Thanefield Research Report: The Trend of Chain Abstraction is Flourishing, Quick Overview of Technology and Ecology

Original Title: “A Whirlwind Tour of Chain Abstraction”

Author: Thanefield Research

Compiler: Deep Tide TechFlow

Introduction

Against the backdrop of Ethereum's rollup-centric roadmap, the number of blockchains is exploding, and the surge of rollups and application chains validates the theory of multichain. While multichain scalability has its advantages, it also brings about the island effect, leading to liquidity and users being dispersed across multiple environments. This creates more challenges for users and developers when interacting with blockchains.

For example, a typical user operating on three blockchains faces the following challenges. First, they need to find a secure, economical, and fast bridge to transfer assets. If the bridge is poorly designed, users may pay excessive fees or have their assets frozen for long periods during the transfer.

Additionally, users need enough native tokens to pay for transaction fees on each blockchain. If users are using non-native assets (like stablecoins), this adds extra hassle. They also need to store and manage each mnemonic separately, further increasing friction and security risks.

Similarly, developers face greater complexity in ensuring cross-chain interoperability, effectively managing cross-chain liquidity, and integrating various infrastructure layers, which significantly increases development time.

Without significant improvements to user experience, such as those offered by chain abstraction solutions, these complexities will only worsen as the number of blockchains and rollups increases.

We believe that chain abstraction is key to addressing these challenges. By simplifying the experience for users and developers, it can unify fragmented environments, making blockchains more user-friendly and efficient for billions of people worldwide. Based on this idea, this article will explore various projects in the realm of abstraction that are helping to realize this vision.

High-Level Concepts of Chain Abstraction

Conceptually, chain abstraction aims to simplify the complexities of interacting with on-chain finance, hiding these complexities from end users and developers.

From a developer's perspective, the goal of chain abstraction is to enable developers to quickly and securely build chain-agnostic applications that can seamlessly operate across all rollups without worrying about the underlying execution complexities.

From a user's perspective, the vision of chain abstraction is to allow users to interact with decentralized applications without needing to understand the cryptographic concepts behind them. The aim is to eliminate all technical complexities and provide an intuitive user experience.

A common analogy is how we interact with computer applications today. Although the internet is ubiquitous in daily life, most users do not understand the technical details like HTTP or TCP/IP. Similarly, when building web applications, most developers do not need to delve into communication protocols because the browser environment abstracts away much of the underlying work.

However, for today's crypto users, funds on one chain cannot access applications on another chain without explicit bridging. Likewise, developers still need to consider which blockchain to deploy on.

Thus, the current state of crypto resembles early consumer computing. Chain abstraction will be a key force in elevating it to the seamless user experience of the modern internet.

Eliminating existing user experience friction and simplifying interactions between end users and on-chain applications will usher in a new wave of growth for cryptocurrencies. This will drive mass adoption and expand the user base beyond the currently isolated web3 native communities, reaching billions of users worldwide.

Early signs of this vision are evident in Telegram, which has 900 million users who can easily engage with cryptocurrencies through a familiar interface. Similarly, Base users can set up smart wallets using password keys, avoiding the need to securely store 12-word mnemonics or pay gas fees, as their transactions can be sponsored by Coinbase.

While both ecosystems are still in their early stages, their progress indicates that this vision is closer to reality than it seems and is entirely achievable.

Components of Chain Abstraction

Achieving this high level of abstraction requires breakthroughs across multiple infrastructure layers. Below, we will first break down the building blocks of the abstraction stack, then delve into each category, highlighting important projects and their design choices.

Account Abstraction

Account Abstraction (AA) introduces the concept of smart contract wallets to enhance the blockchain user experience. It aims to simplify the complexities of using blockchain wallets, such as eliminating the need to manage public/private key pairs. The concept of AA emerged in the Ethereum community as early as 2016, driven by core developers' dissatisfaction with the limitations of existing wallets. Now, AA has become part of Ethereum's roadmap, with the ultimate goal of achieving fully native AA. Although implementations may vary across different blockchains, we will primarily discuss account abstraction in the Ethereum and EVM environments.

