Cross-chain final battle


Before discussing the topic of this article, we need to state that this article represents only the opinions and thoughts of the author. And the starting point of the analysis is product and technology design without capital operation, marketing and other considerations. Therefore, this article is not an investment proposal, nor a short-selling report. The main issues discussed in this issue are more infrastructure-oriented. These types of tracks are often atomic, and either meet the needs and take off very quickly, or go in the wrong direction and no one cares. Therefore, the projects mentioned in the article should not be used as investment references provided by the author. Purely industrial research. I hope we can discuss together.

Cross-chain thinking of information triggered by Synthetix’s L1 and L2 data compatibility

The reason for this research report is the sip156 and sip165 published in the synthetix community in July and December this year. The link is posted here:

At present, these two proposals are still in the Feasibility stage, which means that although they have not been actually implemented, their feasibility has been recognized to a certain extent. The main reason for these two proposals is to solve the data compatibility problem of layer2 and layer1 of Synthetix. Anyone who has read the synthetic asset research report I did in October should know. As the most complex DeFi project in the Ethereum community, Synthetix was officially deployed on the layer2 solution of Optimism this year. However, the pattern of multi-chain competition is gradually taking shape. Although layer2 and layer1 can complete cross-chain communication to a certain extent, this communication cannot be extended to other side chains or even heterogeneous chains such as solana for the time being. Causes the global debt adopted by Synthetix to be unsynchronized. This creates a huge “liquidity waste”.

This “liquidity waste” is one of the biggest problems faced by various DAPPs in the current era of the warring states era of the public chain. Especially global debt projects like Synthetix (projects with shared risk like pool 2 users will have the same problem). When using multi-chain deployment, the liquidity of multi-chain has to be separated from each other. And re-incentivize the generation of liquidity from scratch.

Take the “DeFi For All” fund that we often slap on the ground as an example, Polygon has introduced Aave, Curve, Sushi, and recently Uniswap through this program. However, these head projects still need to re-incentivize liquidity and deposit funds on Polygon.

Maybe you would say that for miners, the more new economic incentives, the better, but for users with actual needs, it will cause a lot of trouble, such as collateral and deposits supported on versions of other chains of Aave The variety of products is much lower than that of ETH, and Sushiswap’s assets with better liquidity on other chains are still much lower than those of Ethereum.

From the perspective of the project party, if I want to deploy my original mortgage lending protocol on a heterogeneous chain with better experience or a side chain of EVM such as Polygon. Then I would face a big problem, which is the lack of available collateral types, because there are not many assets on the chain that have enough liquidity to support large-scale liquidations.

In addition, there are currently some mainstream token trading pairs AMM pools on multiple chains, taking ETH as an example. At press time, the asset has a total TVL of 1.41B on Uniswap V3 and around 0.3B on Pancake V2. When trading the same ETH, the slippage pressure on the Pancake exchange was nearly 5 times that of the Uniswap V3 Ethereum version. The larger the amount, the larger the slippage gap. This is also the reason why the adoption rate of transaction aggregators is getting higher and higher, and even the adoption rate of cross-chain transaction aggregators is getting higher and higher.

As another example, the interest rate assumed by users when using Aave of different chains for mortgage lending is different. This is because the data on each chain cannot be communicated, and the contract only uses the original data of the chain when calculating the interest rate. It may seem like a small difference, but to put it another way, it’s like, when you use a bank deposit in your city, the interest rate is 4%, but you go to other big cities and find that the deposit rate is actually 6%. The same bank, the same currency, this situation is impossible and impossible in the traditional financial market. However, due to the data island problem of the blockchain, similar situations are not uncommon.

Therefore, it led us to think:

Since the multi-chain game, the compatible and co-existing ecology is a foregone conclusion, the future war may even be more chaotic. So whether the information communication between chains is the next track that is about to explode.

To this end, the developers of my team and I have focused on the current various types of solutions (mainly selected some representative solutions, other more homogeneous solutions are not within the scope of this report). Hope to be able to analyze the pros and cons of various solutions from different aspects.

