Alchemix adopts xERC20 token standard via Connext to reduce bridging risks

DeFi lending platform Alchemix has become the first project to adopt the new xERC20 (ERC-7281) token standard via the interoperability protocol Connext. 

The move promises to reduce liquidity costs for token issuers while enhancing cross-chain bridge security, according to an announcement on Monday.

“Today, Connext is announcing support of the xERC20 standard and onboarding projects into safely bringing their tokens to every chain,” Connext founding contributor Arjun Bhuptani said. 

Using xERC20s via Connext, users can transfer Alchemix assets between instances of the protocol deployed on each supported chain. “As our flagship user, we've been working with Alchemix to bring alUSD, alETH and ALCX to Arbitrum and Optimism,” Bhuptani added.

ERC-7281 proposal

Bhuptani initially proposed ERC-7281 alongside the decentralized reserve currency protocol Wonderland two weeks ago, to “fix the trade-off between security and fungibility for bridged tokens,” he said.

The trade-off in current cross-chain token-bridging approaches for token issuers involves risking security by aligning with a single bridge partner or taking on high liquidity costs by supporting multiple bridges, according to Connext. The xERC20 token standard's solution enables token issuers to “manage bridges, set minting limits and let selected bridges mint identical tokens,” Connext said. “It’s a bridge-agnostic public good and requires minimal or no custom work for most ecosystems to support,” it added.

Although the xERC20 standard is still undergoing public review, Connext said projects can deploy xERC20s today while ensuring compatibility with the finalized ERC-7281 specification in the future. Bhuptani highlighted the recent Multichain exploit — with over $230 million in potential malicious transfers removed from the bridge protocol — as an example of why the solution was urgently needed.

Bridge exploits are one of the main causes of attacks in DeFi, among the nearly $3 billion in funds stolen by attackers, according to The Block’s data dashboard.

Disclaimer: Larry Cermak, CEO of The Block, is an angel investor in Connext.