On most EVM-compatible chains, there are two types of accounts: externally owned accounts (EOAs) and smart contract accounts. EOAs are traditional wallets, such as those accessed via Metamask. They are controlled by private keys used to sign messages and interact with the blockchain. EOAs have several limitations that can significantly impact the Web3 experience for average users, including managing private keys, needing to pay gas fees with native tokens, and the inability to perform atomic transactions.

Smart contract wallets are fully programmable and address these user experience issues by introducing Web2 design principles, such as social login systems and account recovery. The methods for implementing smart wallet functionality depend on the design of the blockchain and the infrastructure built on it. In Ethereum and most EVM chains, the network currently does not support native account abstraction, meaning only EOAs can sign messages.

Currently, two smart wallet standards have been widely adopted, with millions of accounts deployed: Safe, a pioneer in this field, and ERC-4337, a relatively new standard that relies on intents and additional off-chain infrastructure. The upcoming Pectra upgrade will also include EIP-7702, which advances the existing account abstraction framework closer to its final stage, at which point EOAs will be able to transition to smart contract accounts.

Safe

As a pioneer in the account abstraction space and the most widely used smart wallet provider, Safe (formerly Gnosis Safe) initially started as a multi-signature wallet. Today, it has evolved into a comprehensive smart wallet solution and has become an essential part of Ethereum and EVM infrastructure. Safe has currently deployed nearly 10 million wallets and protects approximately $90 billion in assets across various EVM chains and rollups.

Safe employs a modular architecture. Core components are integrated into the battle-tested Safe{Core} stack, while Safe modules introduce custom functionalities that enhance overall capability. This modular approach is similar to the hooks used in Uniswap v4, ensuring robust security at the core layer while simplifying customization and integration for developers. Developers can create modules that meet specific needs or integrate existing modules. For example, users can add or remove modules that facilitate password key authentication or manage limits. Additionally, Safe includes an ERC-4337 module, making it compatible with this newer account abstraction standard and its related infrastructure.

ERC-4337

ERC-4337 is the current standard used on Ethereum and most EVM chains, implemented on the Ethereum mainnet in March 2023. It serves as an intermediate step in the development of account abstraction without requiring modifications to the consensus layer protocol. Instead, it utilizes a concept called "pseudo-transactions" (user operations), which are based on intents and combine on-chain and off-chain infrastructure to facilitate and execute these operations.

ERC-4337 significantly improves user experience:

ERC-4337 Transaction Flow

ERC-4337 introduces a new transaction flow without altering the consensus layer. This approach integrates several infrastructure components, making it different from traditional EOA transaction loops. The main difference lies in the steps before transaction signing, while the subsequent process remains unchanged. Key elements include UserOps, paymasters, alt mempools, bundlers, and EntryPoint contracts.

In the ERC-4337 transaction loop, users express their intent to perform specific operations on-chain through UserOps, rather than directly signing transactions. UserOps are managed in an alt mempool, which is dedicated to handling UserOps and differs from the public mempool. Bundlers, similar to block builders, monitor the alt mempool and select UserOps to include in their bundles based on priority fees. These bundles are signed by bundlers and submitted to the EntryPoint contract, a global contract on Ethereum specifically for all ERC-4337 operations for execution. If necessary, paymasters can sponsor transactions or pay gas fees using ERC-20 tokens. Afterward, transactions proceed as usual and are executed on-chain.

To visualize this process, the chart provided by Blocknative is very helpful: chart

ERC-4337 Adoption

Since its deployment in 2023, ERC-4337 has seen widespread adoption in Layer 2 solutions and sidechains, particularly on Base and Polygon. To date, over 5.5 million ERC-4337 wallets have been established, with an average of about 800,000 successful user operations per week.

Coinbase is at the forefront of driving the development and adoption of smart wallets. On June 5, Coinbase launched the Coinbase Smart Wallet, a new product that adopts the ERC-4337 standard. This smart wallet offers several notable features, including password key authentication, sponsoring transactions for selected dApps on Base, and multi-account ownership functionality. As Coinbase strategically focuses on bringing new users to the Base platform, the smart wallet is likely to become the primary wallet type on Base soon. Biconomy, Pimlico, and Alchemy are also emerging as key players in providing critical components of ERC-4337 infrastructure, particularly in bundlers and paymasters. The table below shows the dominance in the number of user operations executed and paid.

