How Ethereum can solve L2 Liquidity Fragmentation

Transcript

[Music] after afternoon part of flower stage my name is Mickey I'm the moderator and uh I promised Tim that I won't take much of his time so let's let me just uh welcome to the stage Tim Robinson thanks hey everyone um so I'm Tim I'm the head of crypto research at blueyard Capital and I've spent the last few months um looking into every way that we

can solve uh liquidity fragmentation across ler twos um basically exploring every piece of technology that will help us out and uh we going to give a overview of that now um so this is the problem we're trying to solve um we want to use an app we have money it's somewhere in ethereum it's on a layer two it's in some token how do we get that um that money to the app in a way that we want how do we make ethereum feel like using one chain um in addition of the problem um this is my wallet um we have lots of little tokens across lots of networks how do we like console these together um dealing with as painful um we really want to make all the layer twos feel like using one chain

you have your assets you can use them in whatever app you want it should figure out how to get there um so bridging currently is kind of painful um this is the a UI can be improved over time and it's getting better um but the main problem with using third party Bridges is that you need to lock liquidity um on every chain that is uh supporting that bridge and so if we have a future where we have 100 or a thousand different layer twos um the liquidity is kind of fragmented between all of them and it's hard to move your assets around um and so uh wallets do want to improve this experience we've talked to different wallet protocols um and different people but the underlying

infrastructure needs to be improved um and like this is getting better like we have um recently after EIP 4844 I could move some money from based optimism it took 4 seconds it cost 1.7 cents um so things are improving we just need to improve the ux we need to and we need make this better for moving large amounts of money um across different networks so uh this can be made a lot better so let's look at the solutions that are out there um so there's three main ways three main upgrades that are going to happen to ler 2os over the next few years um the first one is the shared ecosystem Bridge so this is the uh like polygon Ager the optimism super chain um

zync is also working on this um lots of these ecosystems are creating um this shared Bridge the second is um when we have these ecosystems where liquidity moves seamlessly between them um how do we bridge between these ecosystems and so we'll talk about that and the third is mint burn tokens so there's um usdc now um there's a standard called X erc20 that will help with this in the future um so um currently when you bridge to la2 bridge um you basically lock your tokens in that bridge it gets mted on the Chain if you want to move tokens between any of these chains you have to use a third party Bridge or you have to go back to ethereum um this is

kind of uh painful because then you have to pay ethereum gas if you want to move large amounts of money you have to either pay lots of slippage or you have to pay a high amount of gas um to move between these chains um so there's these ecosystem bridges that are basically the next step in making liquidity flow between layer twos um so the polygon AG layer is probably the furthest ahead at the moment um and the idea is that instead of having a bridge for every chain you have a bridge to the entire ecosystem so um you when you bridge your funds to say polygon ZK evm it locks your tokens in the interop layer now called the a layer um or the super chain has this kind of same ecosystem bridge and then the tokens that are

minted on the destination chain are controlled by that interop layer or this a layer basically and what this allows is that you you can move your tokens between any Bridge um in an ecosystem so in the entire polygon ecosystem you'll be able to move um unlimited amounts of liquidity um for free with no slippage and within 10 to 20 seconds um and the way that works is that you burn the tokens on one of the chains because the original underlying token is actually locked in the a layer um it can you it creates a ZK proof that this token is burnt um and then it uses that ZK proof to uh mint the token on another connected chain and so the

actual underlying token is still locked in the same Bridge it's just basically like an ephemeral token moves between all of the connected chains um and so this will be amazing once it's implemented um for moving within an EOS system um so if you move between say polygon POS or okx X1 chain um then it'll work great um but it's not so great if you want to move between ecosystems like if you want to move from a polygon chain to base or something like that um and so these are yeah fast simple standard way you can move any amount of tokens um these this will replace most third party Bridges within an ecosystem um the disadvantages is as

I mentioned it's only one ecosystem um and also you need to basically you need to implement this from the beginning it's very hard to migrate existing chains to this system uh it can be done and they're working on it at the moment um and there's also Al the single poin of failure problem which is similar to like a native Bridge today uh that bridge can fail and um the whole network can be compromised um but these bridges are somewhat simple so it's uh unlikely um so if we want to move tokens between ecosystems say you want to move from the linear ecosystem to the scroll ecosystem um if these bridges are secure and um the these teams believe they can't be rugged like they trust each

other um you can actually um basically move tokens by burning them on the first chain waiting for finalization on ethereum and then having the second chain see that proof that the token has been burnt on ethereum and mincing it on the next chain um this solves the gas costs um of moving back to ethereum and it it takes about the same amount of time because you still have to wait for finalization um but it just makes things a lot cheaper and so this will happen once Bridges are um a lot more well established um and they don't have multisig upgrades things like that which so this is a bit further out um an even better upgrade to this would be um using the cosmos IBC Bridge

um so this in this case um the uh this diagram is a little wrong the user wouldn't burn the token the user would basically lock a token on one ecosystem and then send um the uh agay Bridge or the ecosystem Bridge will finalize and then it will send that um proof of lock via like an ABC relayer in the same way that tokens move around Cosmos um and then that can send that to say the optimism super chain say hey this token's been locked the optimism super chain agay thing um can then uh mint that token to any connected chain that the user wants to move to and it can treat these IBC tokens as essentially the same as if they were natively

bridged from ethereum um and so this can be very quick this can be um efficient so this can be done in 30 seconds or so um the the it does require the chains themselves to have some kind of strong economic finality um because you don't want uh essentially if some if they didn't have that there could be double A spending attacks where someone says they locked but they really didn't um so because IBC relies on the chain to be finalized before it can move a token and so this will be great for actually connecting up all these EOS systems so we'll have aayers that connect chains within ecosystems and then IBC to connect ecosystems to each other um so the advantages of this is

that you can move tokens can move freely between any trusted chains um so once they're secure enough um the disadvantage is that if one bridge is compromised it could compromise many bridges at once so this uh does require a lot more um I guess buildup over time of security um and there is a downside of when you move these tokens in this way the chains will actually have a different amount of tokens on them than what is locked in their native Bridge um but this can be resolved with just uh UI changes essentially um and so the third way that we can um fix liquidity issues is with these basically mint burn tokens and so

these work very similarly to the ways described before except that instead of an ecosystem needing to have some kind of AG layer um you can basically add that to the Token itself so usdc works like this if you've moved usdc between any layer twos recently um you'll notice that you can get essentially exactly the same amount on another chain and that's because the usdc is basically burnt on the source chain um it's sent a message is sent through the cctp uh through Circle and then it is minted on the next chain and the reason that Circle can uh do this and be so far ahead of everyone else is because they have uh it's a centralized token and so they can fix any problems if there if something goes wrong um so there is a

standard basically to do this across all chains and that's the X erc20 standard and basically you could uh deploy an xc20 for say d and then um you could wrap D in this xc20 standard and then you can move it between any chains um by burning it on one chain using any kind of relayer like layer zero or chain link ccip or synapse um two you can send a message to another chain saying hey this token's been burnt please create a new one and it will create it from the same contract on that other chain um the downside of this is it requires finality on ethereum so it still takes 20 25 minutes or so um for this to happen um yeah and so the advantage of

this is tokens Can freely move across any L2 even if they don't have their egg layer these can move between uh less l2s pretty easily um but there is one major disadvantage is that if a chain is not secure if there is some way some flaw that you can mint unlimited tokens um that can be exploited and used to Mint tokens across all the chains which can break that token basically ecosystem wide um so these chains will probably need uh like ZK proofs um and some uh time amount of time to show that they're secure before um these kind of tokens will be imple implemented on them um and so there is another upgrade

um so the there there are the three different ways that we can improve liquidity flowing um there is a better a new upgrade coming which is a faster finality layer so um Nea project is working on this and also um I think it's Omni chain and some others are working on similar kind of projects and the idea is that rather than having to wait for these things to um finalize on ethereum um you have this fast finality layer that's secured by igen layer and by slashing and then when you move tokens uh using the mint burn tokens or other ways um they finalize on this fast finality layer and can be minted on the other chain within like 10 seconds or so and um this uh would be great this will make things much faster so that uh

tokens can move seamlessly between all the chains within a few seconds um there is one floor with that though and the big flaw the big disadvantage is that slashing punishes the wrong person so if um you move if somebody attempts to exploit this layer and basically double spend um by posting to the fast finality layer that they have burnt a token um they um that person can still mint on another layer and they can get away with basically double spend cool thanks oh maybe this is working in

okay I guess it's working in um so yeah the problem is that uh if uh someone double spends the person that is staking on the fast finality layout will get slashed and that is not the person that exploited the protocol and uh so the idea is that if there is a slashing it kind of incentivizes the stakers on this layer to make sure it is secure so that they can't get double spent and get slashed um but there is still that risk there and then the other risk is that it's not ethereum so there is um some downsides of that it's not quite as secure um yeah so there all the different ways that liquidity can flow quickly and seamlessly in unlimited size

