Introduction

Since Ethereum shifted to Layer 2-centric expansion solutions, coupled with the rise of tools such as RaaS, a large number of public chains have developed rapidly. Many entities hope to build their own chains to represent different interests and seek higher valuations. However, the emergence of many public chains has made it difficult for the development of the ecosystem to keep up with the pace of public chains, causing many projects to collapse during the TGE.

With OP Stack, Coinbase launched its own Base Layer 2, Kraken released Ink; with ZK technology, OKX launched XLayer; Sony released Soneium, LINE Introduced Kaia et al. Today, the financial and technical barriers to building a chain have been greatly reduced, and the cost of operating a chain based on OP Stack is approximately $10,000 per month.

The future will definitely be an era of multi-chain coexistence. Although these Layer 2 chains may choose EVM compatibility to achieve interoperability, it is difficult for them to build applications on the same chain and reach consensus due to the large number of downstream applications of the Web2 entities behind them.

TVL Breakdown, source: Devillama

The current multi-chain ecosystem has brought a new challenge: liquidity and state dispersion. Since the existence of multiple chains is inevitable, interoperability is an area that must be explored and solved. There are currently many liquidity solutions, such as we have all heard of chain abstraction (Particle Network, Socket, XION, INFINIT, Borsa), intent (Anoma, Khalani), Clearing Execution (Connext), Native CrossChain (Cross), ZKSharding (=nil; Foundation), but their core essence is the same.

Chain Abstraction Stack, Source: FrontierResearch

We use the industry-recognized Cake architecture to introduce the core components of cross-chain abstraction from top to bottom:

Application Layer

This is the layer where users interact directly and is also the most abstract layer in the liquidity solution because it is completely shielded details of the liquidity conversion. In the application layer, users interact with the front-end interface and may not understand the underlying liquidity conversion mechanism.

Permission Layer

Located below the application layer, users connect to the wallet by dApp and request quotes to satisfy transaction intent. The "intention" here refers to the final transaction result (i.e. output) expected by the user, rather than the specific execution path of the transaction.

Account management and abstraction layer (Key Management and Account Abstraction)

Due to the multi-chain environment The existence of blockchain requires an account management and abstraction system that adapts to different chains to maintain the unique account structure of each chain. For example, SUI's object-centric accounting system is completely different from EVM. One Balance is a representative project in this field. It builds a trusted account system without establishing inter-chain consensus, and only requires trusted commitments between existing account systems. Near Account achieves abstract management by generating multi-chain account wallets for users, greatly optimizing the user experience and reducing UX fragmentation. However, the liquidity aspect mainly integrates existing public chains.

Solver Layer

This layer is responsible for receiving and realizing the user’s transaction intentions , where Solver roles compete to provide a better user experience, including faster transaction times and execution speeds. On this basis, intent-based projects such as Anoma build various intent-driven solutions. Derivatives of such intents, such as Predicate components, can implement user intent under specific rules.

Settlement Layer

This is the middleware layer used by the solution layer to achieve user intent. The core components of the fluidity and state-dispersed solution include:

Oracle: Used to obtain status information on other chains.

Cross-chain Bridges: Responsible for cross-chain information and liquidity transfer.

Pre-Confirmation: shorten cross-chain confirmation time.

Data Availability (DA): Provide data accessibility.< /p>

In addition, inter-chain liquidity, finality, Layer 2 proof mechanism and other factors need to be considered to ensure the efficient operation of the entire multi-chain system.

Solution

Currently, there are many solutions to solve liquidity fragmentation on the market. After reviewing a large number of solutions, we found that there are mainly the following methods:

1. RaaS-centric: a Rollup solution similar to OP Stack, which assists Rollup built on OP Stack by adding specific shared sequencers and cross-chain bridges Shared liquidity and status. This hopes to solve the problem of liquidity and status dispersion in a higher-level direction. One of the more subdivided solutions is the separate design of shared sequencers. This solution is more targeted at Layer 2. Universal, such as Astria, Espresso and Flashbots

Chain. Abstraction, source:NEAR

2. Account-centered: Similar to NEAR, build a full-chain account wallet and support signing and signing across multiple blockchain protocols through a technology called "chain signature" Execute the transaction. The core component is the MPC network, which signs multi-chain transactions on behalf of users. Although this solution can greatly solve the problem of UX fragmentation, for developers, it involves complex back-end implementation and does not essentially solve the problem of fluidity and state dispersion.