Despite these encouraging data, ERC-4337 wallets have not yet achieved widespread adoption on the Ethereum mainnet, with only two to three hundred active wallets per week. Safe wallets remain the primary standard for smart wallets on Ethereum. One of the main limitations of the ERC-4337 design is that it does not allow existing EOA wallets to convert to smart wallets. Additionally, relatively high gas fees on the Ethereum mainnet make certain features (like sponsored transactions) economically unfeasible.

EIP-7702

Following ERC-4337, EIP-7702 takes an important step toward fully native account abstraction. The proposal was drafted by Vitalik Buterin and quickly emerged as a response to the controversial EIP-3074, which had issues regarding compatibility with future Ethereum account abstraction (AA) roadmap EIPs. Unlike ERC-4337, which operates at the infrastructure layer, EIP-7702 proposes changes made directly at the protocol level. This proposal is expected to be included in the upcoming Pectra upgrade, anticipated between Q4 2024 and Q1 2025.

EIP-7702 is considered one of the most significant user experience improvement proposals in Ethereum's history. It enhances the ERC-4337 framework by introducing key features such as transaction batching, gas sponsorship, and temporary permissions for EOAs. Specifically, it introduces a new type of transaction that allows EOAs to temporarily adopt smart contract code during the transaction, reverting to their original state once the transaction is complete. This proposal ensures forward compatibility with existing ERC-4337 implementations and aligns with the long-term goals of Ethereum's AA roadmap.

Case Study: Worldcoin

Worldcoin is developing a protocol called "Human Verification" aimed at enabling applications to verify that users are real humans rather than AI-driven bots. This verification is achieved through World ID, a digital passport issued after users scan their irises using Orbs (a specialized device). Once obtained, World ID can serve as a universal verification tool for various applications and services. In addition to verification, users can receive WLD grants every two weeks, which are distributed on-chain.

Worldcoin has successfully issued over 4.5 million World IDs, allowing users to verify their identities without any prior knowledge of blockchain technology. During registration, the World App automatically generates a Safe smart wallet for each user on the Optimism network in the background. This process completely abstracts the blockchain layer, providing a user experience similar to Web2 functionalities (such as facial recognition, social recovery, and detailed account management).

Both WLD grants and World ID are stored in a self-custodial manner, ensuring users retain control over their digital assets. In the case of Worldcoin, the smart accounts supported by Safe enable users to enjoy the benefits of self-custody and economic incentives offered by cryptocurrencies while experiencing a Web2-like user experience. As a result, the adoption rate of Web3 is impressive, with a significant number of first-time Web3 users entering the Web3 space.

Interoperability, Liquidity Aggregation, and Intents

With the rise of Ethereum's rollup-centric roadmap and application-specific chains, the number of different blockchain platforms will rapidly increase. This expansion emphasizes the necessity for robust cross-chain communication.

Some ecosystems have already developed native interoperability solutions that provide standardized security models and achieve a certain degree of chain abstraction within their domains. Notable examples include Polkadot's shared security architecture and Cosmos's IBC protocol. In the context of rollups, synchronous cross-chain messaging and atomic cross-chain interactions can be achieved using shared sequencers responsible for processing and ordering transactions as well as managing state. For instance, Optimism has adopted this approach for its Superchain vision.

Despite these advancements, cross-chain communication, especially beyond these established ecosystems, remains a significant challenge due to the lack of native interoperability and widespread standardization. In this section, we will explore various architectural designs of interoperability concerning chain abstraction. Additionally, we will highlight leading projects in each vertical that showcase how they facilitate the development of blockchain connectivity.

