Are assets really transferred when you cross-chain?

With the launch of more and more new public chains, the demand for users to cross-chain assets is also growing simultaneously. After this trend has brought fire to a number of cross-chain bridge projects, the number of assets minted through various cross-chain bridges has also increased dramatically.

As cross-chain assets gain wider use, there are more and more issues associated with them. For example, how do we evaluate the security of a cross-chain asset? Is USDC in some new public chain the same thing as USDC in Ethereum? Why are there stablecoins in different formats such as ceUSDC, anyUSDC, madUSDC and even USDC.e on some platforms, while there is only one USDC on other platforms? When a cross-chain bridge is attacked, how can I judge whether my cross-chain assets are affected?

With these problems in mind, this article will start from the lower-level basic logic of cross-chain, and sort out the entire process of cross-chain asset casting, so that readers can better evaluate the real risk of cross-chain assets and choose a cross-chain that is more suitable for them. tool.

So at the beginning of the article, let’s briefly discuss how assets are defined.

How to define an asset?

There are two main ways to define assets. One is to define assets through physical properties, such as physical gold and precious metal currencies commonly used in ancient societies. However, in modern society, whether it is currency or financial assets such as stocks and bonds, the definition method has basically broken away from the limitations of physical attributes, and has changed to a more abstract mode of defining assets by accounting books.

For example, the bank deposits that we use in our daily life are defined by the balance sheet of a country’s banking system. As long as your account balance is registered in the bank statement, your deposit must exist.

Similar to deposits, cryptocurrencies like Bitcoin are defined by accounting books. The only difference is that Bitcoin adopts a more centralized book registration model (that’s right, it’s more centralized). All bitcoins are recorded by only one set of books, and there is only one version in the world (longest chain consensus). This unified and immutable accounting ledger is what we call the blockchain.

The decentralization of the blockchain that people often say is actually only reflected in the wider participation of the community in the process of recording and keeping the ledger. However, in terms of the number of ledgers involved in defining assets, blockchain is undoubtedly a higher degree of centralization and more efficient than traditional bank account book registration systems (no need for frequent reconciliation between multiple bookkeeping entities) account book registration method.

Can assets really be cross-chain?

As mentioned above, each blockchain is actually an independent accounting book that can define its own native assets. But at some point, people want assets to be free from the original ledger that defines them and to flow freely between different bookkeeping systems.

For example, cross-border remittance (cross different banking system ledgers), issuance of stablecoins (from bank ledgers to blockchain ledgers), or recharge to trading platforms (from blockchain ledgers to trading platform ledgers) and so on. All these operations of transferring assets across ledgers constitute a broad cross-chain.

But the problem is that since the existence of an asset is determined by the original ledger that defines it, theoretically no asset can exist independently of the original ledger. That is to say, it is theoretically impossible for assets to cross-chain in the true sense.

Just like physical gold can’t actually get into your bank account, bitcoin can’t exist independently of the blockchain that defines it. Therefore, people often say that assets are cross-chain, but in fact, the cross-chain is not the asset itself, but the value represented by the asset.

Therefore, asset cross-chain is essentially a value transfer process across different accounting systems. However, for the convenience of expression, we will refer to this process of transferring value across ledgers as “asset cross-chain” for short.

So the next question is, how can we transfer value across different accounting systems?

Two basic modes of asset cross-chain

1. Lock the casting model

The locked and minted model is the most basic model of asset cross-chain. As early as in the era of metal currency, people used the locked casting model to conduct daily transactions by locking gold in gold shops, and at the same time casting and issuing gold redeemable certificates (later evolved into paper money) that are easier to carry and circulate.

In this process, the gold shop is equivalent to the cross-chain bridge, the safe of the gold shop is equivalent to the smart contract that locks the assets in the transfer chain, and the banknotes are the cross-chain assets issued by the cross-chain bridge in the new chain.

Similarly, in real blockchain cross-chain activities, almost the same lock and minting logic is still used. The cross-chain bridge locks assets in the original chain, and issues the “redeemable certificate” of the original chain assets in the transfer chain, that is, cross-chain assets, and then completes the cross-chain transfer of asset value.

Are assets really transferred when you cross-chain?

Lock the original asset across the A side of the chain, and issue the redeemable certificate of the original asset across the B side of the chain

All existing cross-chain (cross-ledger) assets are basically “redeemable certificates” of original assets issued by different cross-chain intermediaries. Including the balance you recharged into the trading platform, the US dollar foreign exchange held across the country, the Bitcoin anchor currency traded in various public chain platforms, and even the WETH received by locking ETH, etc., all belong to broad cross-chain assets.

The only drawback of this model is that cross-chain intermediaries using this model are often difficult to meet user requirements in terms of efficiency and cost. Therefore, such cross-chain bridges often only link a few public chains (such as Ethereum to the new chain) in order to introduce mainstream cross-chain assets to the new chain. And such cross-chain bridges are often officially supported or directly developed by the new chain, so such bridges are often called official bridges.

But for ordinary users, improving cross-chain transaction efficiency and reducing costs are what they are more concerned about. Therefore, the third-party bridge that adopts the two-way fund pool model came into being.

2. Two-way fund pool model

The two-way fund pool model is not difficult to understand. Since the main efficiency bottleneck of the official bridge comes from the locked casting process, as long as this mechanism can be bypassed, the cross-chain efficiency can be greatly improved.

Therefore, these third-party bridges choose to set up fund pools on both sides of the bridge in advance, one side collects a large number of original assets of the original chain, and the other side collects cross-chain assets that have been issued by the official bridge.

