Shalini Nagarajan

The Society for Worldwide Interbank Financial Telecommunication (Swift) on Thursday announced successful experiments of tokenized asset transfers across multiple blockchains.



A new series of experiments revealed that Swift’s infrastructure could potentially eliminate &#8220;significant friction&#8221; hindering the growth of tokenized asset markets.



As a global interbank messaging system connecting over 11,000 banking and securities institutions across more than 200 countries, Swift plays a pivotal role in financial communications.&nbsp;



The organization identifies one of the key challenges facing investors and institutions is the fragmentation of tokenized assets across multiple blockchains.



Among its findings, a lack of regulatory clarity remains a primary obstacle, along with the need for data privacy, which Swift characterized as “fundamental to any commercial solution.”



Swift emphasizes that cross-platform compatibility is essential among these blockchains. Otherwise, financial institutions would be burdened with the complex and costly task of establishing individual connections to each.



In light of these complexities, investment bank Citi <a href="https://ir.citi.com/gps/MG9DEWhoYvQJVWLM9Kr3%2BZmqjoztKJcyNHr83F9Wug2pzAGHPQKfp23RAMrkNts%2FJitXoTNqufOvegUjjXh0IA%3D%3D">projects</a> a booming future for the tokenization market, estimating its potential value to escalate to between $4 trillion and $5 trillion by the end of the decade.



Read more: <a href="https://blockworks.co/news/tokenization-standards-finance-crypto">We’re thinking about tokenization all wrong</a>



In June, Swift announced its aim to link private and public blockchains <a href="https://blockworks.co/news/banks-can-10x-the-blockchain-industry-says-chainlink-co-founder">in a trial collaboration with Web3 provider Chainlink</a> and major financial institutions like BNP Paribas and BNY Mellon.



Now, it says the collaboration has effectively shown its capability to serve as a unified access point for multiple networks, using secure existing infrastructure.&nbsp;



The experiments were conducted on public testnets Ethereum Sepolia, Avalanche Fuji and a private Quorum blockchain.



“It’s now clear that both top global banks and leading market infrastructures believe there will be greater adoption of digital assets across the entire banking industry, and that this adoption will happen using multiple different blockchain technologies at the same time,” Chainlink co-founder Sergey Nazarov said in a statement.



“The collaboration between Swift, over ten of the largest financial institutions, and Chainlink also proved that interoperability across chains is critical to enabling the next stage of digital asset adoption across the global financial system,” he added.



After examining design and technical components with an emphasis on data privacy, governance, and risks, the latest experiments involved simulated transfers of tokens. These transfers took place within a single public blockchain, between different public blockchains, and also between public and private networks.



Swift&#8217;s infrastructure shows potential for facilitating the integration of Central Bank Digital Currencies and other digital assets with both new and existing payment systems.



The organization said it intends to continue exploring various blockchain technologies, concentrating particularly on public permissioned ledgers.



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Swift details findings in tests of Chainlink’s cross-chain interoperability

Bessie Liu

Cross-chain swap and liquidity routing protocol Squid today launched Boost — a tool that is intended to reduce transaction speeds across different blockchains to as little as two seconds.



The protocol itself is built on top of cross-chain communication network Axelar. It uses Axelar’s General Messaging Passing (GMP) to enable one-click swaps across chains.&nbsp;



Squid said it supports over 43 different blockchains, including Ethereum virtual machine (EVM) chains such as Ethereum, Arbitrum, Polygon and Avalanche, and many Cosmos chains such as Cosmos Hub, Crescent and Injective.



Squid launched in February and has since seen $93 million in transaction volumes, co-founder Christina Rud told Blockworks.



<h2 class="wp-block-heading">How does Squid swap tokens?</h2>



Squid co-founder Fig told Blockworks that instead of needing to transfer funds to an application, then convert it to a different token to use it, Squid’s router enables users to directly transfer across blockchains and into the token they wish to receive in just one click.&nbsp;



This means that users can swap any-to-any token across all blockchain networks that Squid supports.



Squid said it achieves this functionality by utilizing existing liquidity on different automated market makers (AMMs) — such as Uniswap or Curve.&nbsp;



All its transactions are routed through Axelar Wrapped USDC (axIUSDC)/USDC stable swap pools and USDC/native token pools on AMMs.



“If you have USDC on Avalanche and you want to stake Ethereum on a liquid staking contract, what Squid would do is we would swap USDC on Avalanche into Axelar Wrapped USDC, we would do that on Stellaswap, and transfer that across to Ethereum where the USDC gets unlocked by the Axelar bridge, and then stake it in the Lido contract, for example,” Fig said. “All of that happens in one click.”



