Overview of the Development Trends of Cross-Chain DEX and the Rise of Aggregated Cross-Chain Protocols
The situation of multi-chain parallel development has become an established fact and future narrative direction in the crypto world.Source: Morty, Deep Tide TechFlow
The narrative of multi-chain parallelism in the crypto world has not stopped—while many builders are dedicated to constructing highly efficient blockchain underlying protocols, such as Solana and Avalanche, the facts tell us that the capacity of a single blockchain is limited. As the number of daily active users skyrockets, the performance of the blockchain will significantly decline.
Therefore, the situation of multi-chain parallel development has become an established fact and future narrative direction in the crypto world. Meanwhile, more cross-chain/multi-chain infrastructure is being built. As time goes on and competition intensifies, cross-chain/multi-chain infrastructure is continuously evolving towards improving user experience.
This trend has already been reflected in the stablecoin issuer Circle: just recently, Circle announced the upcoming launch of a cross-chain transfer protocol to support the interoperability of USDC. Moreover, this cross-chain transfer protocol is composable, allowing developers to build new content on it, such as combining various functions and advantages of transactions, payments, NFTs, and games.
Cross-chain DEX is also a reflection of this trend.
The execution logic of cross-chain DEX is to swap user assets from asset A on chain X to asset B on chain Y, where the cross-chain and swapping process is seamless for users. This means that users do not need to transfer asset A from chain X to chain Y and then use the DEX on chain Y to swap yA assets for asset B.
In short, cross-chain DEX saves users from cumbersome cross-chain operations, handling fees, and gas fees.
However, although the implementation logic is similar, the operational execution of each cross-chain DEX is different.
According to the analysis from Fundamental Labs' research report, we can categorize the currently mainstream cross-chain DEX into four types:
- Cross-chain DEX based on built-in Swap;
- Cross-chain DEX based on built-in cross-chain liquidity pools;
- Cross-chain DEX based on sidechains;
- Cross-chain aggregators based on multi-chain information integration;
1. Cross-chain DEX Based on Built-in Swap
Cross-chain swaps of DEX based on built-in Swap are often completed through external cross-chain bridges.
For example, SushiSwap deployed on multiple blockchains.
Unlike the development path of UniSwap, SushiSwap's expansion strategy is breadth, that is, deploying DEX products and other products across various blockchains. Currently, SushiSwap has deployed products on 14 blockchains.
However, SushiSwap does not support cross-chain swapping of assets—until July 21 of this year, SushiSwap launched its cross-chain product xSwap. xSwap completes asset cross-chain transfers through the external cross-chain bridge Stargate Finance.
Stargate Finance is the first decentralized application built on LayerZero. According to DeFiLlama data, Stargate Finance currently has a TVL (Total Value Locked) of $478 million.
Its cross-chain path is as follows:
SushiSwap X chain A asset ------ STG bridge X chain stablecoin ------ STG bridge Y chain stablecoin ------ SushiSwap Y chain B asset.
2. Cross-chain DEX Based on Built-in Cross-chain Liquidity Pools
For this type of cross-chain DEX, we can understand it as a decentralized "CEX."
Through CEX, we can deposit token A from chain X into the exchange account, then swap token A for token B on the exchange, and finally withdraw token B to chain Y.
With a cross-chain DEX based on built-in cross-chain liquidity pools, we can easily complete the above operations. However, compared to the cumbersome CEX cross-chain operations, this decentralized cross-chain operation is seamless for users, executed by smart contracts.
As previously mentioned, Stargate Finance also belongs to this type, but it only supports users for stablecoin cross-chain transfers.
In addition, Catalog is also a cross-chain DEX based on built-in cross-chain liquidity pools.
The advantage of Catalog is that it provides users with a CEX-like experience: 0 gas fees and cheap fixed-rate trading fees. The 0 gas fee service is achieved through the use of KeeperDAO's API infrastructure service.
However, similar to the CEX experience, users need to deposit assets into Catalog to use its cross-chain trading features.
