The Future of Cross-Chain Value Transfer: deBridge's Shift to Asynchronous Infrastructure
With a vast array of cross-interoperability solutions available today, it is becoming increasingly difficult to understand both the solutions offered in the market and the actual problems they solve for integrators and end-users. At deBridge, we think it’s important not to take a nebulous view of how interoperability should be implemented and to be laser-focused on shipping products that will have an immediate and practical impact on the market.
If the transfer of authenticated messages is a foundational pillar of cross-chain interoperability, we believe that this pillar is useless without an efficient liquidity layer. DeFi — our core focus area and integrator/user base — is built on the principles of composable liquidity, where users and protocols share a clear need to transfer liquidity and data simultaneously. This is probably the most pressing challenge in the space, and yet teams have virtually all aimed to solve the cross-chain value transfer problem with an approach incapable of scale — the liquidity pool-based bridge.
In this blog post, we will learn about liquidity pools in the cross-chain context and, more importantly, why deBridge decided to deprecate them for users of the DLN API and DLN Trade (our infrastructure for high-performance cross-chain value exchange). From the birth of deSwap to the introduction of the DLN and its 0-TVL approach, we will uncover how our new approach is redefining the way cross-chain transactions happen.
The departure from conventional cross-chain value transfer: deprecation of liquidity pools
A Liquidity Pool, as per the common definition, is a collection of tokens or digital assets that are locked in a smart contract to provide essential liquidity to decentralized exchanges. Think of it as an arrangement where users add an equal value of two tokens to a pool to create a market and earn a portion of the trading fees.
In the context of bridges, liquidity pools have been the main way of enabling the transfer of assets between different blockchain networks. These pools provide the required liquidity for cross-chain value transfer, allowing users to exchange crypto from chain A to chain B. Liquidity pools maintain a reserve of various assets on each chain by incentivizing users to contribute to these pools by offering fees or other rewards.
Why deprecate Liquidity Pools?
We have a whole blog post coming on the problem with liquidity pools in cross-chain, so we’ll keep this brief, but the TL;DR here is:
- Security risks
- Scalability and sustainability issues
- Capital-inefficiencies
- Poor UX: Slow transfer times, high fees
Liquidity pools (LPs) are susceptible to a range of risks, but the security issue is the simplest to grasp — when you have hundreds of millions of dollars in Total Value Locked (TVL) in a smart contract, you’re creating a honeypot that will lure in malicious actors. If and when there’s an exploit ($2B+ lost in the last 18 months), users may be left with unbacked wrapped assets, and/or Liquidity Providers will invariably have lost their deposits.
Aside from these known security risks, liquidity pools just aren’t efficient in the cross-chain context. Dependency on Automated Market Makers (AMMs) means dependency on-chain price discovery, which means paying additional AMM fees, inefficiencies in routings, and an overall lack of liquidity. Moreover, as this design cannot guarantee execution price, users always incur slippage — making an array of important real-world applications like cross-chain payments impossible.
Liquidity pools need to pay high incentives to Liquidity Providers, creating a sustainability issue for bridge projects when yields invariably diminish below what’s competitive. Looking at the largest liquidity pool bridges in terms of TVL, they have $330 million and $106 million of TVL, paying 15%+ yearly interest on locked liquidity, while daily volumes are below $20 million— an inefficient structure, as generated protocol fees will never be sufficient to cover interest costs on locked liquidity.
This liquidity issue isn’t something that can be easily solved securely — more liquidity means more TVL is needed, which means an ever-growing honeypot. Lastly, without digging too extensively into the problems here, liquidity pool-based bridge transfers are slow. This is because the source chain can’t execute the transfer until finality has been achieved on the destination chain — in the case of Ethereum, this can be upwards of 13 minutes or 64 block confirmations.
By moving away from liquidity pools, we have taken a step in the right direction toward mitigating risks and ensuring a safer environment for cross-chain transactions. Our integrators welcomed this decision, as it no longer exposed them to the risks associated with pooled assets while opening up access to fundamentally more efficient, scalable, and rapid cross-chain value transfer.
