In 2021, the rise of new public chains such as Solana and Avalanche will increase the imagination of public chain narratives. Recently, a number of dazzling public chains have received high investment and great attention, such as Aptos, Sui, etc. Obviously, no public chain can meet all needs, and the pattern of coexistence of multiple chains will exist for a long time. At the same time, the expansion of Ethereum will need to rely on Layer 2 solutions for a long time to come. The significance of cross-chain existence is to achieve interoperability between different public chains and between different Layer 2s and improve the efficiency of capital flow. There are two main ways of cross-chain: centralization and decentralization, that is, through exchanges or cross-chain bridges. At present, there are more than 100 existing cross-chain bridge projects, and they differ in cross-chain message transmission, verification mechanism, and capital flow methods.
Today, the continuous emergence of emerging public chains has brought about an explosive growth in cross-chain demand. These new public chains are developing rapidly, and cross-chain solutions are urgently needed to solve the problems of initial capital source and efficiency. Especially in the bear market stage, public chain competition is still stock competition. It is precisely the cross-chain demand in the new public chain era that the MicroChains cross-chain solution was born. The MicroChainsV1 version mainly implements the BTC cross-chain between the Bitcoin network and the Cardano blockchain. Today, MicroChains has been iteratively upgraded to the V2 version, serving cross-chain solutions for early and mainstream public chains, especially providing better security and smoother experience for new public chains.
1. Security is a priority for early projects
The cross-chain of centralized exchanges will have certain advantages, such as fast, convenient and low cost. But the cross-chain bridge is more in line with the idea of web3 decentralization, although it is still in its early stages and has also suffered significant losses due to security issues. Because of this, the cross-chain infrastructure is constantly updated and iterative, which is worthy of early entry by investors and users.
At present, there are indeed some problems with cross-chain bridges: 1. Decentralization; 2. Deployment difficulty and cost; 3. Fund guarantee for cross-chain liquidity pools; 4. Value capture ability of tokens; 5. Interoperability still In early stages; 6. Security issues. Many cross-chain bridges have been launched in a hurry. In order to attract users and project parties, zero handling fees and speed are the main selling points, but the most important security is often ignored. The contract loopholes and verification methods of cross-chain bridges have become a breakthrough for hackers. In addition, the cross-chain bridge also faces the following risks: 1. The liquidity of the cross-chain bridge is skewed; 2. The risks on the public chain deployed by the cross-chain bridge (such as Terra crash); 3. The cross-chain bridge is down or delayed.
There have been several cross-chain bridge hacking incidents this year. The Ronin cross-chain bridge was due to the theft of 5 of the 9 validators’ private keys, and the official team ran 4 of them. In June, Harmony’s official cross-chain bridge Horizon private key was stolen, and only two validator nodes were required to pass the mechanism to successfully verify. The main reason for the theft of these two cross-chain bridges is that they rely too much on an extremely limited number of trusted validating nodes. In addition, the cross-chain bridge also faces the following risks: 1. The liquidity of the cross-chain bridge is skewed; 2. The risks on the public chain deployed by the cross-chain bridge (such as Terra crash); 3. The cross-chain bridge is down or delayed.
2. Interpretation of MicroChains cross-chain mechanism
2.1 Safe asset custody
There are two types of cross-chain assets: custodial and non-custodial. Custody is done by centralized institutions, that is, the assets deposited by users in the original chain are hosted in the addresses of these institutions, such as wBTC and xDAI. MicroChains is a decentralized product with a centralized asset custody solution. Specifically, in MicroChains, assets are hosted on a centralized platform (custodian), but the verification and circulation of assets across chains is decentralized.
At present, MicroChains’ asset custodian is in the form of a whitelist, and will cooperate with more asset custodians in the future to ensure more diversified and secure asset custody. There are three advantages to introducing a third-party custodian:
(1) Avoid the theft of the private key for asset custody and the occurrence of cross-chain bridge attacks similar to Ronin. The introduction of mature asset custodians is because they have sufficient asset guarantees and already have very mature technical capabilities in custody services. Wallet security is a condition for their survival, and it is basically impossible for assets to be stolen;
(2) Monitor excessive issuance and asset abuse of on-chain “packaged” tokens. Cross-chain assets require a third-party verifier as a verifier for verification during the minting and withdrawal processes.
