Cross-Chain Deposit: Exploring the Technical Nuances
Cross-Chain Deposit: Exploring the Technical Nuances
Swing facilitates cross-chain deposits by passing tokens and contract-call data through a bridge to bridge assets and execute contract calls on the destination blockchain.
Cross-chain deposits play an essential role in fostering interoperability among different blockchain networks. They bring the decentralized financial ecosystem toward a more integrated and functional state.
Thanks to the cross-chain deposits, we can enhance the following:
liquidity;
asset utilization;
cross-chain collaborations.
One of the manifestations of cross-chain deposits is seen in the creation of cross-chain bridges, which have significantly grown in lock-up value from $25 billion to over $200 billion within a year, indicating utilization of cross-chain interoperability solutions.
Cross-chain bridges not only cater to asset deposits but also extend to payments, as shown by a proof-of-concept cross-chain payments application integrated with Shopify during the 2022 EthSF hackathon.
Moreover, developers can orchestrate flows enabling users to transfer assets like USDC across chains and subsequently deposit the newly minted USDC into a DeFi lending pool. In turn, this illustrates a practical utilization of cross-chain deposits in fostering capital efficiency and yield generation in the DeFi landscape.
The whole process can be designed to provide a seamless user experience. Users should feel like they are performing a singular transaction despite the underlying cross-chain interactions.
This article aims to address the technical details of cross-chain deposits, exploring the protocols, technologies, and mechanisms utilized in Swing that enable such cross-network asset transfers.
By examining real-world use cases, technical frameworks, and existing challenges, we want you to understand the technological landscape governing cross-chain deposits. Hopefully, this would contribute to the broader discourse on blockchain interoperability and cross-chain innovations.
Table of Contents:
Cross-Chain Deposit Mechanism
Cross-Chain Deposit Protocols and Standards
Technical Challenges in Cross-Chain Deposits
Technical Implementation of Cross-Chain Deposits
Use Cases of Cross-Chain Deposits
Emerging Technical Trends
Conclusion
🔀Cross-Chain Deposit Mechanism
This section aims to provide a detailed understanding of cross-chain deposit mechanics.
👉 Cross-chain Transaction Certificate
In some cross-chain processes, a cross-chain deposit certificate is generated at the end of a cross-chain transaction, indicating that the transaction has been completed.
👉 Cross-chain Bridges
Cross-chain bridges operate by "wrapping" tokens in a smart contract on the source blockchain and issuing equivalent assets on the destination blockchain. For example, Bitcoin (BTC) can be deposited on the Bitcoin blockchain to receive wrapped BTC (wBTC) on the Ethereum blockchain.
👉 Cross-Chain Transfer Protocol (CCTP)
A user can initiate a transfer of assets like USDC from one blockchain to another using the app. The app helps in burning the specified amount of USDC on the source chain, marking the start of the transfer process.
👉 On-chain Atomic Swaps
These are special types of cross-chain swaps where the swap happens directly on both blockchains involved. For instance, swaps between Decred (DCR) and Litecoin (LTC), or LTC and BTC, are examples of on-chain atomic swaps.
👉 Cross-chain Interoperability
Cross-chain interoperability is achieved by setting up data association and interaction between chains while maintaining resource isolation to a great extent, thereby enabling cross-chain deposits and other cross-chain interactions.
⚙️ Cross-Chain Deposit Protocols and Standards
Various protocols and standards have been developed to enable the above-described cross-chain deposit mechanisms. Let’s now delve into some notable protocols and standards.
👉 Cross-Chain Interoperability Protocol (CCIP)
The Cross-Chain Interoperability Protocol (CCIP) is one of the notable standards aiming to foster a universal connection among numerous blockchain networks, both public and private.
CCIP facilitates the transfer of data and smart contract commands across different blockchain networks, unlocking isolated tokens and aiding in the development of cross-chain applications.
The protocol serves as a foundation for services like Chainlink’s Programmable Token Bridge, which stimulates users to transfer tokens across any blockchain network securely and efficiently.
👉 Three-Stage Cross-Chain Protocol
In response to the challenges of prolonged transaction time, high transaction costs, and a significant degree of centralization in most cross-chain protocols, a Three-Stage Cross-Chain Protocol has been proposed.
