VeradiVerdict - Issue #220
World Wide Web for Blockchain
A multichain ecosystem is emerging as the crypto industry's future. By tackling the blockchain trilemma with cutting-edge technologies, alternative layer 1 blockchains, rollups, and app chains are revolutionizing how users interact with various protocols. However, these changes have created problems for developers as they must now choose between ecosystems and deal with fragmented liquidity. Every chain functions as an "island of state," so creating a "cross-chain" solution entails using insecure asset interoperability solutions or deploying on every chain a protocol that aims to support. Cross-chain technology must advance as we transition to a multichain environment to account for these variations. The basis for crypto’s widespread adoption lies squarely in facilitating seamless inter-blockchain communication and developer experiences.
To enable true inter-chain protocols, Hyperlane is creating a network communication layer between blockchains. The developer solution offers an inter-chain messaging API and proper SDK and tools to reduce the amount of time needed to create interchain apps and free up engineers to concentrate on user experience and security. There are many similarities between the genesis of the internet and the present blockchain expansion. Before the Internet, there was a private ethernet in lots of schools, companies, and governments that were fragmented and closed. The communication between computer networks was not standardized. Then, in 1983, TCP/IP (Transfer Control Protocol/Internetwork Protocol) introduced a new communication protocol that allowed public networks to be open and shared. A universal language connected all networks. Similar to the internet, Hyperlane’s modular and chain-agnostic architecture allows anyone to connect a new chain to the interchain message transfer highway. The solution builds the interconnectivity of the internet for blockchains and will accelerate the innovative network effects of the crypto universe.
The Current State
Asset interoperability solutions such as bridges have been developed to connect chains that would otherwise have no way of interacting and syncing on states. Users utilize these solutions by locking in a certain amount of digital assets on a single blockchain. As an exchange, the protocol credits or mints the same quantity of assets on another blockchain to the locked money. Despite increasing blockchain interoperability, bridges have become a primary honeypot for hackers to exploit. In fact, cross-chain bridge hacks accounted for 69% of all crypto stolen in 2022, resulting in losses of over $2 billion. These solutions represent a quadratic risk surface in terms of smart contract exploit possibilities and attack size. As a bridge joins more chains, the number of smart contracts necessary to keep the bridge operational quadratically increases. Current interoperability solutions are only as powerful as their designs, and a single flaw can cause massive repercussions.
To enable cross-chain applications, difficulties such as lack of sufficient security guarantees, scaling, and high prices must be overcome. Solutions must be designed for a multichain platform to facilitate developers to build the future paradigms for decentralized financial and economic systems.
How Hyperlane enables Interchain applications
Hyperlane enables interchain applications through 3 key technologies.
The Messaging API
Proof of Stake securement of communications
Mailbox for blockchains
Similar to TCP/IP, Hyperlane enables users to transmit and receive information between chains via Hyperlane mailboxes. Each chain has n-1 Inboxes for receiving messages from other chains and one Outbox for sending messages. Hyperlane mailboxes can be configured on any smart contract chain and allow applications to send and receive interchain messages.
Three steps are taken in sending and receiving an interchain message:
On the origin chain, an application calls Outbox contact. A user can send an interchain message by indicating the destination chain's Inbox domain, the recipient's address, and the message's contents. These messages are inserted into the Outbox's Merkle tree.
Validators for the origin chain sign the new Merkle root.
A relayer sends the message to the intended receiver by submitting a Merkle proof of the message against the signed root from step 2. The Inbox contract on the destination chain verifies the Merkle proof before the recipient chain receives the message in their Inbox.
Attaching a cost to fraud
With a unique validator set protecting messages from each blockchain, the proof of stake (POS) consensus method secures Hyperlane messaging. Users can provide economic security by staking tokens and delegating to one or more Hyperlane validators. A validator is responsible for monitoring the Outbox contract on their chain and continuously signing the Merkle roots as new messages are transmitted. Verifiable fraud proofs can make bad actors pay a penalty and slash validators if they attempt to reject or filter messages, resulting in an increase in the security of the messaging protocol.
