Exploration of the Ultimate Form of Cross-Chain Bridges: How to Solve the Trilemma of Liquidity, Certainty, and Security
Zero-knowledge proof cross-chain bridges and "Unified Stablecoin Cross-Chain Bridges" (USB) are both potential ultimate solutions.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 ultimate states for cross-chain bridges: zero-knowledge proof cross-chain bridges and what I call "Unified Stablecoin Cross-Chain Bridges" (USB).
ZK cross-chain bridges rely on zero-knowledge proofs to create trust-minimized cross-chain exchanges, such as Succinct.
The USB works by aggregating DEXs on the sending and receiving chains. When initiating a cross-chain transaction, the cross-chain bridge exchanges assets for an intermediary stablecoin, transferring stablecoin value through centralized/decentralized stablecoin issuers, and ultimately exchanging for any desired asset via DEX on the receiving chain.
Taking the transaction from ETH to SOL as an example:
Why are these two solutions the best?
Hacking remains a major issue for cross-chain bridges. Vitalik pointed out that one reason for the "fundamental security limitations" of cross-chain bridges is that the higher and more critical the transaction volume of a cross-chain bridge, the greater the temptation to attack that bridge (as the rewards significantly increase).
There are three core issues that need to be addressed in cross-chain bridges, and there is essentially only one way to solve them:
· Liquidity
· Cross-chain determinism
· Cross-chain security
For USB, you do not need to create liquidity pairs for every exchange pair, but rather rely on one of the largest liquidity pools (stablecoins) as the settlement layer. This is conceptually similar to Thorchain's settlement system, except that one relies on stablecoins instead of 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 not all exchanges are completed instantly but are subject to the determinism constraints of the receiving chain. Generally, if the bridge or liquidity provider is willing to relax security constraints in exchange for faster transactions, this issue can be resolved, although it increases/introduces risks for those parties. However, to create a trust-minimized and more efficient environment, if stablecoin issuers rather than cross-chain bridges can bear the determinism risk, it can scale more easily. This is especially true because slippage may occur in cross-chain transactions. Using stable assets as the settlement layer would involve less slippage, as there are fewer value discrepancies to consider.
Cross-chain security: From a technical perspective, how stablecoin issuers decide to build their cross-chain bridges will affect how we think about the security issues of cross-chain transactions. Options range from ZK solutions to Oracle-type solutions similar to LayerZero, although some argue that mechanisms relying on stablecoin issuers for cross-chain bridges should not increase trust assumptions. From an economic perspective, this is simpler. If someone is already accustomed to the centralized risks of Circle or Tether, then any stablecoin cross-chain bridge solution (which may actually be semi-centralized) will inherit the existing trust assumptions, and security will not be higher or lower. In fact, we can argue that a centralized stablecoin issuer would practically be obligated to repay any stolen capital if we consider USDC as a tokenized receipt for deposit tokens.
In short, this cross-chain bridge will use stablecoins to bear economic and security risks, thus facilitating cross-chain exchanges in the most liquid, secure, and stable manner.
ZK cross-chain bridges will also help reduce the trust assumptions required in cross-chain exchanges; undoubtedly, they are part of the future design of cross-chain bridges. 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 exchanges.
There are two interesting points:
· We have the opportunity to build stablecoins focused on cross-chain settlement.
· We have the opportunity to build unified stablecoin cross-chain bridges.
It is worth noting that we should gradually reduce our reliance on non-native or wrapped stablecoins. Only native assets can reduce trust assumptions, as you still rely on the same entities you previously trusted.
What do we currently have to meet this demand?
1inch (Pantera Portfolio) ------ does not support cross-chain exchanges.
Li.Fi: Cross-chain bridge aggregator ------ it does not provide its own liquidity, thus relying on the fundamental security/liquidity of the underlying cross-chain bridges. Although they can reduce the degree of liquidity fragmentation, this is done through multiple different underlying cross-chain bridge channels, all of which are at risk of being hacked.
Centralized stablecoin providers ------ Circle (Pantera Portfolio) offers native stablecoins on 8 chains. Tether offers native stablecoins on 9 chains.
Decentralized stablecoin providers ------ DAI is working on multi-chain expansion and has already been deployed on Arbitrum (Pantera Portfolio), Optimism, and Starkware (Pantera Portfolio).
Interestingly, we currently do not have any participants that truly meet this demand. One major bottleneck is the relatively slow growth of multi-chain support on long-tail chains, including factors such as the cost-effectiveness of stablecoin issuers. Without support from native stablecoins, the incentives for cross-chain bridge providers are to offer wrapped equivalents, further fragmenting liquidity. Even if cross-chain aggregators/multi-chain cross-chain bridges want to aggregate in a more altruistic manner rather than issuing their own stablecoins, they will still inherit (and transmit) the security risks of that wrapped stablecoin. Of course, this overlooks the need for scalable collateral management for native stablecoin issuance, which is not something any protocol can easily achieve.
One premise of this argument is that, at least for a period of time, stable pool cross-chain bridges will continue to maintain advantages in slippage/liquidity.
Interestingly, existing cross-chain infrastructure participants like LayerZero will have the opportunity to carve out a niche in this space. Given that cross-chain infrastructure participants are already being used by DApps with cross-chain activities, many of which have their own risk management cross-chain bridges (such as Axelar's Satellite or LayerZero's Stargate), they are in a strong position to distribute this cross-chain stablecoin. However, considering the complexity involved in managing the regulatory and financial risks of stablecoins, it is more likely that one of these participants will collaborate with large institutional players to launch such a cross-chain native stablecoin for settlement.
In short, USB's cross-chain stablecoin has the potential to solve the liquidity, determinism, and security trilemma of cross-chain bridges, thereby unlocking more meaningful cross-chain transaction volume and composability.
