Wormhole V2: New Cross-Chain Liquidity Across L1 Chains

Certus One initially introduced the Wormhole L1 native bridge in 2020. Now, audited and live, SOL and ERC 20 token holders can transfer their assets between ecosystems – not just Solana and Ethereum. With the launch of the Wormhole mainnet, the bridge is expanding beyond Solana to include other L1s to bring liquidity from Solana, Ethereum, Terra, and Binance Smart Chain. They are embarking on a quest to aid developers in providing more DeFi application users and a more robust Web 3 experience.

Introducing Wormhole V2

Solana’s Wormhole Bridge was first introduced by Certus One back in October of 2020 and the team recently announced their mainnet launch. The new version of Wormhole is a cross-chain bridge that provides access to liquidity across chains that may not have been available before. This is a transition away from being a native L1 bridge from Solana to Ethereum.

This new Wormhole bridge has a vast amount of flexibility in the Web 3 space. Cross-chain liquidity bridges aim to have their own security models, incentives, and utility through supporting applications. As Wormhole aims to support more L1 networks in the future, they can support applications beyond just bridging networks.

This new version of Wormhole is separate from the original native bridge built on Solana. It is completely redesigned with more application. The Wormhole team uses an oracle/smart contract-based system. This requires trust in the oracle network – rather than a blockchain.

Wormhole V1 was only a native L1, but third parties were calling for a way to transfer NFTs and other ERC-20s. Third parties are also looking for insurance pools for transfers, and different design mechanisms that ensured it was necessary to build a different bridge that has more accessibility. 

With Wormhole launch, it will be providing all of the above to Terra, Solana, Ethereum, and Binance smart Chain. The Wormhole team is ready to expand into other domains and provide incentives for their own set of validators in addition to providing liquidity to other ecosystems. 

We’ll note here – it is not backward compatible. Meaning that older additions will not work. 

How It Works

When a bridge has its own security model this opens the bridge up to be more complex and flexible to solve the traditional problems of bridges: low transaction costs, quick relay transactions, and providing data representations accurately. Bridges that have their own security model are the most robust and secure bridge for transactions. 

The new version of Wormhole has its own consensus mechanism, called Guardians. This addition makes it a stand-alone bridge that has features and flexibility to connect to any other network, along with allowing creative developers the ability to build their own dApps on the bridge. 

| Once a user initiates a transaction, by sending a message to Wormhole. Once a quorum of nodes has observed the transaction – they make that message publicly available. This enables users to access their messages on a different chain. |

The bridge will be providing message passing foundations, and then developers can build token bridges on top of these foundations. There are two ways that tokens are transferred over the bridge. For outgoing transfers, native tokens will be either be locked into a smart contract or burned and represented as the wrapped tokens. This transaction will produce a transfer message to the bridge – thus sending the message on to the other chain. 

For incoming messages – users will need to send a message containing a payload. Simply – you’ll need a send a message with one of four options telling the bridge what you’d like to do; unlock or mint tokens, register the token bridge contract, upgrade the contract, or send a metadata message.

Another feature of this design is that developers can build applications on the bridge without requiring significant changes to the individual protocol. This opens the door for connections between networks – like token or NFT swaps or connections between a single chain to a specific set of chains – like price feeds or data sources. 

Transaction Volume and Additional Liquidity

L1s need additional help from other networks to increase their DeFi use cases. Due to Solana’s high throughput, they have an emphasis on small transactions. Higher speeds mean that validators can process an increased number of transactions in a block. This contrasts with Ethereum, where there are only so many transactions in a block, driving up gas prices and taking time to process transactions. 

With this bridge to Ethereum, Solana, Ethereum, Terra, and Binance Smart Chain, Solana should see more users bringing their ERC-20 tokens into Solana’s ecosystem. Solana is an L1, meaning that it is a layer one protocol, allowing developers to use Solana’s features to build applications. 

The future is cross-chain

Wormhole is modeled in a way that compliments the Cosmos Hub and IBC. While Cosmos Hub and Cosmos SDK-related chains use IBC, chains can connect to Cosmos Hub and other chains through running light clients. Wormhole runs a separate chain that aims to connect to chains that don’t have built-in IBC functionality. Current L1s that do not have the ability to connect to each other rely on bridges to be able to communicate across chains. 

Wormhole is targeting chains that do not have light clients or chains that otherwise could be IBC compatible – it is designed to connect to a number of high-value chains focused on decentralized finance. More transaction volume and additional liquidity on these networks will help continue their growth trajectory. However, the best thing for additional use of these networks is more adoption. In order to address more adoption and increase Web 3 options – bridges are the key to providing user experiences that transcend Web 2.  

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