Evolution of Cross-Chain Bridges: From Asset Cross-Chain to Application Cross-Chain

Written by: Tangyuan, Beehive Tech

After the public chain battle, the market has formed a pattern of coexistence of multiple chains led by Ethereum. The transfer of assets between chains and the cross-chain interaction of smart contracts have become daily activities on the chain. As the underlying infrastructure for achieving information interoperability between blockchains, cross-chain tools have also become popular products, not only needed by users but also favored by capital.

In early March, the cross-chain application Swim Protocol announced the completion of a $4 million seed round financing; by the end of March, the cross-chain infrastructure LayerZero completed a $135 million Series A+ financing, led by well-known venture capital firms FTX Ventures, Sequoia Capital, and a16z, with participation from Coinbase Ventures, PayPal Ventures, and others.

Currently, the common cross-chain tools in the market mainly focus on solving asset cross-chain issues. However, in fact, the transmission between blockchains includes not only assets but also contract calls, data, and state interactions of smart contracts.

There are three main ways for asset cross-chain, including centralized exchanges (CEX), decentralized cross-chain bridges, and multi-chain aggregators.

Completing asset cross-chain transfers through centralized exchanges (CEX) is relatively easy to understand. Users can first deposit assets from Chain A into the CEX, exchange (trade) them for the required assets on Chain B, and then deposit them onto Chain B. This is a good option for novice users, but it requires special attention to address formats during deposits to avoid incorrect chain formats. Additionally, the CEX must support a specific chain, and in terms of fees, besides the on-chain gas fees, there is an additional trading fee within the CEX.

For users accustomed to on-chain operations, cross-chain bridges and multi-chain aggregators are the preferred choices for asset cross-chain.

The "cross-chain bridge" is currently the most popular tool. It acts as a bridge between chains, allowing users to transfer crypto assets from one chain to another. During cross-chain transfers, assets are typically realized in the form of "wrapped assets," requiring a series of processes such as "locking + minting + redeeming + burning."

For example, if a user wants to cross-chain asset AToken from Chain A to Chain B, the process generally involves locking the corresponding AToken on the smart contract of Chain A, with an oracle informing the smart contract on Chain B. After verification by miners, the quantity of AToken locked on Chain B is minted as BToken at a 1:1 ratio; when the asset returns from Chain B to Chain A, the BToken on Chain B is burned to release the originally locked AToken for the user.

It is important to note that under this "1:1 cross-chain bridge" model, when asset A crosses from the source chain to the target chain, the resulting asset is no longer the native asset A but a wrapped asset. The wrapped asset held by the user may become worthless if issues arise with the cross-chain bridge.

In addition to cross-chain bridges, another type of asset cross-chain tool is the "multi-chain aggregator," which consolidates the liquidity of assets across different chains to build a trading pool for cross-chain assets. Users can complete the process of exchanging asset X on Chain A for asset X on Chain B within the pool.

Although there are already good products in the cross-chain field, developers are still exploring new products, hoping to improve the existing issues with cross-chain bridges and simplify the cross-chain operation process. For instance, the LayerZero tool supports direct cross-chain transfers of native assets and data transmission, enabling the combination of DeFi applications across different chains. The cross-chain leader Multichain has recently launched the anyCall tool, which supports smart contract calls between different chains. This article will review such innovative cross-chain products.

Cross-chain Leader Multichain

Introduction

Multichain (MULT), formerly known as AnySwap (ANY), is an infrastructure developed for cross-chain interaction of any information on the chain, supporting users to transfer token assets, NFT assets, and data interactions between any two chains, aiming to become the "multi-chain router" of the Web 3.0 era, allowing users to freely transfer various tokens across multiple chains.

On July 20, 2020, Multichain was initially built as AnySwap to meet the communication needs between different blockchains.

