Fragmented No More: CEO of EYWA Explains Fixing Spread-Out Liquidity and Bridge Security

The decentralized finance (DeFi) ecosystem continues to expand across multiple blockchains, offering new opportunities but also introducing major challenges. One key issue is that of fragmented liquidity - assets and trading activity spread thinly across disconnected platforms.

Another threat comes from weaknesses in cross-chain interoperability - bridges that promise to connect blockchains but with security flaws that leave funds at risk.

To discuss these problems and potential solutions, I spoke with Boris Povar, a co-founder, and CEO of the Eywa project.

Povar brings a strong technical background to tackle these complex topics. With a degree in mathematics and programming, he has worked in crypto since 2017 after a successful career running an IT outsourcing firm. As a portfolio investor and fund manager in the DeFi space, he has direct experience grappling with risks around fragmented capital and insecure bridges.

Since 2020, he has focused his efforts on developing a novel architecture for trusted and efficient cross-chain communication.

Povar provides insight into the scale and consequences of fragmented liquidity and flaws in today's bridges. The interview sheds light on the roadblocks hindering DeFi's progress as well as innovative solutions in development. Povar lends both technical expertise and real-world perspective to outline a vision for the next stage in DeFi evolution.

What are the problems of fragmented liquidity and insecure cross-chain communication?

The problem of fragmented liquidity can be formulated as follows: Liquidity located in one blockchain is isolated and not utilized in other blockchains simultaneously. Protocols addressing this issue enable your funds to operate across multiple blockchains/protocols concurrently.

For instance, Liquid Staking protocols enable participation in the Ether consensus, earning income, while still utilizing funds in DeFi. Blast operates on a similar principle, where funds in their blockchain function within major DeFi protocols in Ethereum, generating income.

However, examining this problem from the perspective of bridges reveals inefficiencies. Traditional lock-mint-burn-unlock bridges are ineffective with liquidity, as they connect assets and blockchains in pairs, requiring liquidity to be added to each link. Liquidity locked in such bridges remains dormant and is utilized ineffectively; L2 bridges serve as examples.

Meanwhile, the TVL of bridges is rapidly growing and has reached the total TVL of DEXes (approximately $17 billion), necessitating more efficient utilization. Thus, it can be argued that bridges exacerbate the problem of liquidity fragmentation.

The issue of insecure cross-chain communication is exemplified by the Multichain protocol. Projects like Curve and Fantom relied on it for cross-chain communications and liquidity transfer. However, Multichain malfunctioned at one point, resulting in losses for these projects.

Their infrastructure was entirely dependent on Multichain, and finding and integrating alternative options took considerable time. Multichain, like many cross-chain protocols, had centralized elements, making its operation heavily reliant on teams.

This scenario underscores the risks associated with relying on any single bridge as critical ecosystem infrastructure, which may lead to unforeseen "black swan" events.

How big of an issue are these problems currently in DeFi and crypto overall? What are the consequences?

High slippages in cross-chain swaps and complex UI/UX pose challenges for the majority of users. Projects are compelled to divide their liquidity across blockchains, incurring high maintenance costs.

Furthermore, most bridges exhibit centralized traits. To date, bridge hacks have resulted in losses exceeding $2 billion. At EYWA, we endeavor to consolidate the liquidity of major blockchains, enhancing efficiency without compromising security and decentralization.

What initially motivated you to tackle the problems of fragmented liquidity and insecure cross-chain bridges in the crypto industry?

I've been actively addressing my own challenges. With involvement in asset management and DeFi capital placement since 2020, and in the industry since 2017, I possess an in-depth understanding of the problems and risks associated with cross-chain fund transfers.

Drawing on my technical background, I've meticulously analyzed bridge hacks, resulting in the loss of over $2 billion. Consequently, I grasp what's necessary to ensure the security of cross-chain communications. Moreover, I recognize the imperative of holding liquidity long-term for bridge efficiency.

I'm well aware of the inefficiencies in DeFi liquidity utilization, contributing to the dominance of CEXes over DEXes. The first wave of cross-chain bridges, while experimental, merely offered a pricier service without enhancing security or decentralization.

I often phrase it as: "It’s still the same CEX, just in a new package." Hence, since late 2020, I've been dedicated to developing a genuinely decentralized cross-chain protocol capable of rivaling CEXes without compromising decentralization and security for development speed and convenience.

