What is the background of Connext, which has a valuation of $250 million and has raised over $20 million in total financing?

Author: Xiyou, ChainCatcher

Recently, the cross-chain infrastructure Connext announced the completion of a $7.5 million financing round at a valuation of $250 million, with investors including well-known venture capital firms such as Polychain Capital, Polygon Ventures, Coinbase Ventures, and 1kx, attracting attention from the crypto community.

According to official data, Connext currently has a locked TVL of $33.41 million, with a trading volume of $24.55 million in the past 30 days and a total of 81,800 transactions completed.

Of course, this is not Connext's first financing. According to Rootdata, in March 2021, Polychain Capital led a $2.2 million seed round, and in July of the same year, it completed a $12 million Series A round led by ConsenSys Mesh and 1kx. To date, Connext has publicly raised a total of $21.7 million.

Additionally, founder Bhuptani mentioned in an interview that they plan to launch a token later this year. The frequent backing from well-known venture capital firms, combined with the anticipation of the token issuance, has made Connext a hot topic of discussion in the crypto community once again.

In fact, as early as April last year, Connext announced plans to issue the NEXT token and airdrop it to community users. Subsequently, in July of last year, they announced that the distribution of the NEXT token was postponed due to market fluctuations, with plans to release the token no later than early autumn. However, until June of this year, there had been no public news regarding the NEXT token, leading users to jokingly refer to Connext as the "King of Doves." Even though the founder publicly stated that the token would be launched this year, community users remained skeptical. The frequent backing from well-known capital has rekindled users' interest in Connext.

What makes Connext different as a cross-chain facility? Why is it repeatedly favored by well-known capital?

Connext Underlying Architecture: Modular Design

Connext was co-founded in 2017 by Arjun Bhuptani, Rahul Sethuram, and Layne Haber, initially focusing on the user experience of Ethereum L2. Later, it began exploring how to achieve cross-chain asset transactions using state channel technology, becoming known for its focus on cross-chain asset transfers between Ethereum and Layer 2 networks.

Today, Connext is a modular cross-chain communication protocol that enables fast, trustless cross-chain transfers of tokens, data, information, and contract calls across different EVM networks and Rollups. The protocol aims to provide a comprehensive solution for multi-chain environments, building a communication layer for Web3 that can span different blockchain networks, allowing deployed DApps to interact with funds and data across multiple blockchain networks.

Thus, Connext serves as a cross-chain infrastructure that can be used to develop cross-chain bridges, as well as to build cross-chain DEXs, cross-chain lending, cross-chain NFTs, and any cross-chain DApp (officially referred to as xApps).

Cross-chain DApps developed on Connext are essentially full-chain DApps, meaning that DApps deployed across multiple chains support users in completing data interactions with different chains through a single DApp. For example, a full-chain DEX can directly exchange Token A on Chain X for Token B on Chain Y; full-chain lending allows users to collateralize token e on Chain C to borrow asset d on Chain D, etc. This is akin to users searching for questions on Google, where Google automatically aggregates answers from different websites, allowing users to view the desired content without needing to focus on the underlying architecture.

This differs from current multi-chain deployed applications like Uniswap, Curve, and Aave. First, applications like Curve and Uniswap are essentially redeployed on each chain. Second, even if it is the same application, each deployment on different chains is independent, and assets and liquidity cannot interoperate; for instance, Curve on Polygon and Curve on Ethereum are two separately deployed applications that are independent and do not share assets.

The so-called modularity refers to Connext dividing the main processes or functions involved in cross-chain operations into different components and developing corresponding APIs or SDKs. These components can be combined in various ways to achieve specific goals, allowing developers to integrate them according to their needs.

The reason for modular development is that current cross-chain applications often have a monolithic architecture, facing the "impossible triangle" where universality (the ability to handle any cross-chain data), scalability (the ability to support any different blockchain), and trustlessness (having security equivalent to the underlying blockchain) cannot all be achieved simultaneously in current cross-chain facilities, which can only possess two or one of these attributes at a time.

Taking the three mainstream cross-chain technologies as examples, the native verification light client model (running light clients on both the source and target chains, representing Cosmos's IBC, Near Rainbow Bridge, Polkadot, etc.) is a trustless cross-chain bridge that does not require third-party verification. However, developers need to develop and deploy new light client smart contracts on both the source and target chains, leading to high operational costs; the third-party verification intermediary chain model (building an intermediary chain between the target and source chains, such as Multichain) offers advantages like faster speed, lower costs, universal data transmission, and better user experience, but security issues frequently arise due to the presence of third parties; the partially verified liquidity network (mainly referring to transferring assets through off-chain peer-to-peer channels composed of a group of nodes or routers, represented by Connext, Celer, etc.) has certain advantages in terms of security, cost, speed, and scalability, but does not support arbitrary cross-chain information transmission, mostly only supporting token transfers.