Messaging Systems

A classic approach to blockchain interoperability is to utilize a universal messaging system, often relying on a set of external validators. In this design, users specify the desired outcome, and off-chain entities construct an exact execution path across multiple chains. This path is executed by a set of coordinated smart contracts and relayers. However, due to each chain continuously generating blocks and altering its state, achieving atomic execution across multiple chains is inherently challenging. Even with a robust data availability layer to maintain the state of all integrated chains, navigating routes across multiple chains presents significant complexity.

The design and architecture of messaging systems vary widely. They can be modular or monolithic, permissioned or permissionless, support various chains, and operate based on mint-and-burn mechanisms or liquidity pools. Developers face numerous trade-offs when integrating messaging systems into the chain abstraction stack, with each system offering different levels of security guarantees and user experiences. This diversity in design and functionality may hinder the adoption of universal standards, leading to further fragmentation in the field.

Currently, cross-chain aggregators like Li.Fi and Socket utilize simple messaging systems. These platforms integrate with numerous bridges and DEXs to simulate suggested routes for users. Once a route is selected, it is executed in a strict sequence.

Intent-Based Design

In intent-based interoperability design, users only need to express the desired outcome without specifying the exact execution path as in traditional blockchain transactions. These intents are auctioned to Solvers (off-chain entities) that bid for the rights to execute these intents. The specific resolution of the intents is not important; they can partially or fully match or be filled by Solvers' own inventory. In this system, users specify the outcome, and experts compete to provide the best execution plan.

A key advantage of this approach, especially in the context of cross-chain asset transfers, is that it directly handles native tokens rather than IOUs, thereby providing native security guarantees and enhancing overall security. Currently, intent-based applications primarily exist in bridges (such as Across and Synapse) and decentralized exchanges (such as Cow Swap, Uniswap X, and 1inch Fusion).

Recently, Across and Uniswap collaborated to propose a cross-chain intent standard ERC-7683, marking the first attempt to create a unified framework for standardizing cross-chain operations based on intents. Other notable developments include Socket's recent release of a new version focused on cross-chain modular order flow, and Everclear (formerly Connext) announcing intent-based primitives that leverage a solver network and EigenLayer-based Optimistic Rollup to manage liquidity across blockchains.

However, implementing intent-based solutions faces significant challenges. First, users need access to a cross-chain account—a smart account that manages keys in the background and enables cross-chain transactions. Additionally, standardization is a major barrier; currently, each intent-based application must independently develop its infrastructure, including intent aggregation, matching, and auction models, leading to fragmentation and inefficiency across the ecosystem.

Chain abstraction is a concept without technical specifications, allowing for many different approaches to implementation. In our view, some of the most interesting attempts include Anoma's intent-centric architecture, Polygon's aggregation layer, and NEAR's full-stack chain abstraction solution. We will delve deeper into these attempts.

Case Study: Anoma

Anoma is a privacy-focused, intent-centric protocol designed to enable decentralized counterparty discovery, resolution, and atomic multi-chain settlement. The platform is architecturally unique: unlike traditional blockchain systems that require users to specify execution flows, Anoma only requires users to define the final states they are willing to accept, expressed through programming commitments called intents. What sets Anoma apart is that these intents are composable and can be collectively resolved, regardless of their origin.

Anoma's transaction architecture includes the following steps:

• Universal Intents: Anoma's architecture can handle arbitrary intents, not limited to specific applications or special cases. This flexibility allows for a wide range of applications and interactions.

• Counterparty Discovery: This is a decentralized process where individual intents propagate through the network, making them accessible to potential solvers.

• Resolution: At this stage, solvers collaborate to combine and compute intents, finding a valid solution that can be executed and settled across chains.

• Settlement: The solution is verified and finalized on-chain. Anoma's intent-centric architecture supports settlement on its own sovereign L1 chain, other L1 chains, or any rollup that settles on L1.

Case Study: Polygon AggLayer

Polygon's AggLayer is a zero-knowledge (ZK) proof-based system designed to address interoperability and fragmentation issues between different rollups and Layer 1 (L1) chains. By aggregating ZK proofs from all participating chains, this approach provides unified cryptographic security and atomic composability.