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/PGxDj0CULBtR_7oJ5inVGC8oNnwnPwfKADYPzhk9ecP4l8wST1bzvHpxAteuSDjL73zFB_028e0wxURzuSK-voyMHJYH0DxOur4VLXzgXW8qYdVWodh830kFTWSg8-A3WVWpGSBuZzETrdH4xTE_hug" alt=""/><figcaption class="wp-element-caption">Source: Squid</figcaption></figure>



<h2 class="wp-block-heading">The latest Boost feature</h2>



Squid’s new Boost feature will now improve the cross-chain swap process, the protocol said.



Although the Squid router has simplified the cross-chain swapping experience down to one click, the time to execute these transactions is still slow — ranging anywhere from 20 to 60 minutes.



Boost’s goal is to enable all swaps to occur in under one minute — and as little as two seconds — with the caveat that it is only available for transactions under $20,000.



“Boost is a layer which allows service providers to provide that bridge out of their own inventory almost as a loan, execute the swap immediately, and then when the bridge comes through 20 minutes later, it pays back the service provider instead of now sending to the user again,” Fig said.



Boost itself has received over five audits, and the Axelar bridge has more than 50 audits, Fig noted.



“The important thing is in the design, the risk is only for the service provider providing funds to the user. At no point is the user exposed to losing money compared to what we have in our standard credit protocol,” Fig said.



“The worst thing that can happen is if the service provider tries to censor the transaction, in that case, it falls back elegantly to the previous system…so you will still get your transaction in 20 minutes.”



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Cross-chain transactions in just 2 seconds? Squid says it’s possible

Macauley Peterson

In the culinary world, a sommelier is a trained and knowledgeable professional, adept in food and wine pairing. In the <a href="https://www.blockworksresearch.com/glossary#inter-blockchain-communication-protocol-ibc" target="_blank" rel="noreferrer noopener">interchain</a> landscape, asset management protocol <a href="https://blockworks.co/tag/sommelier" target="_blank" rel="noreferrer noopener">Sommelier</a> mixes and matches DeFi yield opportunities selected by independent strategists.



The Cosmos-based chain launched its first “intelligent DeFi vaults” on Ethereum mainnet in January, and has since grown its total value locked (TVL) from about $1.4 million to $16.7 million.&nbsp;



Now, thanks to Axelar’s implementation of general message passing (GMP), Sommelier is expanding to additional EVM-compatible chains, starting with layer-2 rollup, Arbitrum One.



Sommelier took two years to build, co-founder Zaki Manian told Blockworks in an interview. But with the advent of <a href="https://blockworks.co/tag/axelar" target="_blank" rel="noreferrer noopener">Axelar</a>, if they were starting from scratch today, it could be done in 60 days, Manian said.



“The combination of the two is immensely powerful,” Manian said. “What Axelar has done is establish a transport system.” It brings the same level of composability as found natively in the Cosmos tech stack to other EVM-based <a href="https://blockworks.co/tag/layer-1" target="_blank" rel="noreferrer noopener">layer-1</a> chains and <a href="https://blockworks.co/tag/rollups" target="_blank" rel="noreferrer noopener">rollups</a>.



Axelar’s GMP for Cosmos recently went live on mainnet, and this will be its first production use once Sommelier&#8217;s Arbitrum vault launches.



“I think the [layer-1] war is going to start coming to an end soon,” said Manian. When decentralized application layers all fit together, “we’re gonna build amazing user experiences that are really able to onboard at a mass scale,” he said.



For instance, the protocol&#8217;s two main vault strategies — Real Yield USD and Real Yield ETH, which account for 97% of its TVL — couldn’t exist without the mechanisms of the Cosmos SDK. Non-custodial depositors on Ethereum mainnet are able to deploy capital into vaults managed by Sommelier’s strategists, approved by holders of its native token SOMM on its Cosmos chain.



But Ethereum mainnet — due to gas costs and performance constraints — lacks financial primitives, such as derivatives, that are enabled by other chains, including Arbitrum. The Axelar tie-up gives strategies access to Arbitrum dapps, while offloading the cross-chain infrastructure requirements to Axelar’s validators.



“Everything you can build with the Cosmos SDK is now going to be a lot more interoperable with Ethereum and other layer-1s that have EVM-support,” Axelar’s co-founder and engineering lead Sergey Gorbunov told Blockworks.



Previously, Sommelier would have had to run nodes, not only on Ethereum, but on any additional chains where it wants to offer its vaults. But now Axelar becomes a single point of contact for its future expansion.



“The Axelar network has been designed to support that type of activity on the economic side, on the incentive side,” Gorbunov said.



<h2 class="wp-block-heading">What are the risks?</h2>



Sommelier vaults on Arbitrum naturally will introduce some new trust assumptions and commensurate risks.