The following content involves a variety of technical primitives, and we will try our best to use plain language to help everyone understand. The infrastructure track sounds very “technical”, but in fact, the blockchain solution is essentially a philosophical problem of organizational form and production relationship. After understanding the basic process and logic, you don’t need to understand the code to understand these infrastructures realization meaning.

Some existing cross-chain communication infrastructure

(1) Lightweight plug-in communication protocol – LayerZero

LayerZero is a cross-chain communication infrastructure that SeerLabs came into contact with in August this year, which caught my attention at the time, but then I missed investing in it because of some other things (sorry). Later, I saw that this protocol has received investment from Binance, Mulitcoin, and Delphi Digital, and I ignored me if I went to find it.

1. Brief description of the plan

LayerZero features a lightweight communication layer-based solution. It is mainly aimed at DAPPs on various chains. Help them solve the problem of information exchange between chains.

LayerZero’s white paper roughly describes this solution (I try to translate it)

Cross-chain final battle

The diagram above illustrates the steps involved in efficiently delivering a single LayerZero message, with each black-backed number in the diagram representing a step.

Step 1: The user application on chain A (AppA) performs a series of actions as part of transaction t. We uniquely identify transaction T by a transaction identifier t, whose format may vary depending on the type of chain A. One of the steps included in transaction T is the efficient delivery through the LayerZero transport. For illustrative purposes, and without loss of generality, we assume that Appa uses our template repeater in this scenario. AppA sends a request to the LayerZero communicator containing the following information:

t: represents a unique event identifier

dst: Represents a global identifier pointing to an on-chain smart contract

payload: represents any message data that the chain A application wishes to transmit to the chain B application

relayer_arge: some parameters representing the payment information submitted when the chain A application wishes to use the template relayer shown in the figure (a customizable relayer provided by layerZero)

Step 2: The Communicator constructs a LayerZero packet containing dst and payload, called packet(dst, payload), and sends it to the Validator along with t and relay_args.

Step 3: The Validator sends t and dst to the network. This step informs the network that the block header of the current block on chain A needs to be sent to chain B.

Step 4: The Validator forwards the packet (dst, payload), t, and relayer_args to the Relayer, informing the Relayer that it needs to prefetch the transaction proof of T and finally send it to chain B. This happens at the same time as step 3.

Step 5: The network sends the block ID of the current transaction (cur_blk_id) to Oracle. This will tell the Oracle to get the block header of the current block on chain A and send it to chain B. Step 5 is only executed once if multiple LayerZero transactions occur within the same block.

Step 6: Oracle reads block header (blk_hdr) from chain A.

Step 7: The relayer (Relayer) reads the transaction proof (proof (t)) associated with transaction T from chain A and stores it off-chain. Steps 6 and 7 occur asynchronously to each other.

Step 8: Oracle confirms that the block corresponding to blk_hdr is stably submitted on chain A, and then sends blk_hdr to the network on chain B. The mechanism for determining when this happens is different for each chain, but usually requires waiting for a certain number of block confirmations.

Step 9: The network sends the block hash designated as blkJhdrJhash to the Validator.

Step 10: Validator forwards blkJhdrJhash to Relayer.

Step 11: After receiving blk_hdr_hash, the relayer (Relayer) sends a list of all packet (dst, payload), t, proof (t) tuples matching the current block. If multiple users send messages simultaneously between the same endpoints, there may be multiple packets and associated transaction proofs within the same block.

Step 12: The Validator uses the received transaction proof together with the block header stored on the network to verify that the associated transaction T is valid and committed. If the block header and transaction proof do not match, the message will be discarded. If they match, the packet (dst, payload) is sent to the communicator.

Step 13: The Communicator sends a data packet (dst, payload) to AppB. If you are not a developer but still understand this solution, please DM me on Twitter: @0xOar

2. The main advantages of this scheme are:

(1) Lightweight and low cost

Its solution does not require a node based on the chain on the upper layer of chain A and B to provide protocol communication like other solutions. Instead, it can be freely deployed by the project party, and the template provided by LayerZero can be used, and even the repeater can be designed by the user. Moreover, the white paper mentioned an ultra-light node of ULN, which is lighter than the light node, and I have not found a particularly detailed implementation. But from the description, this is also a manifestation of ultra-lightweight deployment.