Prioritizing security in cross-chain transactions
At deBridge, we recognize that the design choices in cross-chain interoperability will be centered around the best trade-offs between security and performance. This understanding has been a driving force in making a product that focuses on the safety of users, while offering them the best performance and capital-efficiency trading across chains.
The first value transfer protocol launched on deBridge was deSwap, which also utilized liquidity pools to facilitate cross-chain value transfer. But from the beginning of our project, we understood that this would just be the first step towards enabling efficient cross-chain liquidity flows — keeping in mind that we should iteratively move to a model that was truly scalable, capital-efficient, and secure at the same time.
While it was successful and effective, we recognized the need for a solution that could scale safely without liquidity pools. In May 2023, we replaced our value transfer engine with DLN, a cross-chain trading infrastructure that operates without liquidity pools.
Introducing DLN: A new era of Intents-based cross-chain trading
The successor of deSwap, DLN (deSwap Liquidity Network), is a high-performance cross-chain trading infrastructure built on deBridge with a unique 0-TVL design. It operates without traditional liquidity pools and utilizes a unique model for transferring assets across blockchains. In short, with DLN, we are not bridging between chains — but trading native assets between chains.
The concept of Intents-based cross-chain trading
You can think of DLN as an order book of cross-chain intents.The 0-TVL model is the backbone of DLN, executing all trades asynchronously through a self-organized liquidity network where assets are not pooled but rather are dynamically sourced as needed. Users (Makers) create a cross-chain intent that is immediately executed by Market Makers (Takers) in the destination chain. This approach provides developers and projects with the ability to leverage the fastest cross-chain experience on the market.
The design also reduces the risks associated with centralized pools of liquidity — by drawing liquidity from a network of liquidity owners, DLN offers a more secure, flexible, and resilient framework for cross-chain trading while transferring all associated risks (txs reorgs, cross-chain messaging risks) from users to pro market makers who know how to manage these risks efficiently.
By switching from bridging to networking as the cross-chain paradigm, DLN makes it possible for applications and users to enjoy a number of performance advantages, including:
- Faster transactions
- Limit orders
- Zero slippage & MEV protection
- Deep market depth
- Native token trading (no custodial risks of wrapped assets)
Liquidity-on-Demand: A paradigm shift
DLN introduces the concept of 'liquidity-on-demand' to allow for real-time settlement of trades between users and private market makers. This ensures that transactions are executed with the required liquidity, sourced on an as-needed basis, enhancing the efficiency of cross-chain transactions and offering a transparent cross-chain trading environment where liquidity is not statically locked (see more on this below).
Risk distribution
While traditional liquidity pool-based bridges have a large attack surface, such as pool smart contract vulnerabilities or market volatility, DLN limits the total risk to each individual transaction. This means that any potential issue is contained and does not impact the entire system, offering significantly stronger security guarantees for users and participants — not static liquidity providers in the case of DLN, but private market makers that compete for speed of settlement to earn the spread of the trade. Here is a thread if you are interested in learning more about the lifecycle of a cross-chain trade.
DLN ensures that makers and takers bear risks asynchronously—makers experience risk during the brief period between order creation and fulfillment on the destination chain, usually just seconds — while takers experience risk from order fulfillment until liquidity unlocks on the source chain. By aligning block confirmations with their risk tolerance, they can reduce their risks, which include order reversal due to source chain reorganization or forks balancing speed and risk.
Conclusion
Our approach to embracing asynchronicity is shaping the landscape of cross-chain trading by offering a secure, transparent, and fast way to initiate value transfer. The transition away from conventional liquidity pools towards a 0-TVL, liquidity-on-demand/intents-based model is something we believe will become widely adopted across the cross-chain landscape. The introduction of DLN, with its emphasis on direct, native trades between users and private market makers, challenges traditional notions of cross-chain trading and sets a new benchmark for efficiency and security.
We believe that this is a fundamentally better model for cross-chain value transfer, and we’re excited to see that many top teams in the space agree — DLN is already powering high-performance cross-chain exchange in MetaMask via Solflare Wallet, Jupiter Exchange, Synapse Protocol, and many, many more key DeFi applications.