The First Omnichain DEX Launches on Stargate
To appreciate how big a leap forward omnichain native asset swaps and transfers between networks are, we need to understand what the status quo for traversing blockchains was not long ago.
DeFi saw its first major boom in the summer of 2020 when governance token innovation gave users the opportunity and incentive to earn outsized APYs by yield farming on newly launched decentralized applications (dApps) on the Ethereum network.
In the wake of Ethereum’s success, many alternative chains and rollups emerged to meet the spike in demand of chain roaming yield farmers. Each ecosystem bet their success on a different set of blockchain design trade-offs between decentralization, security and scalability.
With the growing field of competing DeFi ecosystems, a steady pulse of users found ways to traverse chains in search of yield.
Building Bridges, Burning Bridges
Fast forward to 2022. 331 yield aggregators, on 10+ chains, with a combined TVL of $8.3 billion now compete for users and liquidity. The proliferation of dApps on new chains with fragmented infrastructure sparked the first generation of cross-chain bridges.
The main approach to bridge design involved locking native tokens in a bridge-owned smart contract on chain A, and the minting of bridge-owned wrapped tokens on chain B, then burning the wrapped tokens on chain B and redeeming locked native tokens on chain A.
By design, first-gen bridges only solved one of the three key properties of the bridging trilemma — providing unified liquidity but not transactions in native assets with an instant guarantee of finality. The bridging trilemma consists of three essential bridge properties which were impossible to achieve without an underlying generic messaging layer:
Instant Guaranteed Finality: Up front guarantee of sufficient funds on the destination chain for any transaction sent from the source chain
Unified Liquidity: Liquidity spread across multiple chains that can be accessed as a single liquidity pool by any dApp or user
Native Assets: Transactions in assets that exist natively on both the source and destination chains
Bridgoooors that wanted to swap a token on chain A to another token on chain B had no choice but to struggle through some pretty horrible experiences like:
Convoluted 20+ click multi-transaction bridging procedures
Bouncing between multiple UIs to do a single swap
Taking on counter-party risk by holding third-party wrapped tokens
Juggling gas fees from two chains, in two tokens, on two token standards
Not only that, risky design decisions made many of the largest legacy bridges vulnerable, and most have suffered massive hacks. Over $1 billion of assets has been stolen from bridge-owned smart contracts in the first half of 2022 alone.
Users became frustrated by the hassle of bridging and devastated by losses incurred from hacks and exploits. Developers needed to regain the trust of their communities while offering liquidity across chains, without sacrificing the security of their applications.
There had to be a better way to traverse blockchains.
In the Spring of 2022, Stargate launched as the first omnichain bridge to solve the bridging trilemma with the novel ∆ (Delta) algorithm. Stargate is fully composable across chains, can easily scale to any number of chains, and provides unified native asset liquidity and an instant guarantee of finality for every transaction.
Stargate makes one-click swaps of any asset on any chain, to any asset on any other chain possible. Say a user wants to swap from DAI on Ethereum to AAVE on Polygon on a DEX that is not built on Stargate.
They have to to connect their wallet to the Ethereum Mainnet, go to a DEX, swap DAI to USDC since there’s no DAI on Polygon, find a first-gen bridge to swap USDC to a wrapped version (USDC-wrap), connect to Polygon on Metamask, bridge and pay a fee, find an AMM on BNB Chain with a pairwise pool of USDC-wrap to swap for AAVE and pay a fee. Then to withdraw back from Mainnet they do it all over again.
SushiXSwap, built on Stargate, lets users swap from DAI on Ethereum to AAVE on Polygon in one transaction from the source chain, without ever leaving Sushi’s interface. Users can pay source and destination chain gas fees once, and provision additional assets for future gas fees on the destination chain all in one transaction.
Built on LayerZero’s generic messaging protocol, Stargate is engineered to make cross-chain composability easy and secure. Cross-chain composable bridges can be directly integrated with any dApp on any chain. Abstracting away the bridging process from users to eliminate the risk, work and stress of doing it themselves.
Not only does Stargate make user’s lives easier by abstracting complex and tedious bridging procedures away to the dApp, it also abstracts the work and resources required to balance separate cross-chain pools away from developers with the ∆ algorithm.
On-Demand Cross-Chain Liquidity
Sushi’s launch of SushiXSwap makes it the first DEX to use Stargate to access a single pool of liquidity from any chain, at any time. This simplifies the lives of both devs and users by abstracting away complexity.
Stargate gives developers access to deep pools of capital efficient liquidity without the overhead of maintaining LP emissions and speeds up core development cycles while giving users access to native assets.
By automating cross-chain inventory management for dApps and providing access to liquid inventory, on demand, Stargate eliminates the need for dApps to finance or maintain emissions to incentivize LPs across many chains.
Unlocking Omnichain DeFi for Web3
Stargate extends the functionality of all dApps by providing a composable bridge that improves the user experience without modifying existing code. Sushi uses Stargate for swaps, but there are many other common functions that improve with omnichain composability such as:
Order book routing that seeks the most capital efficient swap pathways across chains
Easy rebalancing of internal inventory for dApps with liquidity on multiple chains
Wallets with an asset focused, chain agnostic design and UI
Yield aggregators that roam across chains seeking the best returns for LPs
dApps are racing to be the first in their category to give their users the added benefits of building on Stargate with the powerful ∆ algorithm. Omnichain AMMs, wallets, yield aggregators, and lending dApps will be the first to offer:
Liquidity spread across multiple chains that can be accessed as a single pool
Gas fees for source and destination chain paid up front in one transaction
Single-click transactions that perform multiple actions (swap>bridge>swap)
Transactions that are mathematically guaranteed to arrive on the destination chain
The paradigm shift that Stargate creates is twofold:
It takes users from a world where it’s their job to figure out how to safely and correctly bridge across chains to one where they don’t have to think — or worry — about it at all.
It takes developers from a world where they must code bridges and maintain liquidity across chains to a world of bolt-on, auto rebalancing unified liquidity available on demand.
And watch this space for the upcoming deep-dive technical walkthrough of exactly how Sushi used Stargate to unlock a true omnichain experience.
Originally published on the Stargate Foundation Medium