How exactly does aggregated bridge and consensus architecture provide security for transfers?

Most cross-chain bridges currently employ their own messaging protocols, which often fall short in terms of decentralization and entail various risks associated with teams, regulations, and management. It's fair to say that virtually all bridges on the market require trust, leaving the entire ecosystem vulnerable to potential "black swan" events.

In response to these challenges, the Eywa team, in collaboration with the Curve team, is developing a trustless bridge that relies on a consensus of the most reliable messaging protocols available. We leverage Axelar, L0, Wormhole, Chainlink CCIP, and other messaging protocols to create a highly secure solution for messaging, custody, and liquidity transfer.

By combining Eywa Token Bridge smart contracts with data validation consensus, we establish an Eywa Consensus Bridge that ensures security independently of any team and enables users to retain control over bridge liquidity.

When transmitting information, it will be sent in parallel to several messaging protocols based on the user's choice, allowing users to specify preferred bridges and required quorums. The bridge's smart contract in the destination network aggregates transmission results and compares them until a quorum is reached. Users can customize the level of security needed, determining the number of checks. If any protocol returns incorrect data, the transmission will be halted.

Imagine initiating a cross-chain transfer of a substantial sum. Initially, your funds are secured in the bridge's smart contract. Subsequently, a cross-chain transaction is initiated, transmitted, and verified concurrently by multiple data transfer protocols.

In the destination network, a specialized smart contract receives and compares responses. If consistent information is received from all protocols, the final transaction executes your transfer.

However, if any bridge is compromised, resulting in mismatched data, the transaction will be aborted, allowing you to reclaim your funds in the source network. The probability of all transfer protocols being compromised simultaneously approaches zero.

How does utilizing Curve’s existing deep liquidity pools enable low-slippage cross-chain trading on CrossCurve?

The more liquidity available, the lower the slippages, which is an evident concept. However, to elucidate how CrossCurve utilizes Curve pools, I must delve into its architecture. As mentioned earlier, the issue with bridge liquidity fragmentation lies in the fact that locked liquidity within bridges remains inactive in DeFi.

To address this, we utilize Curve's LP tokens as the foundational liquidity. Leveraging Curve's ability to exchange LP tokens within the pool as standard tokens, we generate s-tokens - synthetic collateralized derivatives - by consolidating them on one public blockchain, known as Hubchain (currently Fantom).

Subsequently, we establish stable liquidity pools on Curve by connecting s-tokens of similar nature. These pools offer minimal slippage.

A typical exchange transaction traverses three blockchains, involving an imbalance operation to add liquidity to the Curve pool in the source network, followed by minting the corresponding s-token to the Hubchain, where it is exchanged for an s-token backed by the Curve LP token from the destination network.

The s-token is then burned, releasing the LP token in the destination network, and the final step involves an imbalance withdrawal of liquidity from the Curve pool, transferring it to the user's wallet - adding liquidity, exchanging, and removing liquidity. The greater the liquidity in the pools we utilize, the lower the losses incurred.

Additionally, this architecture enables more efficient capital utilization as the liquidity from all blockchains is consolidated in one location simultaneously, rather than in pairs. Consequently, CrossCurve requires substantially less liquidity compared to its competitors to achieve low slippage.

What are the main benefits to projects and developers of listing their tokens on CrossCurve?

• Web3 projects can list their tokens on any chain against crvUSD/Stables/WBTC/WETH/Curve LPs and trade them simultaneously across all chains for any asset.

• They can also receive yield provided by Eywa, Curve, and Convex on provided liquidity, attracting new users from different blockchains.

• Fast scaling for the utility of your token in other networks, while also reducing the costs associated with maintaining cross-chain liquidity by keeping a single pool.

How does CrossCurve simplify the user experience for cross-chain DeFi operations?

We utilize cross-chain ZAP transactions, condensing a large number of transactions for the user. For instance, a typical exchange involves a series of transactions across three blockchains, yet the user only needs to initiate one transaction.

How will the CrossCurve yield flywheel attract liquidity providers and projects to the platform?

Since all CrossCurve pools are native Curve pools, we have access to various tools for managing incentives. These include direct incentives, veCRV bribes, Convex rewards, and other vote aggregators like StakeDAO, Lobby, and Yearn. Additionally, we can create our own votemarket, accumulate Curve and Convex votes, and participate in CRV Wars.

