Research Summary
The report discusses the importance of interoperability in the crypto market, focusing on the role of bridges and general messaging systems in facilitating liquidity migration between different chains. It highlights the challenges of security-latency trade-off and the rise of optimistic rollups and emerging messaging systems like Synapse Protocol and LayerZero. The report also emphasizes the significance of a secure bridge security model, given the high value lost in DeFi exploits due to bridge vulnerabilities.
Key Takeaways
Interoperability and the Role of Bridges
- Importance of Interoperability: The report underscores the critical role of interoperability in the crypto market, particularly in facilitating liquidity migration between different chains. It highlights the need for bridges or general messaging systems that enable the permissionless flow of assets and messaging between DApp instances on different chains.
- Challenges in Interoperability: The report points out the security-latency trade-off as a significant challenge in the interoperability vertical. This trade-off has led to substantial exploits in the cryptocurrency asset class, emphasizing the need for a secure bridge security model.
- Role of Bridges: Bridges and general messaging systems are crucial infrastructure in a multi-chain world. They require high levels of security to prevent hacking and asset loss. The report notes that bridging exploits accounted for approximately 50% of the total value lost in DeFi exploits, resulting in around $2.5 billion in exploited assets.
Emerging Messaging Systems: Synapse Protocol and LayerZero
- Synapse Protocol: Synapse Protocol is a cross-chain AMM deployed on 15+ EVM compatible blockchains, facilitating over $36 billion in cumulative volume for 1.2 million individual addresses. The Synapse Chain architecture aims to transition to a generalized messaging system, serving as the foundation for native cross-chain applications.
- LayerZero: LayerZero is a generalised messaging system that facilitates the relay of arbitrary messaging between source and destination chains. It has already established applications such as Stargate Finance, Trader Joe, and Radiant, leveraging its cross-chain messaging architecture.
Security Models and the Optimistic Message Verification System
- Security Models: The report emphasizes the importance of a secure bridge security model to prevent asset draining. It notes that even with solid security models, exploits can still occur within the codebase. The protocol that solves the security-latency tradeoff with a battle-tested codebase will become highly valuable.
- Optimistic Message Verification System: The optimistic message verification security model, adopted by Synapse in their Synapse Chain architecture, has shown promise in constructing a generalised messaging system. The security of the optimistic messaging system relies on the presence of at least one honest actor, making it highly robust from a security perspective.
Future of Multi-Chain Applications
- Role of Optimistic Rollups: Optimistic rollups are expected to play a crucial role in Ethereum’s scalability roadmap, with bridges facilitating capital flow and bypassing the 7-day finality period. As Layer-2 solutions gain traction, bridging volumes are expected to increase in tandem.
- Prospects of Synapse Protocol and LayerZero: Synapse Protocol and LayerZero are two protocols with promising prospects in the generalised messaging infrastructure vertical. Their foundational role in the future of multi-chain DApps is often underestimated by the market.
Actionable Insights
- Understanding the Importance of Interoperability: Stakeholders should recognize the critical role of interoperability in the crypto market, particularly in facilitating liquidity migration between different chains. This understanding can guide strategic decisions in the development and adoption of blockchain technologies.
- Addressing Security Challenges: Given the high value lost in DeFi exploits due to bridge vulnerabilities, there is a pressing need to address security challenges in the interoperability vertical. Stakeholders should prioritize the development and implementation of secure bridge security models.
- Exploring Emerging Messaging Systems: Stakeholders should explore emerging messaging systems like Synapse Protocol and LayerZero, which show promising prospects in the generalised messaging infrastructure vertical. These systems could play a foundational role in the future of multi-chain DApps.
- Investigating the Role of Optimistic Rollups: Stakeholders should investigate the role of optimistic rollups in Ethereum’s scalability roadmap. As Layer-2 solutions gain traction, understanding the role of bridges in facilitating capital flow and bypassing the finality period could be crucial.