(2) Solutions based on the communication layer

This is a main selling point of the project, and LayerZero believes that its solution is a new communication protocol based on Layer0. We do not agree with this point. The level he is in is not a communication protocol like TCP, but just a data transmission protocol between chains. In the hierarchical setting, I prefer to place it at the application layer, between layer2 and layer3. between.

(3) Do not rely on third-party credit

The white paper mentions cross-chain protocols such as Anyswap and THORChain. LayerZero believes that the aforementioned two schemes with partial notary mechanisms (mentioned in the next example) actually rely on an intermediate consensus layer, and users need to trust this intermediate consensus layer services provided. LayerZero, on the other hand, is a point-to-point communication primitive that does not need to rely on this intermediate consensus layer.

(4) Summary

It sounds that the cross-chain mechanism described by LayerZero is quite interesting, and it can indeed solve many practical problems, and it is lightweight enough. But looking at the essence through the phenomenon, we can also find some inductive problems with such very “technical” solutions.

3. Problems

(1) We do not agree that this is a solution based on the communication layer

This project is not a communication protocol in layer0. The main tools it provides include endpoints and relayers. The endpoints are responsible for communication verification, and the relayer is responsible for message delivery. This is just an inter-chain data transfer protocol. In the hierarchical setting, I prefer to place it at the application layer, between layer2 and layer3.

(2) LayerZero also relies on an intermediate consensus layer

In the design of the scheme, LayerZero adopts the method of mutual verification between the relayer and the Oracle oracle to ensure security. But the white paper also mentions the so-called extreme case—the case where repeaters and oracles work together to do evil. LayerZero believes that maintaining relative independence can reduce this risk, but repeaters are generally deployed by project parties. And LayerZero believes that oracles can use services like Chainlink. Not to mention the cost of using Chainlink communication, in essence, doing so is to trust that Chainlink will not cooperate with the project party, and Chainlink is also an intermediate consensus layer.

4. Subjective outlook judgment

(1) Most users cannot know the difference in technical details

Therefore, the storytelling in the publicity is often innocuous. There are also “technical” projects that are more aggressive. For us, we have seen too many “writer” founders.

(2) Lightweight deployment is conducive to promotion and application

Compared with Anyswap, THORChain, Polkadot, Cosmos, and another project to be discussed, Axelar, the LayerZero solution requires much less technical and ecological investment and operating costs. No self-built nodes are required to recruit other validators. The cost of organizing an intermediate consensus layer is certainly far greater than just providing the tools.

Under the premise of the same resources, I am more optimistic that LayerZero will have a better application in the cross-chain ecosystem.

(3) Low narrative and ecological potential

Similar to auxiliary products such as Anyswap and Chainlink, although LayerZero can play a great role, it is not strong enough because of its product’s characteristic narrative ability and ecological expansion ability.

For example, Chainlink’s own intermediate consensus layer ecology is actually quite complete, but because its image of the oracle machine is too ingrained, the overall storytelling is not as good as layer 1 like solana. In fact, Chainlink’s capabilities are fully qualified to become all layer3 of the chain.

The same is true for LayerZero. The instrumental product positioning makes it less narrative. Some clues can be seen from the two subsequent articles published by medium. When the founder and team thought about the scalability of LayerZero, the first thing that came to mind was the form of IBC collaboration with Cosmos.

This is roughly equivalent to defining itself as the same narrative level as one of the components of Cosmos.

(2) Heterogeneous cross-chain communication protocol – Axelar

This project is very interesting. The overall title and concept of delivery coincide with the issues we are discussing today. What he hopes to do is to empower DAPP developers and the blockchain ecosystem, which has been taken into consideration from the beginning of the design. Some problems that different heterogeneous chain ecosystems are incompatible under the current situation.