In the early days, AnySwap was a decentralized exchange (DEX) for cross-chain trading. Later, the development team focused on cross-chain solutions, removing the DEX functionality and rebranding as Multichain, concentrating on building infrastructure for any cross-chain interaction and launching a cross-chain bridge that allows users to transfer assets from one chain to another. In June 2021, the Multichain V3 version was launched, supporting asset transfers between multiple chains, evolving from a "1:1 single cross-chain bridge" to a "cross-chain router system," achieving interconnectivity among multiple chains.

Mechanism

Before the rebranding, Multichain was primarily available to users in two versions: AnySwap V2 and AnySwap V3.

In the AnySwap V2 version, the main product for cross-chain realization was the "1:1 cross-chain bridge," which adopted a "minting + burning" model.

Specifically, on the source chain of the asset, the user locks the asset to be cross-chained in the source chain's smart contract, and then on the target chain, an equivalent wrapped asset "AnyToken" (e.g., AnyUSDC) is minted at a 1:1 ratio and sent to the user's wallet on the target chain. This is similar to wrapping BTC into the ERC-20 format WBTC when crossing to Ethereum. When the user redeems the wrapped asset from the target chain, the smart contract will burn the wrapped asset AnyToken on the target chain at a 1:1 ratio and release the native asset locked on the source chain to the user.

In the upgraded AnySwap V3 version, asset cross-chain is completed through a "many-to-many model," deploying "liquidity pools" across multiple chains to help users achieve direct cross-chain asset transfers.

Taking USDC as an example, this dollar stablecoin is issued on multiple blockchains such as Ethereum, Binance Smart Chain, and Avalanche. In this case, AnySwap no longer needs to use the "1:1 minting + burning" method but can directly utilize liquidity pools by adding USDC tokens to the liquidity pools deployed on each chain by AnySwap. When users need to cross-chain assets, the USDC in these liquidity pools can be directly transferred across chains.

For instance, if asset A is issued on both Binance Smart Chain and Ethereum, with formats BEP-20 and ERC-20 respectively, then in the AnySwap V3 version, when a user holding the BEP-20 version of asset A wants to cross-chain it to Ethereum, as long as there is sufficient reserve of asset A in the liquidity pool deployed on Ethereum, the user can directly exchange it for the ERC-20 version of asset A. The user receives the native asset A, not a wrapped asset.

Currently, AnySwap V2 and V3 versions have been upgraded and merged into the current Multichain. The product integrates both the wrapped asset "1:1 cross-chain bridge" and the liquidity pool aggregation "multi-chain routing" tool, with the latter becoming the primary tool.

Multichain product page image

When users use Multichain for asset cross-chain transfers, ideally, there are sufficient liquidity pools of cross-chain assets on each chain. Regardless of how much asset the user transfers, the liquidity pools should have enough assets available. However, when a large amount of assets is transferred across chains, there may be situations where the liquidity pool is insufficient. In this case, the user will receive a portion of the wrapped asset "AnyToken," indicating that there are not enough assets available in the target chain's liquidity pool.

For example, if Xiaoming wants to cross-chain 1 million X assets from Chain A to Chain B, but at that moment, Multichain only has 900,000 X in the liquidity pool on Chain B, Xiaoming will receive 900,000 X assets in his wallet on Chain B, along with 100,000 wrapped asset AnyX tokens, representing the quantity of X assets not received. Once there are enough X assets on Chain B, AnyX can be directly exchanged for X.

In addition to actively building in the cross-chain field, Multichain has also laid out information transmission tools between blockchains. In April of this year, Multichain launched the cross-chain messaging application anyCall for smart contract application developers, which allows for calling contracts on Chain B from Chain A. This means it can transmit data across chains, including information about smart contracts, NFTs, tokens, and data. As long as the on-chain application deploys the anyCall tool, it can achieve multi-chain deployment of protocols and asset allocation management.

According to the Multichain official website, as of April 28, its total value locked (TVL) in crypto assets is $5.9 billion, leading the cross-chain application field by a wide margin. It supports cross-chain networks across 43 chains and over 2,000 on-chain assets, making it the cross-chain tool with the widest network coverage, the most supported assets, and the largest transaction volume currently available.