Our plan involves using bonding mechanisms to attract the protocol’s own liquidity to the main pools. The first phase of our flywheel launch will focus on direct incentives for pools, veCRV bribes, and attracting our own liquidity through bonding. Subsequently, we will introduce a DAO and our own vote market.

The issuance of the EYWA token will be exclusively available to long-term holders and members of the CrossCurve DAO, thereby strengthening the token's value. Curve liquidity providers will receive enhanced yields on their LPs, and we will provide them with a seamless method to contribute to CrossCurve pools. Projects will have the opportunity to offer incentives on their pools.

However, to receive additional incentives from the CrossCurve DAO and partake in their distribution, they must become members.It's worth mentioning that we will assist Curve in distributing their stablecoin crvUSD, as it is their priority. In return, they will support us with incentives by voting for our main pools.

How will CrossCurve boost adoption of less liquid layer 1s and layer 2s through liquidity bridges?

We are currently constructing a cross-chain liquidity core by combining the largest blockchains by TVL. Subsequently, we will integrate emerging blockchains into our system and link them to this core, simplifying the process of liquidity migration between networks for liquidity providers.

What role will the CrossCurve DAO play in solving liquidity fragmentation and boosting chain interoperability?

CrossCurve will function as a transport hub for liquidity migration between different chains, offering additional income opportunities for liquidity providers. They will receive a base yield for providing liquidity on the original network, along with a yield for contributing their LPs to CrossCurve pools. Additionally, we intend to serve as a launchpad for Web3 projects seeking to establish multi-chain liquidity. This will enable them to utilize a single liquidity pool that serves all blockchains.

How will votemarkets and bribing systems incentivize long term alignment between liquidity providers and the protocol?

Long-term liquidity providers will become members of the CrossCurve DAO, engaging in the distribution of issuance among CrossCurve pools. They will also receive platform commission income and incentives from projects seeking augmented rewards.

Where do you see the main competition in cross-chain DEX space, and how is CrossCurve positioned against them?

My primary competitors include projects such as Stargate, Squid, Synapse, and Hashflow. We position ourselves as a solution primarily catering to liquidity providers and DeFi power users who necessitate seamless movement of substantial liquidity across blockchains.

Additionally, we address the challenges faced by Web3 founders, enabling them to reduce the expenses associated with establishing and maintaining multi-chain liquidity while broadening their access to users across various blockchains, thereby diminishing their reliance on specific blockchain ecosystems.

Our key advantages include the capacity to facilitate large-volume exchanges with minimal losses, akin to Curve's renowned capability, efficient utilization of liquidity, a seamless user experience, robust security measures safeguarding funds within our bridge, lucrative farming opportunities for liquidity providers, and an attractive proposition for projects seeking to establish their own liquidity pools.

What chains and assets will CrossCurve focus on supporting in the initial launch stages?

CrossCurve will focus on supporting the Ethereum, Arbitrum, Optimism, Polygon, Avalanche, BNB Chain, and Fantom chains along with the USDT, USDC, DAI, WBTC, ETH, crvUSD, 3crypto Curve liquidity pools, crvUSD-USDT Curve liquidity pools, and 3crv Curve liquidity pools assets.

Do you intend to partner up with other major players, DAOs and bridges? If yes, in what capacity?

To construct the Consensus Bridge, we are collaborating with Curve and will engage with prominent players in the cross-chain market — L0, Wormhole, Axelar, and Chainlink — as integrators of their solutions.

For liquidity building, we have partnered with Curve and other entities within the Curve ecosystem, including Convex, StakeDAO, Yearn, and Lobby, to incentivize their users. We are also collaborating with yield aggregators like Beefy.

We are currently in negotiations to integrate all new blockchains that Curve will support. Among those on the list are Mantle, Linea, Scroll, zksync, BNB Chain, and others. Additionally, we plan to identify a new Hubchain, a strategic partner blockchain. To enhance scalability and on-chain performance, we will collaborate with bridge aggregators such as Li.fi, Rubic, and Rango, as well as with wallets like Trust Wallet.

In the future, we aim to extend support for liquidity aggregation from other DEXes, such as Balancer and Uniswap.