1. The official propaganda vision

(1) For underlying developers

Plug your blockchain into all other blockchains

(2) For DAPP developers

Deploy your DAPP anywhere, and realize cross-chain assets and information between any chains through Axelar.

(3) For users

Interact with DAPPs of all blockchain ecosystems directly from the wallet.

2. The basic principles of the project are as follows

Cross-chain final battle

This picture is from the official documentation, and it seems too complicated. We simplify it to the following text flow.

3. Axelar cross-chain protocol process

Assuming that there are chain S and chain D, Axelar provides cross-chain services for these two chains

State information cross-chain

Axelar obtains and synchronizes state information in each blockchain system through validators in the Axelar network running nodes of different chains, such as a block hash, current block height, etc. The core process of cross-chain status information is as follows:

(1) Chain D users initiate a request to obtain chain S status information data through the API provided by Axelar to the cross-chain bridge account or directly in the Axelar blockchain, denoted as Q.

(2) Each validator of Axelar must run the node software of chains S and D. Axelar validators query the API of their Chain S node software for answer A, and send A to the Axelar chain.

(3) Once a verifier with a weight greater than a certain weight reports the same answer in the Rth, the threshold signature technology will be used to publish the signature S for the answer in the R+11th block

(4) Anyone can take the signed answer S from block R+11 and publish it to the D network. Users on the D network can query this answer through the API provided by Axelar.

Asset cross-chain

Suppose the user requests to exchange x amount of tokens on the source chain S for x amount of pegged S tokens S’ on the target chain D, which are stored at the user’s address W<sub>D</sub> on the D chain. The workflow is as follows:

(1) The user sends a cross-chain transfer request (x, W<sub>D</sub>) to the cross-chain bridge account, which is captured by the listener and routed to the Axelar network.

(2) Axelar’s current validator cluster uses threshold signature technology to jointly create a new deposit address D<sub>S</sub> on S. and broadcast it to the Axelar network.

(3) The user obtains D<sub>S</sub> by monitoring the Axelar blockchain, and then sends x amount of S tokens to the address D<sub>S</sub>.

(4) The verifier inquires whether the user has successfully transferred the transaction. If the verifier with more than a certain weight in the Rth block broadcasts that the transfer has been successful, the verifier signs the transaction tx<sub>D</sub>, and the transaction will x amount The S’ tokens are sent from W<sub>D</sub>, and the signature result is broadcast in block R+11.

(5) Anyone can take out the signed transaction tx<sub>D</sub> from block R+11 and publish it to the D chain, thus completing the transfer of cross-chain assets.

This solution is more complex than the aforementioned LayerZero, and has more verification processes and logic. In general, the big difference is that LayerZero uses an external oracle as part of the validator, which guarantees security and acts like an intermediate consensus layer. Axelar uses the BFT Byzantine consensus to build a third-party chain. Axelar synchronizes the information of other chains to the Axelar network through CTP, and then the nodes on the Axelar chain pass information on other chains through threshold signatures.

This scheme is essentially not much different from the scheme adopted by Anyswap and THORChain, and can also be represented by a notary mechanism. This type of scheme is almost the most important genre of all cross-chain communication schemes.

4. Advantages of this scheme

(1) Independent third-party chains can exert greater imagination

The Axelar network for heterogeneous chains is also a blockchain network in essence. Although it supports a DAPP on chainA as a transfer method, it is cross-chained to ChainB through Axelar, but the optimal solution for developers is still direct Deploy the DAPP on Axelar. In this case, no matter where the subsequent version is deployed, it will only diverge downwards, rather than connecting upwards.

If Axelar can develop its own ecosystem well, then Axelar may have the ability to become the so-called Layer 3. This status is similar to the relay chain in the Polkadot ecosystem. At that time, ETH and BTC will even have the opportunity to be called sub-chains of Axelar.

(2) There is no need to rely on third-party oracles, and the efficiency and overall cost may be lower

Although LayerZero’s solution has lower deployment costs for endpoints and relayers, it is very lightweight. However, the cost and efficiency of the oracle machine will become an important factor affecting the choice of DAPP developers.