The cross-chain trading logic of the aforementioned cross-chain DEX based on built-in cross-chain liquidity pools is basically implemented according to the model in the diagram below. However, these cross-chain DEX go a step further, allowing users to swap USDT assets on Ethereum for other assets on Polygon, further providing convenience.
It is important to note that the product functions of these cross-chain DEX heavily rely on the liquidity of assets from other chains within the bridge, making them more susceptible to asset loss in the event of a hacker attack.
3. Cross-chain DEX Based on Sidechains
The most famous cross-chain DEX based on sidechains is ThorSwap.
The implementation logic of this sidechain cross-chain DEX is to ensure the security of assets in the DEX by building a sidechain. This sidechain also serves as a transit station for assets between the source chain and the target chain.
Thanks to cross-chain communication via Cosmos IBC, ThorSwap can implement its cross-chain DEX functionality more easily, allowing users to conduct cross-chain transactions between the Cosmos ecosystem and EVM chains.
In terms of liquidity provision, ThorChain references the model of Bancor, requiring all tokens in the liquidity pools to be paired with an equivalent amount of ThorChain's native token RUNE. According to DeFiLlama data, ThorChain currently has a TVL (excluding RUNE staking) of $105 million. The security of ThorChain is ensured by the staking of its native token RUNE.
4. Cross-chain Aggregators Based on Multi-chain Information Integration
Unlike the cross-chain DEX mentioned above, cross-chain aggregators generally do not have their own Swap, liquidity pools, or blockchains; they achieve cross-chain swaps through the integration and transmission of information across chains. General cross-chain aggregators often integrate multiple chains' DEX and the various types of cross-chain DEX mentioned above, similar to 1inch, to search for the best path for cross-chain transactions for users.
ChainHop, integrated with the Celer IM cross-chain messaging framework, is such a cross-chain aggregator.
ChainHop is a composable full-chain liquidity aggregation protocol that supports users in conducting cross-chain transactions through different bridges and cross-chain DEX. Through ChainHop, users can achieve optimal exchange rates and minimal slippage for swapping token A on chain X and token B on chain Y at the lowest cost.
Currently, ChainHop supports seven chains: Ethereum, BNB Chain, Polygon, Avalanche, Fantom, Arbitrum, and Optimism, along with their on-chain DEX, and supports five cross-chain protocols: cBridge, Multichain, Stargate, Across Bridge, and Hyphen Bridge.
It is worth mentioning that ChainHop, based on cross-chain DEX, aggregates liquidity from all blockchains using the Celer IM messaging cross-chain framework, including the aforementioned DEX and cross-chain bridges. Therefore, when using ChainHop, users can enjoy the deepest liquidity. This is also the essential reason why users can enjoy optimal exchange rates and minimal slippage.
With the intelligent routing algorithm set in ChainHop's product, users can even enjoy more cost-effective exchange rates and slippage than some single-chain DEX. For example, when a user wants to swap a large amount of ETH for USDC on Fantom, ChainHop may first bridge the ETH to Ethereum, then complete the ETH-USDC swap on Ethereum (because liquidity is better on Ethereum, thus slippage will be lower), and finally bridge the USDC back to Fantom. Users can complete such complex operations with a single click.
In addition, ChainHop's composability allows it to collaborate deeply with other dApps, helping them capture liquidity from different blockchains to build cross-chain DeFi, NFT markets, IDO launch platforms, and other products.
Currently, ChainHop has launched an NFT community loyalty campaign called "ChainHop's First Jump Campaign," details of which can be found on its official Twitter.
Compared to the first three types of cross-chain DEX, the advantage of this type of cross-chain aggregator is that it does not rely on its own internal liquidity, has lower security risks, provides a better user experience, and offers more flexibility in protocol selection.
Final Thoughts
As mentioned above, the situation of multi-chain parallel development has become an established fact and future narrative direction in the crypto world.
Although cross-chain DEX is actually a branch of the multi-chain narrative, it can significantly improve the user experience for investors in multi-chain operations and can have a profound impact on user behavior. Therefore, the future development of cross-chain DEX is worth our long-term attention.
However, it is important to note that as cross-chain becomes a high-frequency behavior for users, the security issues arising from it also deserve our close attention.