Native Asset Cross-chain Application Stargate

Introduction

Stargate (STG) is a cross-chain application built on the LayerZero protocol for cross-chain infrastructure.

LayerZero is a cross-chain communication protocol that supports users in sending or transmitting information between different blockchains or smart contracts. Essentially, it serves as an information transmission channel, which can be simply understood as a communication tool between blockchains. With LayerZero, developers and users can not only achieve information transmission between different block networks but also facilitate information exchange between DApps across different block networks.

With LayerZero, the data and asset interaction information of DeFi applications on Chain A can be transmitted to DeFi applications on Chain B. This tool enables cross-chain combinations of DeFi applications, including cross-chain financial activities between assets.

Mechanism

As the first product on LayerZero, Stargate believes that current cross-chain bridges also face the "impossible triangle," which consists of three elements: "the immediacy of asset cross-chain arrival," "the unity of cross-chain liquidity pools," and "the native nature of assets after cross-chain transfer." Currently, cross-chain facilities can only satisfy one or two of these elements.

For example, under the current "locking assets + minting wrapped" model of cross-chain bridges, while they achieve immediacy of arrival, the assets after cross-chain transfer are not native assets but wrapped assets, which often need to be exchanged for native assets on the target chain for better usability. Another example is that "liquidity pool" style aggregated cross-chain tools often cannot unify liquidity due to the pools being deployed on different block networks, resulting in limited asset quantities in the liquidity pools on each chain, which cannot meet users' large cross-chain transfer needs. Some cross-chain bridges in Layer 2 scaling networks cannot guarantee the immediacy of arrival at all.

Stargate claims to solve this "impossible triangle"—immediate transaction confirmation, ensuring that user assets can cross to the target chain upon transaction confirmation; unified liquidity pools, allowing the same asset deployed on different chains A, B, C, etc., to share liquidity; and ensuring that cross-chain interactive assets are all native assets.

Stargate supports direct conversion of USDC on Ethereum to BUSD on BSC

To achieve transaction immediacy, LayerZero employs ultra-light client technology, embedding a client application on both Chain A and Chain B. Through oracles and relayers (to verify data), it can transmit and instantly verify the authenticity of the information exchanged between Chains A and B without any middleware, ensuring timely and accurate transactions.

To ensure the unity of native assets and liquidity, Stargate establishes native liquidity pools on each blockchain and allows the same asset to share liquidity across different chains, ensuring liquidity depth during cross-chain transfers. However, this also poses risks, such as whether a liquidity crisis will occur when multiple chains simultaneously withdraw assets from the liquidity pool or if a large withdrawal from a certain chain leads to liquidity depletion. To address this, Stargate employs a Delta resource allocation balancing algorithm to maintain the balance of native asset pools, supplementing liquidity through lending or arbitrage, or increasing fees for large withdrawals to limit excessive extractions.

Currently, Stargate mainly supports users depositing dollar stablecoins such as USDC, USDT, BUSD, and DAI from various block networks to provide liquidity for cross-chain liquidity pools, rewarding liquidity providers with STG tokens, which are the platform tokens issued by Stargate. According to the Stargate official website, as of April 28, the value of stablecoin assets locked in this application is $1.6 billion.

It is important to note that Stargate has not been online for long, and there may be risks of contract vulnerabilities. Although the official team has promptly addressed some vulnerabilities, users still need to pay attention to security.

Scalable Bridge Router Protocol

Introduction

Router Protocol is a cross-chain communication infrastructure dedicated to providing bridging facilities between numerous Layer 1 and Layer 2 blockchain networks, enabling users to trade and exchange assets across different block networks instantly. It currently supports asset transfers between networks such as BSC, Avalanche, Polygon, Fantom, and Arbitrum.

Router is not just a cross-chain tool; it is also a "wirelessly scalable bridge," providing a cross-chain communication network platform where all blockchains can connect to each other through Router network nodes. Any new chain can be configured to insert into the Router network, achieving interoperability with other block networks.