Connext believes that cross-chain is similar to blockchain networks themselves. Since there is no single architecture that can provide all the ideal properties required for cross-chain, can a modular protocol stack approach the best cross-chain solution? Just like modular blockchains, the data layer is only responsible for data-related processing, while the consensus layer is only responsible for transaction content and ordering.

Currently, all cross-chain bridges share the same core structure, mainly consisting of three components (which can also be visualized as layers): transmission—publishing message data from one chain to another; verification—proving the correctness of the transmitted data; execution—performing tasks according to the bridged data.

Connext aims to improve the overall performance of cross-chain facilities by separating these main functions into different components and optimizing them one by one. For instance, the message transmission layer is primarily responsible for reading data from the source chain, payload, and publishing transmission to the target chain; the verification layer is mainly responsible for verifying the authenticity and validity of the data.

How does Connext ensure security? How is its ecosystem developing?

For cross-chain facilities, ensuring the security of asset and information transmission becomes the top priority. According to official descriptions, Connext's modular design architecture not only enhances overall cross-chain performance but also inherits the security of the Ethereum mainnet.

How does Connext achieve this? In Connext, the asset cross-chain and information transmission layers are separated.

Connext's asset cross-chain is referred to as the "Liquidity layer," which is a peer-to-peer network composed of a group of routers (nodes) that send and receive asset inventories on-chain. Users can achieve cross-chain asset transfers through the router network. Essentially, it is a state channel cross-chain, where each point establishes a payment channel with another point to transfer native assets. The specific process is as follows: users lock cross-chain assets on the source chain, and after the router receives the information, it releases assets to the user on the target chain and charges a fee.

In the information transmission layer, Connext chose to collaborate with the cross-chain communication protocol Nomad in 2022 and integrated related cross-chain functionalities, naming the network upgrade Amarok, which supports developers in building cross-chain applications. The Nomad cross-chain mechanism employs an Optimistic Bridge, meaning it optimistically assumes that the information received by the target chain is true and valid, with a third party (Watcher) automatically detecting and supervising whether the transmitted data is correct. If any issues are found, a challenge can be initiated to roll back transactions on the source chain for verification, and communication with the target chain can be severed. This mechanism is similar to Optimistic rollup.

However, in August 2022, Nomad was hacked, resulting in a loss of approximately $150 million. Subsequently, Connext stated that its users were not directly affected by the Nomad hack, but its routers lost about $3.34 million in assets.

Later, Connext stated that there was no issue with Nomad's design mechanism, but since the official team needed time to recover, Connext temporarily added an additional layer of AMB (Arbitrary Message System) verification on top of the Nomad integration, incorporating the official cross-chain bridges of each blockchain network (such as the official Rollup bridge between Arbitrum and Ethereum, and the official bridge of Polygon) as the final security guarantee for token cross-chain transfers. This is mainly because official bridges have been time-tested, and cross-chain data is regularly sent to the mainnet for verification, ensuring security.

For example, the data transferred across the official bridge Arbitrum Bridge between Arbitrum and Ethereum is periodically sent to the Ethereum mainnet, meaning the security of cross-chain transactions is actually guaranteed by the Ethereum mainnet. By integrating the Arbitrum Bridge official cross-chain bridge, Connext adds an additional layer of security under the Optimistic mechanism.

Specifically, there are currently two main modules in Connext's information transmission: one is the Optimistic Layer, and the other is the AMB layer. The former is primarily responsible for normal message cross-chain transmission, while the AMB mainly integrates the official cross-chain bridge data of various blockchain networks, supporting the sending and receiving of tokens across chains and responsible for periodically submitting the official cross-chain bridge data in bulk to the mainnet, with the mainnet ensuring the final layer of security.

However, Connext officials also stated that this design is only a transitional and temporary measure, and they will upgrade to the Optimistic Bridge comprehensively as soon as possible.

Connext completed the Amarok upgrade in February of this year, allowing developers to deploy cross-chain applications. Several applications have now integrated Connext to achieve cross-chain layouts, such as the decentralized trading platform DODO, the Web3 streaming payment platform Superfluid, and the cross-chain aggregator Lifi.

Connext Ecosystem Applications

Connext Bridge------formerly known as xPollinate, is a cross-chain bridge launched by Connext, supporting users in transferring assets between Optimism, Arbitrum, Gnosischain, Polygon, BNB Chain, and Ethereum.

Fuji Finance------is a cross-chain lending aggregator that helps users find the best lending rates by analyzing multiple lending markets across different chains. The Fuji V2 Himalaya version will allow users to provide collateral on one chain and borrow on another.

Themis------is a cross-chain NFT lending protocol that allows users to lend and borrow stablecoins using UNI-V3 NFTs.

NFThashi------is an NFT cross-chain bridge built on NFTHashi.

Gnosis zodiac------Zodiac is an extension package for DAOs, a collection of governance tools on Gnosis, which, with the help of Connext, allows accounts on Network A to control accounts on Network B. More specifically, DAOs on the Ethereum mainnet can control vaults on the Gnosis chain, and DeFi protocol DAOs on Ethereum can control their protocol's funds and deployments on Polygon, etc.