How Connext Enables Cross-Chain Interoperability with the xERC-20 Standard

Connext, the modular interoperability protocol that pioneered Chain Abstraction, is dedicated to streamlining the user experience in the blockchain ecosystem by abstracting away the complexities associated with using multiple blockchains.

The Connext protocol, built on Linea zk-EVM, achieves this through various initiatives, including the xERC20 token standard and chain abstraction toolkit – all geared towards minimizing the need for users to understand or even be aware of the underlying networks they are interacting with. In short, Connext simplifies cross-chain transactions and enhances accessibility to make blockchain technology more approachable for the average user. At the core of Connext are two important protocols.

The first is the underlying messaging layer that reads the state from multiple rollups while bridging and batching them into one combined statement, similar to how rollup sequencers work. This ensures that any information available to any chain is available to other chains.

The second component is the intent protocol, which allows a Connext user without funds on chain A to complete a transaction using external liquidity from third-party market actors (solvers) on that chain. This way, the Connext user does not need to consider the overhead of bridging their tokens from chain B to chain A but can express intent, and a solver will step in on their behalf to fund the transaction immediately and get repaid by the protocol later.

The challenge of bridging tokens across multiple chains in web3

ERC-20 tokens were never designed to be bridged. Instead, they were intended to reside on a single chain, which is why they don’t have inherent mint or burn functions. When an ERC-20 token is bridged today, behind the scenes, the token is locked into a bridge while the bridge mints an attestation of the locked token on another chain. This means that if the bridge gets hacked and funds are drained, the value of the ERC-20 token will no longer be backed, causing the attestation to lose its value.

Another challenge involves bridging project-specific ERC-20 tokens, which has been historically challenging due to low adoption and immense liquidity requirements. Users can use a canonical bridge to make tokens interoperable or available across different chains, however, this requires that other bridges acquire the native token of the canonical bridge to interact with r tokens.

Alternatively, using a third-party bridge would limit users to a single ecosystem and base a project's security entirely on that bridge. All these solutions are not ideal and place limitations on projects.

xERC-20 token standard and how it enables interoperability

xERC-20 is a standard that solves this problem by providing optionality; instead of locking ERC-20 tokens into a bridge, you lock them into a 'lockbox', which is essentially a wrapper contract. This wrapper contract then mints an xERC-20 token with both a burn and mint function, allowing bridges to manage these actions efficiently. Because these ERC-20 tokens on L1 are locked into a lockbox, on L2, you can have a consistent representation, meaning that irrespective of the L2 you’re using, you will end up with the same token.

This solution isn’t novel, as it has been technically feasible for some time. However, the issue with this solution lies in the security risks it introduces, where multiple bridges control the minting of your token, exposing it to security issues should one of the bridges get hacked. xERC-20 addresses this security issue by introducing minting limits, where an issuer can assign adjustable limits to the number of tokens a bridge can mint.

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