Tackling the Bridging Trilemma: The ∆ Algorithm Approach

The Bridging Trilemma

In the world of cryptocurrencies and blockchain technology, the need for interoperability among diverse blockchains has never been more critical. As more unique blockchain networks spring up with specialized uses and benefits, the necessity for these separate chains to interact and share assets becomes increasingly pronounced. Cross-chain bridges have emerged as the solution to this, providing the necessary infrastructure for assets to move seamlessly from one chain to another.

However, building a bridge that functions effectively and efficiently is not without its challenges, which can be encapsulated in what is known as the ‘Bridging Trilemma’. The trilemma refers to the difficulty of achieving three crucial elements simultaneously in a cross-chain bridge: Instant Finality, Native Assets, and Unified Liquidity. Despite the challenges, an algorithm called the ∆ (Delta) Algorithm has surfaced with potential solutions to this trilemma.

The Bridging Trilemma Unveiled

1. Instant Finality: Instant Finality implies that any transaction committed on the source chain will also be successfully committed on the destination chain. In simpler terms, this is the guarantee that the transfer of assets across chains will be immediate and irreversible. Most existing bridges try to achieve this by locking the user’s asset on the source chain and creating a corresponding synthetic asset on the destination chain.
2. Native Assets: Native assets refer to the ability to transfer the user-desired assets, whether native or the most liquid synthetic versions, directly on the destination chain. In the current cross-chain bridge mechanisms, users often have to deal with bridge-specific tokens or wrapped versions of their assets, adding an extra step to the process.
3. Unified Liquidity: Finally, Unified Liquidity is the ability for all connections in the cross-chain network to deposit and withdraw from a single shared pool of liquidity. Achieving unified liquidity is a tricky balancing act that requires preventing the liquidity pool from being exhausted before all transactions can complete.

Addressing all three aspects at once is what makes the Bridging Trilemma a significant challenge. However, the ∆ Algorithm seems to provide a promising approach to overcoming it.

The ∆ Algorithm: A New Hope for Bridging

The ∆ Algorithm offers a solution to the trilemma by leveraging a concept known as cross-chain liquidity. In this model, each chain in the network maintains a single liquidity pool that’s soft-partitioned into ‘slices’ for each of the other chains in the network. This arrangement allows the algorithm to borrow and return liquidity between these slices while carefully avoiding overdrafts or race conditions.

The ∆ Algorithm follows these steps when a transfer request is received from one chain to another:

1. If any channel on the source chain has a deficit, it distributes newly deposited funds to close the deficit.
2. Any remaining funds after closing all deficits are then distributed across all channels based on their weight.

The ∆ Algorithm further optimizes cross-chain communications by managing local state. It keeps track of all distributed funds in locally stored ‘credits’, which are then included with user transactions to notify the associated remote chain.

To ensure instant finality and support the use of native assets, each source chain tracks an estimate of the channel bandwidth with every other chain in the network. By making sure that this ‘balance’ never exceeds the actual channel bandwidth, the ∆ Algorithm guarantees sufficient liquidity for every transfer, achieving instant finality.

Conclusion

The Bridging Trilemma has long posed a significant challenge for the development of cross-chain bridges. But with the advent of the ∆ Algorithm, a solution seems to be within reach. By managing cross-chain liquidity, ensuring bandwidth balance, and supporting the direct transfer of native assets, the ∆ Algorithm might just pave the way for an era of efficient and effective cross-chain bridges.

Reference: https://www.dropbox.com/s/gf3606jedromp61/Delta-Solving.The.Bridging-Trilemma.pdf?dl=0