For example: If project A wants to transmit the debt data of the main contract on ChainA to ChainB through LayerZero and Chainlink. However, Chainlink calls may require payment, and Chainlink push data does not directly monitor the block data of each chain like Axelar, but pushes regularly or according to rules. For example, it will be pushed once a minute, or if the debt fluctuation is not higher than 1%, it will not be pushed.

This part of the behavior needs to be paid to Chainlink. Chainlink has a market called the Chainlink market, where there are many data providers. The data provider has a contract for each type of data. If you need data, just call the contract and pay the link. The data provides After querying off the business chain, feed the data into your contract (so the query is asynchronous, with at least one block delay). Receive 1~3 link, about 0.1 link last time on bsc.

The frequency of such asynchronous heterogeneous chain communication is very high, and the corresponding cost is also high. Therefore, the overall cost of Axelar’s general solution may be much lower.

5. Subjective outlook judgment

(1) In terms of overall product design ideas, the product form of the Axelar project is closer to projects like Anyswap, because most users have a high tolerance for the decentralization of the intermediate consensus layer. 99% of users of Chainlink, the service provider and ecological situation of the chain where anyswap is located, may not know very well, and users will only pay attention to which cross-chain communication solution with the highest adoption rate is recommended by their chain. This shows that the real test of the general heterogeneous cross-chain solution is the ability of the project party to layer 1. For now, we haven’t seen much action from Axelar. And in terms of technical solutions, we don’t think it has enough advantages to produce self-propagation effects.

However, compared to polkadot, the difficulty of advancing the Axelar ecosystem will also be much lower than that of other Layer 1s. It can be used as a tool layer and not a re-creation of the ecology.

(2) In terms of narrative ability, the upper limit of Axelar’s temporarily displayed narrative ability is much lower than that of cosmos and polkadot. Although both are cross-chain, and Axelar may even be more practical, Polkadot and Cosmos have both proposed standardized blockchain protocols. This makes its overall storytelling ability far surpasses that of Axelar.

(3) Polkadot and Cosmos

1. Basic information

Polkadot and cosmos are the projects with the largest volume, the richest ecology and the highest market value in this market. In general, the values ​​and product views expressed by these two projects are much higher than the aforementioned layerZero and Axelar.

The specific solutions of Polkadot and Cosmos are not discussed here, and there are numerous documents in various languages. We show from the overall plan.

The narratives of Polkadot and Cosmos both mentioned cross-chain solutions between heterogeneous chains, such as the cross-chain solutions between substrate and Tendermint chains and ETH, BTC and other chains. The basic principles are not much different from Axelar and LayerZero. Both require An intermediate consensus layer completes the cross-chain through the notary mechanism.

But Polkadot and cosmos tell another story that looks more appealing — standardized blockchains and homogeneous cross-chain solutions. In other words: Recreate the ecological Wanchain interconnection.

2. Comparison with LayerZero&Axelar

Cross-chain final battle

As can be seen from the above figure, I simplified the complex process (the identification on the thread is not accurate, such as Polkadot’s heterogeneous cross-chain needs to bridge the chain, instead of directly interacting with the relay chain of the intermediate consensus layer), then I can get Result: The above three types of solutions are not fundamentally different on the issue of heterogeneous cross-chain, but the three types of thinking on the big topic of cross-chain are different.

Polkadot and Cosmos believe that isomorphic cross-chain security and stability are the best, and the technical debt of later products is low. Therefore, although heterogeneous cross-chain is also supported, the focus is indeed on isomorphic cross-chain within the system of substrate and Tendermint. .

Axelar believes that a unified standard is the most efficient and safe way to solve heterogeneous cross-chain, so it established Axelar’s Network. It inherits cross-chain communication and relay services, and provides an intermediate consensus layer that interacts with heterogeneous chains.

LayerZero believes that a lightweight cross-chain communication protocol for developers is just needed, so it only provides repeaters and communication protocols, and borrows oracles to play the role of an intermediate consensus layer.

Which solution can gain more attention and have greater prospects in the market competition in 2022?

