DeFi Revelations - Everclear

In this episode of DeFi Revelations which took place on June 10, 2024, Kirk hosted Arjun to discuss the transformative concepts of chain abstraction and the intent-based model of Everclear as the first clearing layer in blockchain technology, cross-chain interactions, making blockchain applications as user-friendly as traditional web applications, and more! Read our notes below to learn more.

Background

Kirk (Host) – Head of Business Development at Revelo Intel

Arjun (Guest) – Founding Contributor at Everclear (formerly Connext)

Everclear – an Ethereum layer 2 that facilitates settlement netting

Democratizing Blockchain Technology

Arjun shares that he has a background in physics and is initially interested in pursuing academic studies in theoretical cosmology. However, he wanted to work on something that would have a more material impact in his lifetime.
Arjun noticed a concerning trend where technology’s benefits were limited by how they were distributed, leading to disparities in access to advanced healthcare and potentially AI. He was particularly worried about AI automating jobs and concentrating value in a few companies.
Arjun’s interest in addressing these disparities led him to Ethereum. He got involved in Ethereum in 2016 and helped build infrastructure. In 2017, he saw the need to make blockchain technology more accessible and started Connext with the mission to scale Ethereum to a billion users. Connext became one of the first L2 scalability research and development teams, building non-custodial L2s on Ethereum and contributing to early roll-up research.
Arjun explains that Connext’s mission from day one was to make blockchain technology accessible to normal people. He highlights the difference between UX problems in web2 and web3, noting that in web3, these problems are fundamental to the technology.
Connext focuses on solving the scalability trilemma—creating a blockchain system that is fast, cheap, secure, and user-friendly despite fragmentation issues. Their work involves collaborating closely with new rollups to create a unified experience, aiming for what they call chain abstraction.

Advancing Blockchain Interoperability: The Vision of Chain Abstraction and xERC20 Standard

Arjun explains that chain abstraction is a vision for how the blockchain space should operate. It aims to ensure that users don’t need to worry about which chain they’re on unless they want to. This is crucial for making Web3 applications as user-friendly as Web2 applications.
He compares it to using YouTube without needing to understand the underlying infrastructure. He says that users should be able to interact with blockchain applications seamlessly, without needing deep technical knowledge about different chains.
Kirk asks about the challenge of getting existing ERC-20 tokens and protocols to adopt new interoperability standards like Connext’s xERC20.
Arjun provides context on the xERC20 standard, highlighting that when ERC-20 tokens were designed, there was no consideration for cross-chain transfers. This limitation has led to the current bridging solutions, which involve locking tokens in a bridge and creating a representation on another chain. This method works but becomes problematic when multiple bridges and chains are involved, leading to fragmentation and complexity for users.
Arjun explains that xERC20 (EIP-7281) introduces a minimal change to the ERC-20 interface to facilitate seamless cross-chain transfers. This allows for a more unified approach where multiple bridges can interact with a single consolidated pool of tokens, reducing fragmentation. The goal of xERC20 is to create a minimum viable standard that can be extended and used by various projects.
He mentions that xERC20 is intended to be an open standard, not specific to Connext, and highlights that other protocols like Router Protocol, as well as major token issuers like Circle, are adopting or considering this standard. This growing ecosystem around xERC20 aims to establish a shared, neutral standard for cross-chain token transfers.

Everclear: Simplifying Cross-Chain Transactions with Intent-Based Model

Arjun explains that Everclear is the new direction for Connext, aiming to address fragmentation and interoperability challenges. The rebrand to Everclear aims to clarify the distinction between different components of the system. Everclear is the first clearing layer, coordinating the global sentiment of liquidity between chains to solve fragmentation for modular blockchains.
Arjun elaborates on the idea of chain abstraction, highlighting that users shouldn’t need to care about what chain they’re on to interact with applications. He explains that this vision requires solving various trade-offs, particularly around message security and transaction costs. He notes that current bridging protocols often face a dilemma between being cheap and scalable versus being extremely secure.
To address these issues, Everclear introduces an intent-based model. In this model, third-party actors, known as solvers, execute transactions on behalf of users across chains. However, rebalancing liquidity between chains has been a significant challenge, often leading to inefficiencies and high costs.
Arjun highlights that most cross-chain flows are net, meaning that a significant portion of the funds transferred between chains could be netted off rather than physically moved. This insight led to the development of the clearing layer, a coordination mechanism that allows for netting off transactions before settlement. This approach drastically reduces the need for bridging, making the system more efficient and cost-effective.
The clearing layer facilitates coordination among solvers, market makers, and centralized exchanges, enabling them to swap funds efficiently. This innovation aims to lower the barrier for solvers, allowing less sophisticated entities to participate and making the entire system more scalable and user-friendly.
Arjun highlights that Everclear’s goal is to make the process of rebalancing liquidity as passive as possible, ensuring that users can achieve the best possible price for their funds across chains with minimal effort. This approach is expected to significantly improve the user experience and drive broader adoption of cross-chain applications.

Everclear: Optimizing Liquidity and Settlements Across Chains

Arjun explains that Everclear processes settlements as invoices, which are handled based on available liquidity across chains. Solvers can specify preferences for settlement chains, and the system matches invoices with available funds, potentially clearing transactions at zero fees if liquidity is available. If liquidity is unavailable, Everclear uses a Dutch auction to settle invoices, progressively lowering the price until a buyer is found.
Kirk explores the broader applications of this clearing layer, suggesting it could benefit intent-based perpetual DEXs by unlocking new solvers and liquidity sources. