Intent Bridge the future of cross-chain value transfer and interoperability

Intent Bridge Unlocking the Potential of Cross-Chain Value Transfer and Interoperability

Author: Ryan Carman, Co-founder of UMA, Hart Lambur, Medium; Translation: Song Xue, LianGuai

With the development of cross-chain ecosystems, there have been many bridges that help users transfer value. Because intent-based systems like Across use off-chain liquidity, they can provide the best experience for bridging value transfers.

Key Points:

• In cross-chain ecosystems, users rely on bridges to transfer value.

• Value transfer bridges use on-chain or off-chain liquidity to fulfill orders.

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• Intent-based designs may dominate in the future as off-chain liquidity can provide meaningful savings and better user experience.

When cryptocurrencies first emerged, they primarily served one use case: transferring value. Satoshi Nakamoto’s early followers advocated for “peer-to-peer electronic cash” and used their mined bitcoins for donations to WikiLeaks or on the Silk Road.

Ethereum was also used as a network for transferring value during the ICO craze, although the situation has changed with the emergence of smart contracts and DeFi. Now, believers can invest their funds in liquidity pools to earn yield, take out loans, and engage in various other activities.

Cryptocurrencies have been evolving since the rise of Ethereum. Today, we have many smart contract chains on Layer 1 and Layer 2, which means users need a way to transfer between them. Cross-chain bridges cater to this need, each taking a different approach to help users move from A to B.

Cross-chain interoperability makes crypto more complex. It unlocks many use cases, but the main use case in cross-chain bridges remains value transfer. Here, we explore how today’s top cross-chain bridges help users transfer funds, the benefits of using off-chain liquidity compared to on-chain liquidity, and why intent will dominate the field in the coming years.

Value transfer is the key for cross-chain bridges

Cross-chain bridges employ various mechanisms to help users achieve transfers within an ecosystem. Early cross-chain bridges used minting and burning mechanisms with intermediate tokens and wrapped assets, although this design had its flaws. If a user locks their ETH in a bridge and that bridge is hacked, the wrapped ETH tokens they hold may become worthless.

Liquidity network bridges attempt to address this issue by using standardized assets to back representational assets with isolation security standards. While minting and burning mechanisms provided users with new assets and required them to trust it, the goal of liquidity network bridges is to ensure 1 ETH = 1 ETH.

While the scope of cross-chain bridges varies, users typically rely on them to achieve one use case: value transfer.

Regardless of how cross-chain bridges work behind the scenes, users will access them because they want to transfer funds from A to B. Ideally, they want to do this quickly and cheaply, and top-notch solutions can meet this requirement.

Users have a common goal: to transfer value as quickly and cheaply as possible without compromising security.

How Liquidity Networks Bridge and Execute Orders

If users operate on a single chain, they need liquidity in addition to holding tokens to perform any activity. If they want to trade on Uniswap and then borrow from Aave, they need on-chain liquidity to achieve this goal.

Similarly, cross-chain bridges also require liquidity to serve users. However, they can extract it from on-chain or off-chain sources. When a bridge uses on-chain liquidity, it retrieves it from a pool on the target chain. Another option is to require relayers to pre-fund orders with their own capital. We can refer to this as “off-chain” liquidity.

Cross adopts this approach, using relayers to fill orders with off-chain liquidity. They contribute funds and then receive repayment from a unified liquidity pool on the mainnet.

On-Chain Liquidity and Delivery versus Payment (DvP)

Bridges that use on-chain liquidity typically have liquidity pools on each chain and require validation between the source and target chains. When a message confirming user deposits is received, funds are unlocked and the user’s order is filled. This is a settlement method known as Delivery versus Payment (DvP) in TradFi (traditional finance) terms.

Bridges can verify the state of the source chain through various methods, including multi-signature, relayers and oracles, and zero-knowledge proofs. These methods have different trust assumptions and often require expensive on-chain verification.