cheaply and within a few seconds um and then we can use a lot of these to improve the UI of wets cuz like once we have this underlying infrastructure improved then um there is still a few more UI issues to fix um and so I'll go over them now so the first one is um there's a bunch of new wallets with account abstract wallets and the the problem that a lot of people have is you have a bit of eth across like 10 different l2s to make your transactions um with these wallets instead of having that problem you basically pay one pay Master you give them some money and then they allow you to transact on any connected chain um using that same pay master and so you don't need like little tiny bits of gas

all over the place um and these will help a lot with that and then the second is there is a project called bunge refuel that just gives you a little bit of gas on many different chains at once uh this is kind of a stop Gap solution until we have um a lot of account abstracted wallets um the second thing that is becoming huge now that l2s a very cheap is um apps that just cover the gas fees for the user so these are two of my um favorite apps at the moment the first one is called demo and it's basically venmo um but decent uh decentralized and on base the second one is pay which is very similar um but the transactions are all private um so these are both two

venmo equivalents both of them don't have any mentions of gas at all you can just send um money to your friends and receive it just like using venmo and they cover all the fees and because the fees are so cheap um they can make money in other ways so they'll often make money with onboarding and offboarding instead of like actually transfers on the network the um one floor of apps covering gas fees is you need some kind of cyber protection um because uh otherwise uh some malicious user could spin up a billion different accounts um and send a bunch of requests around and basically spend your whole balance um so this is where worldcoin is useful um coinbase is useful so for example with demo um or with some coinbase apps

they'll cover your gas fees if you have a coinbase account um and then get coin passport as well to basically prove that you're human and not sibling these um these programs um and so the other flaw that we have is that when you use an app that app is just on one chain and it doesn't know about your tokens on other chains um so even if you have this great bridging movement system underlying like how do you your app actually know what you can spend with it so basically this apps shouldn't have to be multi-chain aware instead um we can solve this at the wallet level so there is a EIP 2256 and this is essentially a API so that an app can just reach out to your

wallet and be like hey what tokens do you have to spend and the wallet can give the app a list of tokens and then it can figure out um what it wants to use to pay for things and um and then this in this way wallets that are multi-chain aware can can say hey I have these tokens that are currently on other chains but when you make the interaction with the app the wallet can Bridge them just in time beforehand and then basically send them out to the app so the app doesn't even know that the tokens were previously on another chain that would be very helpful and then there's another company called all blabs that recently came out and they're actually producing a dev kit and SDK to help um connect apps and wallets in this way to make them multi-chain

aware so that they can interact with each other um lastly this could be a whole talk in itself um but there is kind of a way around this problem with intents and so the idea of an intent is that rather than your apps and wallets having to figure out how to interact with each other and do all these things manually um basically you can just say I want to interact with this app um here's some messages I'll sign them um please someone solve this problem for me and that goes out to a solver Network these market makers or solvers that have liquidity across many networks will perform that app interaction for you on your behalf um and then collect the money from you later um uh from where it wherever it originally is and so if

you're interested in tense um this will be is like basically a completely separate system uh to makeing L work they they will use the same bridges in the background but like users don't have to worry as much um there is a good framework called the cake framework by Frontier Tech um that covers a lot of the trade-offs in this space and how we can make good intent Frameworks um yeah and the main downside of intense though is that uh often you don't know how long something will take like if you're doing some exotic token send and bridging and stuff it may take a while and it's hard to tell if there's actually a solver out there that can solve this problem um but as these become more more common then most common use cases will be will work

fine um yeah so uh this is the end of my talk um I'm putting together a telegram group just in the last week we started collecting everyone that we have talked to that is uh working on these problems uh building apps Building Bridges layers everything to solve fragmentation across ethereum um so if you're working on something or just want to keep up or chat um let me know um I Tim J Robinson on basically every social media happy to chat about this um thank you [Applause] um do we have any questions

hey I can bring it to you thank you uh really great presentation uh summarization and all the ideas uh I have a short question for Bridges between ecosystems uh with IB C which projects can you name here for IBC part I can only recall penumbra but it's primarily focused on shielding yeah there was man there's one I was talking to the other day it was poly something but I don't remember the second part of that um I'll let you know uh yeah there is a a project doing IBC on ethereum um yeah it was poly

something there's a lot of poly projects that yeah okay um yep and um I was talking to uh the uh well we've talked to some of these L2 projects and they're interested in doing this as well which is cool thank you um anyone else okay cool thank you