👉 IEEE Standards
IEEE has developed standards for blockchain interoperability that describe technical architectures of three cross-chain approaches, including:
Centralized/Multi-signature Notary-based cross-chain technology;
HTLC-based cross-chain technology;
Relay Chain-based cross-chain technology.
👉 Swing’s Cross-Chain Deposit Mechanism
Swing facilitates cross-chain deposits by passing tokens and contract-call data through a bridge to bridge assets and execute contract calls on the destination blockchain.
This mechanism allows developers to perform cross-chain transactions in a single transaction on the source blockchain, eliminating the need to switch RPC or sign another transaction on the destination blockchain.
Swing's cross-chain deposit functionality is supported on various chains, including Ethereum, BSC, Avalanche, Polygon, Arbitrum, Optimism, and Fantom.
🛑 Technical Challenges in Cross-Chain Deposits
The technical hurdles in cross-chain deposits are rooted in the fundamental differences in the architecture, consensus mechanisms, and smart contract capabilities among various blockchains.
We explain the primary technical challenges:
Atomicity: Ensuring that a cross-chain transaction either fully succeeds or fails is a significant challenge. Cross-chain transactions usually comprise multiple sub-transactions on different blockchains, which must be coordinated effectively to achieve atomicity.
Security Requirements: Different security measures and consensus mechanisms across blockchains pose a challenge to creating a secure cross-chain deposit framework. This extends to the security requirements surrounding hash-locking, notary schemes, and distributed private key control.
Technical Limitations: The technical limitations in existing cross-chain methods, like sidechains/relays and tight coupling, need addressing to enhance the efficacy of cross-chain deposits.
Interconnected Blockchain Ecosystem: Achieving a unified, interconnected blockchain ecosystem to facilitate cross-chain deposits involves overcoming challenges in creating groundbreaking cross-chain solutions like atomic swaps, Polkadot, and Cosmos.
Swing has been at the forefront of addressing the technical challenges associated with cross-chain deposits. Below are some of the initiatives and developments by Swing:
Swing Widget — a notable breakthrough in cross-chain liquidity. This product facilitates easy integration into any Decentralized Exchange (DEX), wallet, or DeFi platform, offering instant access to cross-chain liquidity.
Swing expanded its cross-chain liquidity and bridge aggregation to MultiversX. In this way, we aim to roll out the protocol across various blockchain ecosystems.
The launch of our Web3 Developer Tools aims to accelerate crypto adoption by providing a decentralized cross-chain protocol. This protocol connects dApp developers to blockchains, ecosystems, and decentralized liquidity, serving as a unified liquidity integration platform. With our comprehensive API, SDK, and widgets, developers are equipped with robust tools to build and optimize their decentralized applications. Furthermore, the Swing Platform greatly simplifies the pain of accessing and managing cross-chain liquidity, making the development process easier.
We launched a Software Development Kit (SDK) that supports 25 non-EVM and EVM-compatible chains. This development is part of Swing's plan to expand and cover non-EVM networks like Solana and Cosmos. It makes the transfer of crypto assets across different networks possible and simplifies the deployment of cross-chain solutions.
Swing's API and SDK offer a cross-chain contract feature allowing developers to execute contract calls on different blockchains. This feature enables interoperability between blockchain ecosystems, a core aspect in addressing the technical challenges of cross-chain deposits.
🛠 Technical Implementation of Cross-Chain Deposits
Here is a step-by-step guide to setting up and executing cross-chain deposits, particularly leveraging Swing's SDK.