(3) Two custodian roles, Huobi Trust & Cobo Custody, have been introduced, and the custodial assets of the two custodians have exceeded billions of dollars. Trust is no stranger to us. Grayscale Fund is the world’s most well-known cryptocurrency trust fund, with an asset scale of over 30 billion US dollars. The introduction of a professional custodian as a third-party verifier is to use a centralized organization to solve the security problems that cannot be completely solved by the current cross-chain bridge. It does not seem to be so decentralized, but it is a kind of advance in the way of asset processing of the cross-chain bridge. The way. Centralized asset management institutions actually occupied an extremely important position in the early stage of the crypto industry. First, their asset scale is large enough to support the cross-chain needs of users. Second, custodians have obtained local licenses to a certain extent and are subject to local legal requirements. Especially in the case of many projects in the recent bear market, these projects are packaged with decentralization, but the actual use of high leverage causes user property losses. We need centralized institutions to popularize digital assets to traditional finance in a more open and secure way. The third is that the two custodians Huobi Trust & Cobo Custody already have mature technology for asset custody in the industry, ensuring the absolute security of asset preservation and transfer.
In addition to the advantages of the custodian itself, MicroChains also requires custodians to regularly publish their custody assets as proof of the adequacy of collateral to prevent asset abuse. MicroChains also regularly invites well-known auditors to audit the custody assets and issue reports. The official also gave reasons for choosing these two custodians:
- Huobi Trust is licensed and regulated. Any illegal activities are subject to strong supervision by a third party;
- Huobi Trust is backed by Huobi’s 8-year accumulation of blockchain technology, and its experience in digital currency custody far exceeds that of most projects in the industry;
- As an industry-leading custodian, Cobo Custody has numerous industry partners and strong technical and product strength;
- Through the introduction of Cobo Custody, the diversification of asset custody is realized and the single-point risk is reduced.
2.2 Cross-chain verification mechanism and its security
The most important and most secure part of cross-chain technology is the verification of cross-chain information. At present, the cross-chain information verification mechanism is divided into four types: 1. Multi-party external verification; 2. Light client/smart contract verification; 3. Atomic swap; 4. Ethereum expansion cross-chain bridge (Rollup). In terms of security level, light client/smart contract verification is the safest, but its deployment cost is high. MicroChains uses a multi-party external verification mechanism, and the cross-chain bridges that use the same type of verification mechanism include Multichain, Ronin, WBTC, Harmony, Wormhole, etc.
Similar to the above projects, there are contracts inside the MicroChains cross-chain bridge to monitor and audit cross-chain transactions. The advantage of MicroChains is that, in order to make the multi-party external verification more decentralized, MicroChains adopts the multi-node enhanced network verification (VoMEN Network). That is, the KYC verifier acts as a third-party enhanced verification node. This has been mentioned above.
Cross-chain and withdrawal of assets requires both MicroChains and third-party KYC verifiers to verify that there is enough asset collateral on the source chain before they can be withdrawn. Ensure that the tokens on the destination chain will not be over-issued, especially the issuance of “packaged” tokens. For small-value assets cross-chain, the system will automatically verify; large-value assets cross-chain requires internal multi-node manual review by multiple custodians. More third-party custodians will be introduced later in the project. They may not be professional custodians, but they need to pledge a certain margin on the chain and undergo KYC verification.
Compared with other liquidity cross-chain bridges, such as Mulitchain and Hop, they introduce market makers to provide cross-chain asset verification and liquidity, but there may be insufficient cross-chain assets and validators. For cross-chain bridges that use native verification methods such as Layerzero and Axlar, their deployment is difficult, and it is difficult for early public chains and projects to gain their favor, and due to insufficient funds, it is difficult to meet the needs of project expansion. . MicroChains will be the first choice for early projects, and in the future multi-chain ecosystem, it will inevitably carry a large amount of funds in the cross-chain infrastructure.
2.3 Two ways of capital flow
The advantages of the “lock-burn” model are greatly reflected in the two important assets of BTC and ETH. It is precisely because of the existence of the “packaged token” wBTC that long-term idle bitcoin funds can generate huge benefits and improve the efficiency of capital flow between blockchains. The current total market capitalization of wBTC has exceeded $5billion. Since there is no question of whether liquidity is sufficient, cross-chain transactions can be carried out for users at any time.
The specific flow of funds in this way is that users put their assets that need to be cross-chain into the cross-chain bridge contract of the source chain, and specify the address of the destination chain. The cross-chain bridge locks these assets, and “sends” the number of locked tokens and necessary information to the destination chain. The cross-chain bridge of the destination chain “mints” the corresponding tokens (“packages” tokens) and sends them to the user-specified address. When users want to redeem assets, the cross-chain bridge will destroy the “minted” assets, and the native assets of the source chain will be released.