As before, users of its DeFi strategies have to trust SOMM validators to behave correctly, but now must trust the design of Axelar’s GMP and its validators as well. However, Manian said, “we have designed our smart contracts on Sommelier to make it so it would be difficult for validators to steal funds, even if Sommelier or Axelar is compromised.



There are also inherent risks of transacting on EVM alternatives, such as Arbitrum, including the need to trust its centralized sequencer. These scaling solutions are still comparatively new, and there could be flaws or bugs yet to be revealed, Manian said.



“There is a reason why 95% of the Defi TVL is on Ethereum, but there’s so many exciting applications being built on L-2s like derivatives that are very exciting for strategies that it’s impossible for us to ignore the possibilities,” he said.



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DeFi Strategies Get a Multichain Boost From Sommelier and Axelar

Jack Kubinec

<div id="highlights-block_62e30a11f6d23" class="highlights">
 <ul>
 <li>The chain is a layer-2 optimistic rollup that financially rewards “guards” for verifying transactions</li>
 <li>“Rather than deploy your dapp on ten different chains, why not deploy it on the bridge protocol that’s already connected to every chain?” Synapse tweeted</li>
 </ul>
 
</div>



Crypto builders are rushing to <a href="https://cms.blockworks.co/bridge-protocols-race-to-win-consumer-trust/" target="_blank" rel="noreferrer noopener">restore trust in bridges</a> as cross-chain hacks have cost crypto users nearly $2 billion this year. But the Synapse Protocol hopes to win over disaffected investors by getting rid of bridging altogether.



Synapse Chain, announced today, would create a single-chain solution to cross-chain swaps. In theory, the chain could lower costs and increase security.



At a basic level, cross-chain bridges are protocols that transfer information between blockchains. The most common bridge use case is moving cryptoassets between chains. In that case, the bridge holds a user&#8217;s assets in a smart contract while deploying a “wrapped” IOU asset on the bridged chain.



Synapse Chain would do away with asset wrapping by creating a blockchain directly compatible with different cryptoassets, Synapse explained <a href="https://synapse.mirror.xyz/L6dBb7aXIJ1Ll5_sxP2bIJxVEYNd43ZzIV6dRylQJxw" target="_blank" rel="noreferrer noopener">in a blog post</a>.



For instance, if a user purchased hypothetical token XYZ on the Ethereum network, she could potentially use a Synapse-powered decentralized exchange (DEX) to directly convert ETH to XYZ without bridging tokens, saving on gas fees and increasing security.



Synapse’s “single execution environment” is built on Ethereum but theoretically is compatible with any blockchain.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">3/ By leveraging Synapse’s messaging system and bridge, Synapse Chain will become the organizational hub of all cross-chain activity. Rather than deploy your dapp on ten different chains, why not deploy it on the bridge protocol that’s already connected to every chain? <a href="https://t.co/XqZrLE8mSM">pic.twitter.com/XqZrLE8mSM</a>&mdash; Synapse Protocol (@SynapseProtocol) <a href="https://twitter.com/SynapseProtocol/status/1552665932027334657?ref_src=twsrc%5Etfw">July 28, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The layer-2 uses optimistic proofs, where all transactions are assumed to be valid pending fraud claims from so-called guards.&nbsp;



Synapse believes optimistic verification will help the chain avoid adding to the nearly $2 billion in assets stolen from cross-chain protocols this year. Many hacked bridges held assets in multi-signature wallets that went light on the “multi.” <a href="https://cms.blockworks.co/defi-cross-chain-horizon-bridge-hacked-for-100m/" target="_blank" rel="noreferrer noopener">The Harmony Horizon bridge</a>, for instance, had five keys, only two of which needed to be compromised by the hacker.



An optimistic system requires every validator to approve transactions, as every guard tacitly verifies data when it does not submit an allegation of fraud. Synapse incentivizes guards to do their jobs by confiscating their SYN governance tokens when faulty transactions are marked valid, a mechanism known as slashing.



SYN jumped roughly 40% after the Synapse Chain announcement, trading around $1.70 Thursday afternoon.



Synapse’s optimistic rollup sequencer will initially be run in-house, though the protocol hopes to follow other layer-2s toward decentralization.



Still, <a href="https://vitalik.ca/general/2021/01/05/rollup.html" target="_blank" rel="noreferrer noopener">optimistic rollups have been criticized</a> for the tradeoffs inherent to the use of fraud proofs, such as a relatively long withdrawal period to move funds to the Ethereum mainnet, and Synapse is not the only team rethinking bridges. 



Axelar and LayerZero are other major players in the post-bridge space. In a Telegram message, LayerZero CEO Bryan Pellegrino called the protocol “neither a bridge nor a blockchain” that moves assets directly between contracts.