Configurable interchain security
Although proof-of-stake on default provides economic security, Hyperlane also introduces Sovereign Consensus, a defense system that enables programmers to alter Interchain Security Modules for applications (ISM). ISMs are smart contracts that specify an application's security model. Applications can modify security models and decentralize trust assumptions using sovereign consensus in order to best meet their requirements, — down to the transactional parameters. With this technology, security transitions from a static solution to a modular one. The team is building to embrace the potential security models of the future, such as perhaps ZK proofs for blockchain states that stand alone, and incorporate them as an ISM. Sovereign consensus maintains top-end interchain communications performance while enabling highly customized and cutting-edge security measures.
Current examples of ISM include:
Multi-sig configuration: A simple t-of-n security model. A proof-of-stake adapter contract could be used to vary the membership to reflect the Hyperlane validators that provide the most economic security.
Optimistic security: An approach to security developed by Optics that prioritizes safety before liveliness. Optimistic ISMs embed a fraud window during which 1-of-n parties can halt the system
Dynamic: ISMs that vary their configuration over time in accordance with the content of messages or the state of an application.
Hyperlane was founded by industry veterans who have designed and implemented numerous protocols. Asa Oines, Nan Chi Hoai, and Jon Kol are the driving forces behind Hyperlane and aim to create secure communications networks to enable interoperability. During his time at Galaxy, Jon managed the investment team and backed Solana, FTX, and Chaos Labs. Asa and Nam led the implementation of the Celo Protocol as part of the early engineering team at cLabs. The founders are closely advised by Zaki Manian, creator of Cosmos and IBC, and Morgan Beller, co-founder of Diem. The strong core team is further supplemented by engineers who have experiences spanning distributed systems at Google, and protocol engineering at cLabs.
More than 1,312 blockchain application startups have received funding in 2021 alone. Activity across chains is rapidly increasing and has led developers and consumers to unintentionally accept the security concerns associated with cross-chain communication. There is a clear need to build and integrate cross-chain solutions that allow for safety for users and protocols as the number of blockchains and ecosystems increases. Through their developer platforms and APIs, Hyperlane provides the infrastructure necessary to support the next wave of successful inter-chain apps. The protocol is currently live across every major EVM chain, with support for non-EVM chains coming soon.
- Paul Veradittakit
Pantera Capital Puerto Rico Management, LP and its affiliates (“Pantera”) makes investments in crypto assets and in blockchain-related companies. Pantera and/or its affiliates or personnel may be an investor in, or have relationships or other business arrangements related to, certain instruments, companies and/or projects discussed herein. This document does not contain any advertisement for Pantera’s investment advisory services, or any other services or products, whether provided by Pantera or otherwise. The information and opinions presented in this document are solely those of Paul Veradittakit; they do not represent, and should not be interpreted as representative of, the views of Pantera or any other individual working for Pantera, and do not represent investment, legal, tax, financial, or any other form of, advice or recommendations. Neither Pantera nor Mr. Veradittakit is acting, or purports to act, as an investment adviser or in a fiduciary capacity with respect to any recipient of this paper. Information contained in this document is believed to be reliable, but no representation is made regarding such information’s fairness, correctness, accuracy, reasonableness or completeness. There is no obligation to update this document or to otherwise notify a reader if any matter stated statement or information contained here changes or subsequently is shown to be inaccurate. Nothing contained herein constitutes any representation or warranty as to future performance of any financial instrument or company. Forward-looking statements should not be relied upon, and performance or outcomes may differ materially from what is contemplated herein. Opinions included here incorporate subjective judgments or may be based on incomplete information. This document does not constitute or contain an offer to sell or a solicitation to buy any securities or a recommendation to enter into any transaction, and no reliance should be placed on this document in making investment decisions.
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Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.
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