From bridge liquidity to chain abstraction full-stack framework, what are the innovations?
Original title: "IOSG Weekly Brief|From Bridge Liquidity to Chain Abstraction Full-Stack Framework, What Innovations Have We Seen?"
Original Source: IOSG Ventures
Chain Abstraction
Humans are not usually asset managers, but they are forced to become money managers. In the United States, the average number of bank accounts per person is between 3 and 4, which shows that even in a highly developed banking system, the average American manages only about 4 accounts, although money can flow seamlessly between these accounts.
15 of the top 25 projects by market capitalization are "consumer-centric L1" projects. Will the average non-crypto consumer get involved in more than 3-4 chains? Do they also need to treat their gas tokens as assets?
With the rapid growth of the crypto market, I think the market is ready to choose their favorite three chains (including rollups). If the technology is advancing, why do they still need to do this?
Chain abstraction is the end game of liquidity fragmentation in crypto. When liquidity is fragmented across different DEXs, DEX aggregators win; when liquidity is fragmented across different bridges for inter-chain operations, bridge aggregators emerge (of course, bridge aggregators contribute much more to the ecosystem); and finally, when liquidity is fragmented across different chains, the intuitive sense of chain abstraction becomes very clear. We said from the beginning: "One day, users won't even know which chain they are using."
This is why I am bullish on the concept of chain abstraction. It will help to make crypto participation much more accessible without users having to bear the mental burden of maintaining multiple accounts on multiple chains. This article will dive into the implementation methods, pros and cons, trade-offs, and the ultimate possible winners of the concept of chain abstraction.
I define chain abstraction as: any user-initiated intent on the chain of choice (where the liquidity is) and executed on the chain where the application is located (where the results are).
A user submits an intent on chain A, and after some magical operations, the user gets the desired result on the target chain or back in the same wallet.
This "magic" can be achieved in many different ways, involving different trust assumptions, adoption curves (both users and developers), and ultimately the goals of the chain abstraction experience that the application hopes to unlock. Different projects have different views on chain abstraction, but the following are the key layers to achieve this goal. Different projects are tackling different layers, and after reading this article, you should have a fair understanding of the key elements required and what the final state may look like.
Interaction Layer
These projects try to abstract chains from the first interaction of the user.
To the user, this may look like a multi-chain version of account abstraction, manifested in a wallet or a unified front-end interface to interact with multiple chains (such as a cross-chain lending platform).
Projects building in this direction include: NEAR, Particle Network, Light.
NEAR Protocol
NEAR Protocol aims to make the abstraction of blockchains as simple as possible for users. They have relayers to subsidize gas fees, an authentication service for account recovery via email (very similar to Web2's user experience), and most importantly, multiple signature types generated using NEAR accounts.
Applications can stay where they are, with almost no development costs other than integrating the NEAR wallet.
Multiple signature types help users interact with multiple chains simultaneously. While this sounds simple, solving liquidity and messaging is very important. NEAR must be able to connect to multiple chains through single or multiple messaging protocols and liquidity networks.
Since they are closest to users, NEAR must also actively market and occupy a high market share.
Particle Network
Particle Network holds a similar view on chain abstraction. They originally started as an AA wallet in the EVM ecosystem, but are now moving towards chain abstraction by creating "universal accounts" on their modular L1. This modular L1 is built using the Cosmos SDK. This enables Particle Network to be compatible with IBC for any inter-chain communication. They also use Berachain's Polaris framework to become EVM-compatible for the Cosmos chain.
Particle Network will not rely on any external protocol to provide liquidity. Since they are their own chain, they will optimistically perform cross-chain atomic transactions and have their own Gas token.
We do see a lot of overlap in the approaches of NEAR and Particle. While Particle controls most of the tech stack, they will have the additional task of bootstrapping and maintaining their liquidity network in addition to similar problems faced by NEAR.
Light
Light.so is a relatively new project that takes an account abstraction approach, but is limited to the EVM (Ethereum Virtual Machine) ecosystem. By taking advantage of the typical gas fee abstraction and batch execution, they have transformed the wallet user experience to provide a full dashboard experience. Light is committed to abstracting many common operations and providing users with a dashboard-like experience.
Future development paths may include integrating multiple DeFi operations into the dashboard, such as swaps, borrow/lend, structured yield products, etc. However, in order to facilitate these operations, a bridge/messaging layer is still required on the backend.
Communication Layer
The interaction layer needs to go through the task execution layer, which can be a bridge, proxy, validator, or any infrastructure that can achieve cross-chain interoperability.
Standardized Validator Networks
Across has taken the lead in cross-chain aggregators. Existing crypto users who frequently use the Ethereum ecosystem may be familiar with Across. Across’s shift to an intent-driven structure in its V2 release has positioned it as a leader in the bridge aggregator war. This also helped enable the V3 release, where developers can conveniently combine bridge and protocol operations in a single transaction.
Hypothetical Example: OpenSea integrates Across+. If I want to buy Base Chads on Base, I just need to sign a transaction on Arbitrum using the wallet of my choice, and then I can successfully buy a Base Chad from the same address on Base.
This example is the easiest for us to understand because it looks like the solution we have been looking for.
This approach is great for quickly buying select memecoins or purchasing NFTs listed on a marketplace, but may not be suitable for high-frequency activities like a Telegram Bot, or signing every action as a transaction on a rollup hosting a poker game. In the latter case, it may be easier to bridge and use a rollup to achieve lower latency and better execution.
