are still early. Twitter follow and interactions — best way to thank.
My presentation with general information regarding Connext can be found HERE
Written by https://twitter.com/R1skyR1ck
Edited by https://twitter.com/0xanedi
Graphics by https://twitter.com/R1skyR1ck
Inspired by https://medium.com/@massimo.lomuscio, https://medium.com/@arjunbhuptani, https://twitter.com/hosseeb