Router can be likened to a shared central server with countless connection ports (nodes), where each block network acts like a computer that can plug into this shared central server port via a network cable to achieve information exchange between each computer. New computers can be plugged in and used at any time, allowing for infinite scalability.

Router Protocol platform architecture, with Router network nodes in the center

Mechanism

Router deploys a bridging contract on supported blockchains. On the source chain, the bridging contract can lock the user's assets; on the target chain, the bridging contract will unlock or mint the corresponding assets for cross-chain users.

The assets that Router can bridge can be roughly divided into two categories: "stablecoin assets" and "non-stablecoin assets."

When "stablecoin assets" are cross-chained, the user's stablecoins will be locked on the source chain and unlocked on the target chain. If there is insufficient asset liquidity on the target chain, the user will receive a wrapped version of that stablecoin, such as RUSDC for USDC.

For "non-stablecoin assets," there are two ways to cross-chain: one is to lock the cross-chain asset on the source chain and unlock an equivalent amount on the target chain. The second is to convert the non-stablecoin asset into a stablecoin, lock the stablecoin on the source chain, unlock an equivalent amount of stablecoin on the target chain, and then purchase the non-stablecoin asset on the target chain using the stablecoin, sending it to the user's wallet.

For example, when the non-stable asset MATIC crosses from source chain A to target chain B, this transaction can be completed in the following two ways. Path 1: MATIC will be locked on source chain A, and an equivalent amount of MATIC will be unlocked on target chain B. Path 2: MATIC is converted to a stablecoin, such as USDC, which is locked on source chain A, and an equivalent amount of USDC is unlocked on target chain B, then USDC is exchanged for MATIC on a DEX on Chain B and sent to the user's wallet.

Router exchanges AAVE on Ethereum for MATIC on Polygon

Additionally, Router can connect to the liquidity pools of any DEX on the chains it supports. When cross-chain exchanging non-stablecoin assets, Router first utilizes the liquidity pool of the DEX on the source chain to convert the user's submitted non-stablecoin assets into stablecoin assets, and then on the target chain, it exchanges the stablecoin assets for the desired cross-chain assets. To achieve this, Router has also developed the "Pathfinder Algorithm" to find the best exchange path for moving assets from the source chain to the target chain, completing the exchange of non-stablecoin assets for cross-chain users at optimal prices and minimal slippage.

Automated Market Maker (AMM) Cross-chain Bridge Swim Protocol

Introduction

Swim Protocol is a native asset cross-chain trading tool within the Solana ecosystem. It adopts a multi-chain automated market maker (AMM) model, supporting native asset cross-chain transfers and eliminating the "wrapped asset" approach.

In the design of AMM, Swim Protocol has borrowed to some extent from Curve's stablecoin exchange concept and applied this idea to cross-chain transactions. When selecting the types of cross-chain assets to support, Swim Protocol prioritizes the exchange of stablecoins across different chains and plans to gradually expand to support all native assets for cross-chain transactions.

Swim Protocol supports direct exchange of USDC on Solana for BUSD on BSC

The bridging technology used by Swim Protocol is Wormhole.

Wormhole is a cross-chain bridge launched by the Solana ecosystem and is the first bi-directional cross-chain bridge between Solana and Ethereum. It achieves asset cross-chain through the wrapping of assets. When an asset on Ethereum wants to cross-chain to Solana, Wormhole first locks the ERC-20 formatted asset in an Ethereum smart contract and mints the corresponding asset in SPL format on Solana. The asset generated after cross-chain is a wrapped asset brought by Wormhole, not a native asset.

Swim Protocol combines the multi-chain AMM exchange mechanism with Wormhole bridging technology, avoiding the wrapped asset process and instead supporting users to directly exchange native assets from one chain to another by constructing liquidity pools.

Currently, users can provide liquidity to the Swim Protocol stablecoin exchange pool to earn a share of transaction fees. It is important to note that Swim Protocol has not issued any platform tokens at this time.