DvP bridges also have another drawback. When users deposit funds on the source chain, their deposits are only validated once the source chain is finalized, and they can only withdraw funds once the target chain is finalized.

In other words, the shortest transfer time = source finality + target finality. This can result in slower transfer times.

Stargate is perhaps the most prominent example of a bridge that uses on-chain liquidity for DvP. Stargate positions itself as a “liquidity transfer protocol” that leverages LayerZero’s relayers and oracle messaging mechanism.

In summary, when a bridge uses on-chain liquidity, orders can only be filled once deposits on the source chain are validated on the target chain. This results in higher gas costs and longer filling times.

Off-Chain Liquidity and Intent

Bridge solutions can use off-chain liquidity instead of purchasing on-chain liquidity when payment is received.

Through this approach, market makers or relayers use their own funds to fulfill user orders and meet the requests of the destination.

These third-party participants bear the ultimate risk on behalf of the users, and in return, they earn interest from the lent assets.

Relayers must wait for settlement, also known as clearing, which occurs after their fill has been verified. The settling system, or bridge, can individually verify the relayer’s fill and then perform a series of repayments, or it can batch verify and repay multiple fills.

In Across, independent relayers fill orders and UMA optimistically validates the relayer-bound repayments. This reduces Gas costs and lowers fees for users.

The bridge can use on-chain or off-chain liquidity to fulfill orders, and fills can be individually or batch verified.

The diagram above illustrates how the bridge validates and fills orders. Cross uses off-chain liquidity to fulfill orders at the best price and speed, and optimistically repays relayers through batching verification in an efficient manner.

Across’s bridging architecture has clear advantages over the DvP system. We can classify its methods of filling orders with off-chain liquidity as a new mental model: intent.

Across is an intent bridge, where off-chain liquidity serves the user’s intent.

Across users do not need to place orders to the bridge to fulfill their transactions. They simply signal where they want to collect their assets and wait for relayers to fill the orders.

If a Stargate user deposits 1 ETH on the mainnet and awaits verification of their request, then collects on Optimism, an Across user would say, “I have 1 ETH on the mainnet and want to collect 1 ETH on Optimism from anyone who can quickly fulfill my order, and at a cheap price.”

Why Intent Will Shape the Future of Bridging

Intent is a relatively new concept in cryptocurrencies, originally popularized as a way to address MEV. Across and other solutions like UniswapX have also adopted intent-based designs, but we can expect the intent model to appear throughout the field in the future.

The cross-chain ecosystem is becoming increasingly complex. Intent helps eliminate complexity for regular users, offering meaningful savings and a better user experience.

Intent-based design also makes cryptocurrencies more accessible. It is not hard to imagine that in the future, experienced market makers will increasingly fulfill the requests of regular users, whether it be for cross-chain asset transfers, bidding on high-value NFTs, or representing them in other activities.

The cross-chain ecosystem continues to expand as new entrants are welcomed and new chains like Base continue to attract trading volume. This means cross-chain bridges will continue to exist. If we assume value transfer will remain a primary use case for bridging, we can further infer that intent-based systems will see widespread adoption in the future.

When network bridges use an intent-based framework, users request for something to happen at the destination, and relayers compete to ensure that “something” happens at the best price and as quickly as possible. This provides a better user experience.

The growing market dominance of Across confirms the argument that intent-based systems will lead the future market. Currently, Across accounts for about 30% of the chain bridge capacity, second only to Stargate. Its market share is expected to continue growing in 2023, largely due to its intent-based design that allows it to win in terms of price and speed.

In summary, cross-chain bridges can help users transfer value in different ways. While some solutions have successfully used on-chain liquidity and DvP mechanisms, intent-based design and off-chain liquidity offer significant advantages. As foundational knowledge becomes more important, we are likely to see a thriving development of intent-based design.

We believe that in the future, trillions of dollars in value will flow through cross-chain bridges and solutions that provide the best user experience. If we are right, intent-based systems like Across are poised to dominate the cross-chain ecosystem for many years to come.

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