Anoma takes a unique intent-driven off-chain approach, where they have a validator-based L1 and consensus mechanism. Developers can build directly on Anoma or use Anoma as a middleware (essentially a validator network). In order to standardize communication within the network, Anoma has its own DSL that developers need to learn in order to utilize Anoma's network.
Validator network standardization is one of the hottest research areas in chain abstraction. Issues such as validator centralization, auction mechanisms, the impact of open validator networks, etc. have been debated for a long time, and I will not delve into these issues here. Here is a best article on intent-based bridging architecture by Arjun Chand, which includes risks and trade-offs.
Projects such as Ethereum Swap, UniswapX, and 1inch Fusion have demonstrated first-class execution of intent-based architecture. There is no doubt that intent-based architecture will dominate the cross-chain and chain abstraction space, but who will win? We have seen that order flow is king. Validator networks that can guarantee best execution will get the best order flow regardless of where the orders come from. Can chain abstraction wallets give them the best order flow?
How good are validators for high-frequency activities? How good are they for latency-critical transactions (e.g., buying low-liquidity memecoins)? These may not be the best use cases for validator networks or chain abstraction in general.
The top-level activity that a mature validator network can achieve in the chain abstraction paradigm is large-scale cross-chain (e.g. moving ETH from all L2 to a single Ethereum mainnet account). Anywhere there is research overhead, integration overhead, bridging overhead (including aggregators), gas maintenance, etc., is where the validator infrastructure can help. Buying Injective derivatives on Injective should be seamless and one-click, even if I don't have any funds.
Competitive Landscape of Validator Networks
Every validator network needs to integrate with some contracts to ensure execution. Across V3 is leading the way with its intent-driven architecture and only needs to sort out integration issues with protocols. Protocols will likely integrate with battle-tested projects like Across, and they will need to continue to innovate their architecture to attract more validators (or relayers as they call them) to participate without affecting execution.
However, Across V3 is not the clear winner in terms of order flow. The Stargate bridge is competing head-on with Across in terms of order flow and volume, and Celer Circle and cBridge also seem to be catching up.
Across is the only project with an intent-driven architecture and has consistently delivered superior execution. There has long been a belief that Stargate’s volume is artificially increased through incentives, but there is no way to prove this. However, while Stargate’s volume matches Across’, it has double the number of transactions. Only after the LayerZero airdrop is complete will we be able to determine which volume is incentivized and which is non-incentivized.
Socket takes a unique approach by introducing a Modular Order Flow Auction Architecture (MOFA), where any of the above modules can submit orders or participate in auctions. I am not familiar with the underlying technology, but with the team's track record of releasing great products, this could be very interesting.
Image Courtesy: Socket
Bridges and Bridge Aggregators
"Cross-chain bridges are cumbersome to use" - User Voice
Bridge aggregators used to be my favorite way to transfer assets across chains. It guarantees that assets are bridged to the user's chain of choice in the best possible way. While it is currently the best form of cross-chain transfer, it only shields the bridge itself, not the blockchain. Users still need to hold a minimum amount of gas on the target chain to complete the cross-chain transfer. They also do not help users perform operations on the target chain, which may bring additional complexity to users who are new to this space.
At scale, bridges are not as efficient as validator networks. Why? I recommend watching Hart Lambur’s talk at EthDenver 2024 to learn why batching intent can be over 50x cheaper than traditional bridges. (See 9:11 - 13:25).
While I appreciate the teams and founders working on bridges that allow me to interact in a multi-chain world, I would rather completely eliminate 3-4 steps in the user flow and the slight anxiety that comes with it.
Full-Stack Frameworks
Full-Stack Frameworks help create standards from the wallet layer to the settlement layer and seem to enable complete chain abstraction for users in terms of technical efficiency (security, communication, etc.). Frameworks such as CAKE make protocols easy to adopt and integrate into the entire ecosystem.
It would be very difficult for developers to build a project completely dependent on a brand new framework or chain. The driving force behind developers choosing a specific framework is usually order flow.
I don't know how to convince an entire developer ecosystem that has chosen their favorite environment to build projects to use a brand new framework. This will be a battle that relies heavily on marketing and partnerships, and is as difficult as launching a new L1.
Full stack framework participants include: CAKE, DappOS, Aarc.
Summary
A unified framework is critical, and the leaders of each module will be determined by the best order flow. The best order flow depends on consistently providing the best execution. The entire chain abstraction framework may look like this:
If I had to get my grandmother into crypto, I would probably wait until NEAR or Particle Network release a product. I don’t want her to get stuck in a cycle of learning about bridges/aggregators, validating, and maintaining multiple private keys when all she needs is an EVM wallet and buying some token on Solana.
To achieve all of this, some form of account abstraction, balance abstraction, and possibly even gas abstraction will be required, and many players are working on each problem.
Based on the information currently available, the leaders of each module will determine the ideal framework. NEAR seems most likely to become an onramp for new order flow, Across seems to be the battle-tested project and the easiest to integrate (relying on the Chaos Labs team to further optimize the protocol, they know how to win in a crowded ecosystem), and finally the cross-chain messaging layer, which will provide a secure environment for auxiliary infrastructure (such as bridges and oracles) to provide settlement services for assets moving across chains.
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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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