3. Centered on the off-chain intent network: that is, the Solver Network in our "Introduction" cake architecture diagram. The core is that users send intentions to the Solver network, and the Solver role competes for quotes. , to provide the optimal completion time and transaction price, these Solvers can be AI Agent, CEX, Market Maker or even the integrated protocol itself such as Liquorice. Projects in this area include Anoma, Khalani, Enso, aori and Valantis. Although the intention is to achieve complex cross-chain operations of any difficulty in theory, the implementation does require a Solver with sufficient liquidity to assist, and when encountering some off-chain needs, the Solver has the possibility of fraud. If fraud is introduced By means of proof and other means, the difficulty of implementing Solver Network will become higher, and the threshold for running Solver will also be higher.

4. Centered on the on-chain liquidity network: This direction is dedicated to optimizing cross-chain liquidity issues, but does not solve the problem of dispersed status on other chains. . Its core is to build a liquidity layer and build applications on this layer to share full-chain liquidity. Some projects include: Raye Network, INFINIT, Everclear, Elixir, etc.

5. Centered on on-chain applications: These applications build high-liquidity applications by integrating big MM or third-party applications, such as Liquorice and Socket , Radiant Capital, 1inch, Hedgemony, etc. This type of project requires the management of complex cross-chain processes and has extremely high requirements on developers, so it is also extremely prone to hacker attacks.

Solving the liquidity problem is a very important proposition. In the financial world, liquidity often represents everything. If an integrated liquidity platform can be built, especially the fragmented The integration of full-chain liquidity will have great potential, and we have looked at many different solutions.

In the above two categories, we can see that according to the cake structure, Settlement Layer is the most atomic level solution. In these cross-chain, oracle, On top of atomic solutions such as the Pre-Confirmation solution, a more abstract layer is built, namely Solver Layer, Permission Layer and Application Layer. Each of the solutions we listed above to build abstraction or liquidity in different directions conforms to this set of different levels, which can be understood as an upstream and downstream relationship. However, these solutions are still not atomic-level solutions. The entire problem of liquidity fragmentation has brought about the emergence of many complex derivative problems. Therefore, a variety of solutions have been derived for interoperability. But essentially it still depends on these components. Next, we will discuss several typical projects with chain abstract concepts to see how each solves the problem of liquidity fragmentation from its own starting point.

INFINIT

INFINIT Structure, source:Infinit

INFINIT has built a DeFi RaaS service, which can provide the components required for direct construction of the DeFi protocol, such as Oracle, Pool Type, IRM, Asset, etc., and can also Provide Leverage Trading that can be activated immediately and components such as Yield Strategy. It is equivalent to other application construction sides, but the final liquidity is placed in Infinit’s liquidity layer. However, it still has not disclosed the underlying working principle. Currently, INFINIT has received $6 million in seed round financing from Robot Ventures, Electric Capital and Maelstrom Capital.

Khalani Network

Khalani Network Structure, source: KhalaniNetwork< /p>

Khalani built three core components, namely Intent compatibility layer, Validity and universal settlement layer.

External applications or intent layers can publish intents to Khalani, and then Khalani's Intent compatibility layer can convert the external intent into a format that the protocol Solver can recognize, using The standardized format is the Validity language. The Khalani node is responsible for passing cross-chain bridges and fastQuick settlement technology, etc. submit the final results to the universal settlement layer. The project is still in the construction phase and no further details of the work have been disclosed. It received $2.2 million in seed round financing from Ethereal Ventures, Nascent, Maelstrom Capital and others in August.

Liquorice

Liquorice Structure, source: Liquorice

Liquorice is a decentralized application that enables auction-based price discovery and unilateral liquidity pools. Liquorice’s primary mission is to provide professional trading firms with efficient inventory management tools and easy connectivity to core DeFi protocols such as 1inch and Uniswap This app focuses more on the trading itself. Still in the development stage, it announced in July a $1.2 million pre-seed round of financing led by GreenField.

Xion

Xion is upgraded from the Burnt brand. In the past, Burnt was focused on consumer applications. Later, the team discovered that there were huge fragmentations in the interactions on the chain. ization problem, so Xion was built to improve this problem. Xion is built on the Comet BFT consensus protocol. The cross-chain communication it uses is based on Cosmos IBC, so it is more native and secure than other cross-chain bridges. It has conducted four rounds of financing in total, with investors including Animoca, Multicoin, Alliance DAO, Mechanism, etc.