(IV) Comprehensive analysis of prospects

1. The current market competition pattern

a. Heterogeneous chain competition incentives, multi-chain parallelism is a foregone conclusion

b. Giant whales are deposited in ETH, and users are deposited in multiple Layer 1s with lower cost and better experience – BSC, AVAX, Solana.

c. Combinatorial innovation has become the mainstream of innovation

d. EVM has a very high ecological share

2. Reference model benchmarking

From the perspective of ecological development, these three schemes are different in terms of narrative and ecological development strategies. We compare and analyze each dimension in the form of a table:

Z5nsFDAWPAnTRSRKBBNXPCZ9yIrXkcql2jdobhQu.pngBecause Polkadot & Cosmos is more ambitious and ambitious, it faces greater tests. From the table we can see what the future prospects are for the most difficult problems faced by each program. And the user group that needs to be focused on expanding.

It can be concluded with certainty, unless its own tools are perfect enough, the ecology is active enough, and it is a faction of its own. Otherwise, it will be difficult to complete the vision described in the white paper.

At least in the current multi-chain competition, it seems that Polkadot and Cosmos’ core solution for isomorphic chains is not in line with the current mainstream.

However, there are some subtle differences between Cosmos and Polkadot in some designs. For example, Cosmos provides a set of solutions that use IBC and pegs to complete heterogeneous chains across chains.

In short, the functions provided by Cosmos can be very fast and efficient to build an Axelar-like network. And this network also has the possibility to interact with other isomorphic chains in the future.

The advantage of this is that even if the core homogeneous cross-chain cannot be completed, the efficient adoption of heterogeneous cross-chains can be regarded as the result of the Cosmos ecosystem.

However, Polkadot’s XCMP (which has not yet been completed) is largely coupled with the consensus of the relay chain, and it is difficult to split it independently. Developers need to build a cross-chain system with BTC, ETH and other heterogeneous chains by themselves. While this makes the development cost of the intermediate consensus layer lower, it is indeed a far cry from the described vision.

Therefore, on the whole, the design of Polkadot may be difficult at present. After the slot auction is completed, Polkadot needs a lot of incentives and DAPPs on the native substrate chain to break through the current fierce battle. This difficulty should be the biggest of all the projects I’ve seen so far.

Of course, there is no doubt about the capabilities of Parity and Web3 foundation. This article only analyzes the difficulty from the product and technical level. Not intended as investment advice.

Seer point of view

(1) LayerZero’s solution may be the fastest on the market

Because LayerZero’s solution is closer to the actual needs of DAPP developers in the current market, taking the situation of Synthetix at the beginning of the article as an example, Synthetix can use LayerZero+Chainlink to quickly complete the debt pool integration of Layer 1 & 2.

(2) Axelar faces the largest homogenization competition

Compared with the entry point of lightweight and rapid deployment like LayerZero, Axelar’s solution is more homogeneous, including Polkadot&cosmos, and Anyswap&THORChain in parallel. Layer 1 adoption will be its biggest hurdle, and I’m not optimistic that Axelar can outperform Anyswap in this regard. Because although the latter is currently focusing on asset cross-chain, it is not difficult to upgrade to message cross-chain from the scheme design, and already has a very high Layer 1 adoption rate. Downward Axelar is not content to be just a lightweight communication component because of the poor overall narrative and value capture capabilities.

(3) The projected adoption rate of Cosmos will be higher than that of Polkadot

The more flexible architecture of Cosmos makes its technical difficulty lower, and its more application-oriented design style has made the current Tendermint-based ecology have run out of many excellent products, including the recently popular LUNA (Terra).

(4) The challenges faced by the Polkadot ecosystem are huge

Among all the above-mentioned schemes, Polkadot faces the most pressure of publicity, and the complicated technical scheme has led to delays and consumption of users’ confidence. What can really prove Polkadot’s expectations may be the kind of “killer product that fully utilizes the inter-chain composability”. Of course, there are many stakeholders involved in the Polkadot ecosystem, and perhaps the late-mover advantage will help Polkadot do better.

Posted by:CoinYuppie,Reprinted with attribution to:
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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