AggLayer introduces a connecting environment to Ethereum through a unified bridging contract. Each connected chain maintains a copy of this unified bridging root, enabling seamless cross-chain transactions. Additionally, AggLayer features a messaging protocol bridge that establishes message queues for each chain, allowing them to maintain locally outbound message queues protected by ZK proofs. This eliminates the need to lock tokens on one chain to interact with another. By publishing ZK proofs of events across multiple chains on Ethereum, AggLayer achieves a seamless user experience akin to a single ecosystem.

Polygon CDK enables projects to launch ZK-based interconnected L2s or connect existing L1s to AggLayer, maintaining liquidity, users, and state. The first component of AggLayer is set to launch in February 2024, marking an important step for Polygon in creating a network of sovereign chains.

Case Study: NEAR Chain Abstraction Stack

NEAR is developing a comprehensive chain abstraction stack for its blockchain and surrounding ecosystem. The stack includes the following components:

• Security Aggregation Stack: This part includes NEAR DA (data availability), which collects the state supporting the chain. Additionally, it integrates zkWASM developed in collaboration with Polygon and leverages rapid finality provided by EigenLayer to enhance transaction processing speed.

• Account Aggregation: Based on multi-party computation (MPC), this component enables NEAR accounts to interact with external blockchains by requesting signature verification. The private keys of these third-party chain accounts are managed by validators on the NEAR network, serving as a decentralized signing service. This setup effectively binds accounts from different networks to a central NEAR "master account," which can securely manage all associated accounts.

• Intent Layer: This layer contains relayers that execute complex cross-chain intents, facilitating more intricate transactions and interactions across blockchain networks.

• Application Layer: This layer integrates various web3 services into a user-friendly application, simplifying access to and interaction with decentralized technologies.

Below is a visual representation of NEAR's account aggregation architecture:

Application Layer

Looking from the back to the front, the application layer is the final stage of chain abstraction, where infrastructure is integrated and presented consistently to developers and users.

In an ideal state, developers can easily build protocols that do not rely on specific blockchains without needing to integrate various modular layers, significantly reducing the workload. This means developers do not need to consider blockchain selection, cross-chain liquidity management, or data availability solution choices.

From the user's perspective, the ideal state is to interact with blockchain applications as seamlessly as using other digital services, without having to deal with crypto-related hassles like gas fees and seed phrases. This requires simplifying user interfaces, optimizing onboarding processes, and eliminating the need for users to understand the underlying technology, which are currently major barriers. Removing these obstacles will significantly enhance user experience and promote mass adoption.

Before realizing this vision, tools need to be developed to integrate different infrastructures into a unified interface. Therefore, we believe that chain abstraction is crucial for a good user experience.

Whoever controls the front end has the most direct connection with users and can extract the most value from their order flow. While most attention and investment are currently focused on infrastructure, we believe that the future focus will shift to the higher layers of the stack.

Conclusion

Currently, there are nearly 300 chains with significant liquidity and on-chain expressiveness, ranging from Layer-1 to Layer-3 solutions. This number is continuously growing, with no signs of slowing down.

One of the main drivers of this growth is the demand for scalability and sovereignty from applications, which can be achieved by having their own execution stack and economic system. For example, recently ENS, Aave, and dYdX launched their own rollups. Open-source technologies like OP Stack have also made it cheaper and easier to build, deploy, and operate rollups, while Rollup-as-a-Service providers like Conduit and Caldera further reduce operational and technical overhead. Ironically, deploying a rollup today is often cheaper than transacting on Ethereum during the 2021 cycle.

For today's users, managing cryptocurrencies has often become confusing and cumbersome, involving tasks like protecting seed phrases, signing multiple transactions for simple tasks, handling assets across different chains, bridging these assets, and finding the best prices on various DEXs. While rollups offer the potential for scaling without sacrificing security and decentralization, their proliferation increases complexity from both user and developer perspectives. Simply implementing them will only worsen the user experience.

Modern chain abstraction tools address this issue, making cryptocurrencies simpler and more feasible for a broader audience. Given the proximity of these tools to users, the winners in this space will capture significant value. As on-chain applications generate increasing revenue, the market will recognize the importance of owning the front end.