We'll delve into a simple four-step process to get started with Swing:
Step 1: Get Available Deposit Contracts
The first step toward executing cross-chain deposits is to confirm the available deposit contracts. This can be achieved by querying the Swing API to retrieve a list of supported deposit contracts.
curl https://api.swing.xyz/v1/deposit_contracts
Step 2: List Available Routes
Once the deposit contracts are retrieved, the next step is to list the available routes for the cross-chain deposit. We have to identify the source and destination blockchains, along with the tokens to be transferred.
curl https://api.swing.xyz/v1/routes?source_chain=ethereum&destination_chain=bsc
Step 3: Execute a Deposit
Executing a deposit involves invoking the deposit function from the Swing SDK. This step triggers the transfer of assets from the source blockchain to the destination blockchain.
const swing = require('swing-sdk');
// Initialize Swing SDK
const swingSDK = new swing.SDK({ apiKey: 'your-API-key' });
// Execute deposit
swingSDK.deposit({
sourceChain: 'ethereum',
destinationChain: 'bsc',
amount: 100,
token: 'USDC',
receiver: 'receiver-address'
});
Step 4: Withdraw Funds
The final step is to withdraw the funds from the destination blockchain. This is done by calling the withdraw function from the Swing SDK.
// Withdraw funds
swingSDK.withdraw({
destinationChain: 'bsc',
receiver: 'receiver-address'
});
Security Measures
Following the guide from above, don’t neglect the basic rules:
API Security: Keep your project IDs securely stored and never exposed to unauthorized entities.
Smart Contract Auditing: Before engaging in cross-chain deposits, have the smart contracts involved thoroughly audited to prevent potential security breaches.
Error Handling: Implement robust error handling to manage potential issues that may arise during the deposit or withdrawal process.
Monitoring: Continuously monitor the cross-chain deposit transactions to confirm they are processed as expected.
💡 Use Cases of Cross-Chain Deposits
Through cross-chain deposits, industries can unlock new levels of interoperability, liquidity, and functionality, which are crucial for the maturation of the blockchain ecosystem.
Let’s take a look at some of the most common technical use cases of cross-chain deposits:
👉 Staking Protocol Deposits
Cross-chain deposits enable a streamlined process for staking assets in different blockchain protocols.
For instance, converting MATIC on Polygon to ETH on Ethereum and staking into Lido staking protocol usually entails numerous steps.
However, with Swing, developers can execute all steps in a single transaction on Polygon, thus simplifying the process significantly.
👉 Lending Protocol Deposits
Similarly, cross-chain deposits facilitate seamless lending protocol deposits across multiple blockchain networks.
This functionality is crucial for users who want to lend and borrow assets across different blockchain networks, thus enhancing the liquidity and functionality of lending protocols.
👉 Decentralized Applications And Decentralized Finance
Cross-chain deposits enable the transfer of assets across different blockchain networks, which is crucial for many DeFi applications:
DEXs;
lending/borrowing protocols;
liquidity staking;
derivatives/perpetual DEXs;
yield aggregators;
launchpads;
NFT protocols.
By adding liquidity through cross-chain deposits, these platforms can significantly increase their TVL, which, in turn, augments their utility and attractiveness to users.
👉 Cross-Chain Token Swaps
With cross-chain token swaps, users can swap tokens across different blockchain networks effortlessly.
For instance, a user could swap ETH on Ethereum for MATIC on Polygon, where Swing handles the exchange from ETH to MATIC, allowing the user to interact with the Polygon network in a single transaction. With that, Swing uses tokens from the source chain to pay gas on the destination chain, so the user doesn’t need to have native tokens of the destination chain.
📈 Emerging Technical Trends
The technology of cross-chain deposits will further enhance the interoperability, security, and ease of deployment across multiple blockchains. And Swing is going to be at the forefront of these advancements.
We also plan to deliver cross-chain liquidity from 24+ chains on the Sei Network, thereby enabling Sei builders to tap into liquidity from dozens of decentralized exchanges (DEXs), bridges, and chains.
The future of cross-chain deposits is envisioned to be highly intertwined with the development of DeFi and cross-chain dApps, with an emphasis on creating more secure and efficient bridges for asset transfers.
The advancement in protocols and standards, alongside robust security measures, will likely drive the widespread adoption of cross-chain deposits, thereby contributing to a more interconnected and functional blockchain ecosystem.
✍️ Conclusion
The technical applications of cross-chain deposits, ranging from staking and lending protocol deposits to DeFi and cross-chain token swaps, showcase the extensive potential and diverse advantages this technology introduces to the blockchain industry.
We invite developers to dive further into the technical dimensions of cross-chain deposits and try out the documented examples.
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