Why are institutions optimistic about Stargate?

LayerZero is a protocol for transferring messages between blockchains. These messages can be transactions, such as token transfers or exchanges. Stargate is a bridge and DEX built on LayerZero. 

How does LayerZero work?

Mining tx on the source chain. Its payload is a message. The relay then sends a message to the target chain along with the proof that the tx has been mined (Merkle root + some Header info). On the target chain, the independent Chinalink messenger pushes the hash of the source block header to the target chain. The LayerZero endpoint checks that the proof is valid and links to a known block, in which case the message is accepted.

 

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Unlike Cosmos, in LayerZero, the block header is submitted by an independent oracle, while in Cosmos, the main chain coordinates the block header. 

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Application: DEX

Stargate DEX/Bridge is the first application on LayerZero. The current cross-chain bridge does not allow composability, does not allow native assets, or must use intermediate tokens, which is the trilemma of cross-chain bridges (choose two out of three):

  • Even if finality is guaranteed
  • unified liquidity
  • native asset transaction

Composability is all about calling a smart contract on the target chain, such as swapping on the target chain, or staking assets… However, current cross-chain bridges only allow token transfers, or at most swaps. No arbitrary message/tx transmission.

For finality versus native assets, most cross-chain bridges achieve finality by minting synthetic assets:

  • When a swap tx is mined on the source chain, a minted tx is signed and broadcast to the target chain.
  • No risk of insufficient assets on the target chain -> no reversibility required 

However this is annoying because there are many different types of synthetic USDT, for example, you want to farm DFK and send USDT from BSC to Harmony, but USDT on BSC is not the same as Harmony, and the exchange slippage of the two synthetic assets Too high, so you bridge back and send to Ethereum, then from Eth to Harmony.

And the Stargate bridge, it has a mechanism to provide unified liquidity. Intuitively, it works by having the contracts on each chain keep the balance of assets on the other chains, as well as the credit owed to the target chain. The outstanding credit information is then periodically disseminated. Through this algorithm system, it can be proved that there are enough assets on the target chain:

  • no risk of reversal
  • Guaranteed finality
  • Regular assets from the pool can be used
  • Make sure it’s a native asset

Token Economics

Early high inflation, low circulating supply (

  • Hub L1 like Cosmos, Polkadot
  • Cross-chain bridge: SYN, RUNE, ANY
  • And may get TVL shares of other DEXs (Curve, Sushi, Uniswap)

Here’s why a lot of people, including Alameda, Redacted, are bullish on Stargate and STG, and why it attracted $2B in liquidity in a matter of days

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/why-are-institutions-optimistic-about-stargate/
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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