When users cross-chain through a third-party bridge, they only need to deposit the original assets on one side, and directly withdraw the cross-chain assets that have been minted by the official bridge on the other side, so that the cross-chain work can be completed in real time. As long as the transfer-out and transfer-in amounts of this third-party bridge are roughly equal during operation, the model can run stably.

The only limitation is that the two-way fund pool model needs to use the cross-chain assets already issued by the official bridge, so it can only be deployed after the official bridge is established.

What are the factors that affect the security of cross-chain assets?

As mentioned above, cross-chain assets are redeemable certificates for the original assets issued by the cross-chain bridge. And every time it goes through the lock-and-casting process, the risk of the asset increases by one layer.

We take anyUSDC currently issued on Moonbeam as an example. The issuance of its assets needs to go through three stages in total:

1. The US banking system issues USD;

2. The stablecoin issuer Circle locks USD and issues USDC in Ethereum;

3. The cross-chain bridge Anyswap (now Multichain) locks USDC on Ethereum and issues anyUSDC on the new chain;

Therefore, the security of anyUSDC is equal to the product of the security of these three, which can be expressed by the formula as follows:

Security(anyUSDC)=Security(USD)*Security(Circle)*Security(Anyswap)

That is to say, as long as there is a problem with any one of the three, such as the collapse of the US banking system, the escape of Circle, or the attack of Anyswap, it will directly affect the intrinsic value of anyUSDC. Therefore, the more locked and minted processes an asset goes through (the more suffixes and suffixes in the name), the higher the risk it carries.

Therefore, the cross-chain bridge, as the initial issuer of cross-chain assets, has become the core node that determines the security of cross-chain assets.

At present, there are two main ways in which cross-chain bridges are attacked. Taking the gold shop as an example, one is that the gold locked by the gold shop is directly stolen (the mode in which the PolyNetwork is attacked), and the other is that the redeemable certificate issued by the gold shop is forged by the hacker, so that the hacker can use these forged certificates to first. One step to redeem the gold in the vault (Wormhole attacked mode).

But in any case, the security of an asset is almost entirely determined by its issuer. For cross-chain assets, it is the cross-chain bridge that issues them that determines whether they are safe or not.

How can a new chain better issue cross-chain assets?

After supplementing the necessary knowledge, we can better understand how the current state of chaotic cross-chain assets in many new public chains came into being.

Let’s first look at the types of cross-chain assets included in Zenlink, the trading platform on Moonbeam.

Are assets really transferred when you cross-chain?

It can be seen that in Moonbeam, the new public chain, the original issuer of cross-chain assets has at least three different cross-chain bridges. Taking USDC as an example, three cross-chain assets are independently issued by three bridges: ceUSDC, anyUSDC and madUSDC.

It can be seen that Zenlink did not specify the only official bridge, but accepted all standard cross-chain assets for users to choose freely. At the same time, since no cross-chain asset has an absolute dominant position in Moonbeam, other third-party bridges have also begun to use the locked casting model to issue their own cross-chain assets.

Although this open and free competition method is more in line with the spirit of blockchain, for a newly established DEX, it will undoubtedly cause a large degree of liquidity fragmentation, and the user experience is not friendly.

However, unlike Zenlink, StellaSwap and Beamswap, which are also deployed on Moonbeam, have only one USDC by default in their trading interface.

Are assets really transferred when you cross-chain?

After testing, we found that the USDC is not a stable currency issued directly by Circle. The corresponding asset behind it is actually anyUSDC displayed in Zenlink. That is to say, although there is no native USDC on Moonbeam, in order to reduce the confusion of users, the project party directly changed a more memorable name on the front end and used it to recharge.

Although this method unifies liquidity, this method of artificially specifying cross-chain asset standards by the project party does not conform to the spirit of decentralization. In particular, directly renaming anyUSDC to USDC at the front end will create an illusion for users that this is directly issued by Circle officials. As a result, it ignores the risks that the Anyswap (now Multichain) cross-chain bridge may bring to the security of user assets.

Therefore, in the initial issuance of cross-chain assets, whether to artificially choose a single cross-chain bridge as the issuer or to allow free competition of different cross-chain assets is actually a dilemma. Just as there are various versions of Bitcoin-backed coins in Ethereum, this confusion and fragmentation will always exist as long as a bridge has not yet achieved a market monopoly on cross-chain asset issuance.

But in any case, try to keep the name of cross-chain assets as complete as possible, and do not mislead users intentionally or unintentionally, which is a basic principle that each project party must maintain.

At the end of the article, we summarize the core content of this article:

1. The cross-chain bridge constructed by the locked casting model is an important asset issuer in the blockchain world. Similar to the Tether company that issued USDT, they have never been a simple channel, but an important issuer of cross-chain assets. Once these bridges are breached, the assets issued by them may instantly return to zero, so the security of these bridges is of paramount importance.

2. The cross-chain bridge constructed by the two-way fund pool model is not a simple channel business, but a liquidity mitigation business. The security of its fund pool generally does not directly affect users who use the cross-chain bridge and cross-chain, but the theft of the fund pool will directly cause losses to LPs.

3. The current chaotic status of cross-chain assets is largely due to the random simplification of the naming of cross-chain assets. In addition to StellaSwap directly changing anyUSDC to USDC at the front end, similar examples also include ETH displayed in Near, which is actually simplified from nETH (n represents the official rainbow bridge). And ATOM obtained through different paths in the Cosmos ecosystem is not the same thing in essence. 

So don’t be misled by the asset name, and keep paying attention to the security of the cross-chain asset issuer, which may become a necessary homework for all crypto investors in the future.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/are-assets-really-transferred-when-you-cross-chain/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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