The above analysis implies a risk: the price of “packaged” assets fluctuates on the value of the native asset, and the influencing factors come from two aspects: 1. The market’s demand for “packaged” tokens, which also depends on these Application scenarios of “packaged” tokens on the destination chain; 2. Circulation and security of “packaged” assets. Once the “package” token is over-issued or the assets of the cross-chain bridge are stolen, it will also seriously threaten the value of the “package” token and the security of its related protocols.
MicroChains adopts the “lock-destroy” cross-chain asset circulation model on emerging public chains. In order to solve the above problems, MicroChains verifies the coinage through the multi-node risk control module within the cross-chain, and verifies the assets of the source chain to determine whether it is sufficient. This ensures that the amount of “wrapped” tokens in the destination chain and the amount of assets locked in the source chain is 1:1, and cross-chain assets are placed in a compliant custodian. At the same time, in order to realize the smooth transfer of assets between emerging public chains, cross-type “package” tokens will be derived, which means that assets can be burned in the source chain, and there is no absolute source chain and destination chain.
图. The procedure of Mint & Burn tokens in MicroChains (From MicroChains whitepaper)
(2) Liquidity Pool Mode
The liquidity pool is a two-way fund pool model that provides native assets on the chain. This model needs to ensure that there are enough assets in the liquidity pool, otherwise the cross-chain cannot be completed. This type of cross-chain bridge generally supports limited assets, usually BTC, ETH and some stable coins. Representative projects include Multichain, Stargate, and Hop.
For cross-chain assets of current mainstream public chains, such as Ethereum, Polygon, Solana, Avalanche, BNB Chain, etc., MicroChains adopts this liquidity pool model. There are two reasons for this. First, if some “packaged” tokens have no practical application scenarios on the mainstream chain, they will be worthless; second, the official will generally issue native stable coins on the mainstream chain, which is also cross-chain. The largest demand for stablecoins, the “wrapper” tokens of stablecoins are insufficient to compete with these native stablecoins.
Figure. Liquidity Pool Pattern Illustration (From MicroChains whitepaper)
2.4 MicroChains leads a new cross-chain approach
From the above cross-chain mechanism, we can see that MicroChains is a lightweight application in terms of verification mechanism and asset flow method. Including that the deployment of smart contracts is not difficult, and it can quickly access non-EVM chains and new public chains.
MicroChains is different from other cross-chain bridges:
1. Locked assets are safely kept by top trust companies. In addition, the adoption of multi-signature, HSM and high insurance coverage ensures the safety of locked assets.
2. Use third-party enhanced nodes to strictly verify each cross-chain transaction to avoid problems such as over-issue and asset theft.
3. The unlimited cross-chain experience is smoother and easier.
4. Quickly occupy the market by rapidly deploying emerging chains.
The in-depth cooperation between the cross-chain bridge and the public chain is also a test of whether the cross-chain bridge has the ability to carry users and assets of a public chain. At present, MicroChains is in-depth cooperation with Cardano, focusing on promoting Cardano and improving the interoperability between blockchains. It is able to cooperate with Cardano’s early ecological projects and has accumulated certain experience. This enables MicroChains to participate in the ecological cooperation of emerging public chains faster in the future. It is reported that MicroChains has completed the support test of BNB Chain, Polygon, Avalanche, Arbitrum, Optimism and other EVM chains, and will release support for these mainstream EVM public chains on a scheduled date.
3. Richer token application scenarios of MicroChains
Many cross-chain projects cannot find a suitable token economy to serve the entire ecosystem. They either issue tokens in a hurry, and the use of tokens is limited to governance, or they cannot capture value, sacrificing the interests of some roles in the cross-chain to meet the needs of attracting users , making it difficult to decentralize. MicroChains fully considers the participation of each role in the token economic model, encourages contributors, punishes perpetrators, especially provides enough usage scenarios for tokens, and the token release mechanism also takes into account the interests of all roles. The name of MicroChains token is $MCG, and the total amount is 100 million. Here are some notable token distributions and uses:
- MicroChains validator incentive: 3.5%. The reserve will be unlocked after 4 months of TGE, and the incentive will be released after the KYC validator program is launched.