=nil; Foundation

nil is the developer of Ethereum's ZK computing power market, ZK coprocessor and Layer2. The team has profound ZK technology foundation. Proposed the zkSharding solution, which uses ZK technology to horizontally expand the Ethereum main network, execute shards to process transactions in parallel and generate ZKP, while the main shard verifies data, communicates with Ethereum and synchronizes the network among all validators state. The primary shard also manages the distribution of validators and accounts among execution shards. The consensus protocol used by the verification committee is also Hotstuff, which is the latestParallel execution of projects is common. =nil; L2 has cross-shard communication embedded into the protocol from the beginning. Cross-shard messages are validated as transactions by each shard’s committee of validators.

The basic idea is to build an embedded cross-shard communication architecture similar to IBC through the sharded Layer 2 architecture, so that liquidity can be solved and the problem of state dispersion. But its core idea is unreasonable, because the problem solved by liquidity decentralization is a multi-chain problem, and it builds a single Layer2, which means that if you want to solve it, all chains need to become a shard of ZK-sharding, which is difficult accomplish.

ERC-7683

ERC-7683, source:Across

Ethereum is also working on solving this cross-chain liquidity problem. Currently, Arbitrum, OP, and Uniswap are the first to publicly support the ERC7683 standard, which are also based on Intent. Cross-chain method. Its core goal is to establish universal standards for cross-chain operations across L2 and side chains, standardize order and settlement interfaces, and achieve seamless cross-chain execution. Its main core is a Filler, which can also be said to be the Solver role in the chain abstraction. . The proposal was co-constructed by Uniswap and Across and is currently being reviewed by the Cake working group.

OP Stack

OP Stack, ERC-7683, and zkSharding are all Ethereum’s internal solutions to the liquidity fragmentation between Layer 2, respectively. It is solved at the architectural level, consensus level and application level. OP Stack solves the problem of information transmission and Sequencer decentralization at once by designing a complete multi-Layer2 solution. When you use the OP Stack architecture, cross-chain contracts will be automatically deployed, and there will be a Supervisor to challenge and avoid Pass false cross-chain information. Currently, Coinbase, Uniswap, Kraken, etc. use the OP Stack architecture.

Among them, the more typical one is Unichain. Unichain mainly solves cross-chain problems through integration with the Superchain networkLiquidity fragmentation problem. This setup facilitates seamless liquidity movement by providing:

Intent-based cross-chain bridge: The bridge enables fast and reliable inter-blockchain liquidity Transfer, allowing users to set intentions, thereby helping the system automatically choose the best path for liquidity movement. This method abstracts away complexity for users, making cross-chain transactions smoother and faster.

Unichain Validation Network (UVN): This decentralized network of node operators validates cross-chain transactions, providing faster economic finality. Faster finalization is critical to ensure efficient settlement of cross-chain transactions, thereby minimizing the risk of liquidity fragmentation due to delayed settlement.

Flashblocks and verifiable block construction: By using Flashblocks, Unichain significantly reduces block times, improves liquidity provider efficiency, and achieves more synchronization cross-chain market. Flashblocks help ensure liquidity is readily available and reduce the negative impact of block confirmation delays, which can lead to liquidity fragmentation.

Summary

Solving the problem of cross-chain liquidity is a very complex field with many solutions. For example, Layer2 solutions are divided into embedded cross-chains from Ethereum Messages are especially solved by ERC-7683, and Layer2 such as the OP Stack built by OP to share the Sequencer. Out of the context of Layer 2, all Layer 1 also face the problem of fragmentation of liquidity, status, and user experience. There are solutions focused on liquidity applications, as well as off-chain solutions based on Solver Network, and even An account-centric solution like NEAR needs to be based on off-chain roles like Solver.

We agree that the fragmentation of cross-chain liquidity, status, and user experience is a problem for the entire blockchain industry. If we think about it as a whole, we need to adopt a more Abstraction is done in a way similar to chain abstraction. This is equivalent to the real entrance to Web3, solving the fragmentation in user experience. At the same time, the integration of liquidity and status is done in a place that users cannot perceive. The specific method of integration is divided into using off-chain Solver network and atomic integration cross-chain bridge and other facilities, which are worth exploring. In general, the future must be multi-chain, and solving the problem of liquidity dispersion is what an industry must face.problem, and this integration of full-chain liquidity has vast room for growth, and it is possible to build Google in the Web3 era.