According to the mainstream cross-chain bridge design, cross-chain liquidity grows proportionally to its users. Cross-chain assets become locked into the cross-chain bridge contract and added to bridge TVL. For example, if a user transfers ETH from Ethereum to BNB Chain for DeFi activities, the user's ETH will be locked into the smart contract of the cross-chain bridge on Ethereum. When users then bridge their assets back to Ethereum, the corresponding assets on Ethereum are unlocked.
DeFi activities, which generally entail some sort of pledge or lock-up period, have resulted in an accumulation of assets locked into contracts on Ethereum. This accumulation of assets inside of certain contracts has attracted a lot of attention, notably that of hackers who target these contracts and in particular those of cross-chain bridges. Chainalysis data shows that so far in 2022, 69% of hacking losses in crypto have originated from attacks on cross-chain bridges.
The DeFi ecosystem, which has continuously evolved and improved has seen various cross-chain projects emerge. The competition has become increasingly fierce. Cross-chain projects compete on their reputation for being secure, and continue to integrate new projects and offer cheaper cross-chain services than their competitors. Besides these things, cross-chain bridges have been lacking something novel that is attractive and will grow user retention.
In face of these challenges faced by cross-chain bridges, Cross Chain To Earn may offer a novel solution.
The Cross Chain to Earn Opportunity Brought on by Ethereum 2.0
The cross-chain to earn concept revolves around the participation of cross-chain bridges in the Ethereum 2.0 consensus activities. This helps the cross-chain bridges generate an income that can attract more users, decreases the TVL on the bridge which reduces the likelihood of a hack and helps to improve the security of the Ethereum network. Using this method, the bridge could generate a 4% APR for users from the PoS staking activities. If the PoS staking activities are simultaneously connected with MEV, the yield could be higher.
Figure: Ethereum cross-chain bridge Asset Ranking, from dune.com
According to statistics from dune.com, the total assets locked in the cross-chain bridge on Ethereum has reached 7 Billion USD, of which the value of ether assets (ETH or WETH) has reached nearly $600M. This does not account for the additional income of MEV PoS staking that generates $24M in earnings per year.
If the cross-chain to earn solution is implemented, the cross-chain bridge will need to connect with various network staking activities. In addition to its own cross-chain protocol, it also needs to add liquidity management, staking activities and a benefit distribution mechanism. This will make the overall solution of the cross-chain bridge more complicated, and at the same time put forward higher requirements on the protocol security and product design of the cross-chain bridge.
The main challenges involved in the scheme include:
- Liquidity management that successfully provides for the cross-chain needs of users, despite the reduction in liquidity as a result of the staking activities.
- To ensure the stability of the staking activities, it is necessary to ensure successful operations of the staking activities to avoid capital loss caused by penalties as a consequence of performance issues.
- Protocol security, with the overall solution growing in complexity, it is necessary to further ensure the security of the protocol and avoid introducing new security loopholes.
- Reasonable income distribution. Since cross-chain users are relatively independent, it is necessary to distribute the staking income in accordance with the user's specific cross-chain funding cycle.
As an infrastructure that links various parts of the multi-chain ecosystems, cross-chain bridges are constantly faced with challenges. While providing users with stable and convenient cross-chain services, cross-chain bridges are also constantly looking to innovate. The blockchain industry is booming and with the regularity of upgrades to the Ethereum network, it is to be expected that the Ethereum PoS staking and revenue withdrawal functions will be opened soon. When this happens, if cross-chain bridges join the network staking activity, they will become more closely integrated with Ethereum and its DeFi users, creating more possibilities for greater interoperability.
Author: Thinkasibe; Core Developer of Poly Network | Twitter
About Poly Network
Poly Network is a global cross-chain protocol for implementing blockchain interoperability and building Web3.0 infrastructure. Poly Network has integrated 30+ blockchains, including Ethereum, Aptos, Polygon, Avalanche, Fantom, BNB Chain, Arbitrum, Optimism, OKC, Neo, Zilliqa, Harmony, Metis, etc. Since its launch, the protocol has enabled cross-chain asset transfers of more than USD 16 billion.
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