- Cross-chain mining: 25%. It is unlocked linearly over 25 months, with 16% unlocked in the first month; halved from 2 to 4 months, 8% per month; 5 to 13 months, halved, 4% per month; 14 to 13 months Halved in the 25th month, 2% every month. Rewards may not be used up every month and may accumulate. It depends on whether there is an incentive package. Actual usage will be regularly disclosed to the community.
- Liquidity mining: 25%. It unlocks linearly over 25 months at 4% per month. Rewards may not be used up every month and may accumulate. It depends on whether there is an incentive package. Actual usage will be regularly disclosed to the community.
- Collateral: 5%. Users are encouraged to stake MCG and get rewards. The unlocking scheme is the same as cross-chain mining.
- LP bonus: 1.5%. Incentives for DEX LPs. The unlocking scheme is the same as cross-chain mining.
- Protocol governance: including parameter modification, public chain support, token support, treasury fund disposal and fee distribution.
Fig. MicroChains token distribution
For a period of time in the market, because cross-chain bridge liquidity mining is single-coin mining, there is no impermanent loss problem, and hedging is easy, so it has become the first choice of many miners, but it is difficult to obtain fully decentralized cross-chain product security issues. Assure. MicroChains goes online for mining, and the highly secure product design will be able to attract miners in the market.
According to the project’s official technical weekly report, MicroChains has begun testing its cross-chain mining and liquidity mining products. Under the dual strong measures of liquidity mining and cross-chain mining, it is foreseeable that after supporting multiple mainstream EVM compatible chains, the TVL and cross-chain transaction volume of MicroChains will increase rapidly, and it is just around the corner to become the leading mainstream cross-chain product.
4. MicroChains cross-chain experience and participation opportunities
At present, MicroChains is the first cross-chain bridge that directly supports the Cardano ecosystem, and currently supports Bitcoin, Ethereum, Cardano, and Milkomeda blockchains to cross each other. Different from the cross-chain issuance of WBTC, MicroChains is more concise and easy to use. Its users do not need KYC, and can participate in the cross-chain by directly connecting to the wallet. The wallet supports Metamask and Nami (ADA wallet). It is important to note that exchange wallets are not supported, so native assets cannot be sent directly from exchange wallets, cross-chain will fail, and assets cannot be retrieved. The cross-chain time of native assets is about 10-30min, and BTC needs 20-40min. There will be a minimum limit on the cross-chain amount, and the maximum amount can already satisfy transaction and institutional users. In terms of fees, a 0.1% cross-chain handling fee will be charged, and gas fees will be charged according to the cross-chain direction. The UI interface and operation experience are similar to most cross-chain bridges.
In the roadmap of MicroChains, it clearly shows that more public chains will be connected in a certain time in the future, and cross-chain assets such as tokens and NFTs will be realized. At present, many cross-chain bridges only support a limited number of tokens cross-chain. MicroChains attaches great importance to the capital efficiency of NFTs in the future. The current total market value of NFT has exceeded 24 billion US dollars. With the expansion of NFT usage scenarios, including the integration of social networking, NFTfi and Omni NFT, the cross-chain needs of blue-chip NFTs in particular will become more and more urgent. MicroChains realizes NFT cross-chain, which is easier in terms of technical difficulty, and also relies on custody services in terms of security. Therefore, MicroChains has become an NFTfi infrastructure, and the valuation space will be further pushed up.
In addition, cross-chain aggregation and swap are also the development direction of MicroChains, and the volume of cross-chain swap will gradually exceed that of Uniswap and Sushiwap, which are multi-chain deployed projects. Perhaps the cooperation between sushiswap and Layerzero will stabilize its swap. status. But for the new public chain, MicroChains is undoubtedly much simpler than the combination of Sushiswap+Layerzero. The cross-chain architecture of MicroChains enables it to support the cross-chain swap function, and the implementation is relatively simpler and safer. It can Directly link multiple exchange APIs in the escrow account to achieve millisecond-level quotations without relying on external oracles with a certain price delay, making up for the real-time cross-chain gap in the market.
MicroChains lifted the user whitelist restriction in July, and all users are now able to participate in the cross-chain experience. In the token distribution list, it can be seen that 1% of the tokens will be issued by airdrops. The official rules have not yet been announced. Currently participating in the interaction, there is a certain probability of getting airdrops.
Officially from various channels, both Gate.io and Huobi Global have announced that MicroChains’ token $MCG will be listed on Gate.io and Huobi Global on August 2, UTC time.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/cross-chain-security-solutions-in-the-new-public-chain-era/
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