Similarly, the Synapse Chain, which is expected to go live on a public testnet within weeks, doesn’t necessarily require assets to be bridged at all.



“A lot of the assets won’t have to be sent into the rollup, they can live on a chain and the messaging system will attest to their value,” said Synapse’s chief operating officer Max Bronstein.



“If you trust the security of the messaging system, [then] you trust that the asset in the rollup is the same as the asset on the native chain.”



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Synapse Chain Eyeing Bridgeless Asset Swaps

<div id="highlights-block_62bc42c09b064" class="highlights">
 <ul>
 <li>Few DeFi companies employ dedicated security personnel</li>
 <li>Industry experts believe bridges will become more secure as DeFi matures</li>
 </ul>
 
</div>



As investment in cryptocurrency grows, so does the incentive for criminal actors to exploit the DeFi (decentralized finance) space. Cross-chain bridge hacks have been the weapon of choice for crypto thieves in 2022. Bridge hacks have accounted for more than a billion dollars in stolen funds this year, according to research from blockchain analytics and compliance firm Elliptic.



Cross-chain bridges allow assets to be moved between different blockchain protocols, meaning the networks contain a large concentration of crypto assets. The recent string of bridge attacks has caused some industry leaders to question whether the benefits of bridges outweigh their risks. A top analyst at Elliptic believes bridge hacks are just growing pains that DeFi will eventually surmount.



<a href="https://cms.blockworks.co/defi-cross-chain-horizon-bridge-hacked-for-100m/" target="_blank" rel="noreferrer noopener">Harmony</a>, <a href="https://cms.blockworks.co/sky-mavis-ronin-network-bridge-exploited-for-over-600m/" target="_blank" rel="noreferrer noopener">Sky Mavis</a>, and <a href="https://cms.blockworks.co/in-second-largest-defi-hack-ever-blockchain-bridge-loses-320m-ether/" target="_blank" rel="noreferrer noopener">Wormhole</a> all suffered blockchain exploits exceeding $100 million this year. Mudit Gupta, Chief Information Security Officer at Polygon, believes bridge insecurity is an industry-wide problem.



“Most of the hacks are happening due to companies not having proper security experts and not knowing what to do themselves,” Gupta said in a Twitter DM. “There are very few DeFi companies with [dedicated] security personnel.”



DeFi protocols have proliferated rapidly in the past six years, but security infrastructure has not kept up with the now over-$900 billion industry. For this reason, hacks totaling in the hundreds of millions are not surprising.&nbsp;



On April 1, a trader tweeted their concern that a major Harmony Horizon Bridge exploit would only require a hacker to obtain two of the protocol’s five validator keys. In June, that exact scenario occurred — and Harmony was ransacked for $100 million.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Since the current narative du-jour is bridges &amp; bridge hacks, I wanted to do some digging on the harmony bridge on Ethereum which secures ~$330m worth of tokens.&mdash; Ape Dev (@_apedev) <a href="https://twitter.com/_apedev/status/1510007663832223751?ref_src=twsrc%5Etfw">April 1, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Vitalik Buterin, co-founder of Ethereum, believes cross-chain bridges are inherently prone to security breaches.



“The fundamental security limits of bridges are actually a key reason why…I am pessimistic about cross-chain applications,” Buterin wrote in a lengthy January Reddit post. The influential founder went on to express his belief that assets should be held in the same blockchain ecosystem, rather than shuffled between chains.



Tara Annison, Head of Technical Crypto Advisory at the crypto research firm Elliptic, disagrees.



“We’re not going to live in a single chain world,” Annison said. It will always be necessary to move assets between blockchains, so “we shouldn’t characterize bridges in general as bad just because some have been hacked.”



Annison believes bridge hacks are caused by the concentration of value within cross-chain bridges, not by the bridges themselves.



<blockquote class="wp-block-quote">“If you think of wars, you try to bomb bridges to stop goods and services moving across,” Annison said. Recent cross-chain bridge hacks are not happening “because bridges are inherently weak infrastructure, it’s because they have a concentration of value.”</blockquote>



Annison believes that all crypto assets come with risk, and bridges are just the risk “flavor of the month” following stablecoins in May and NFTs before that. Bridges should become more secure as protocols become more technologically mature.



It remains to be seen if market participants agree.



Sky Mavis’ Ronin Bridge, which was compromised for $625 million in April, <a href="https://cms.blockworks.co/sky-mavis-reopening-ronin-bridge-with-enhanced-security/" target="_blank" rel="noreferrer noopener">reopened</a> this morning. Close to $9 million in assets have already left the chain, according to Messari.



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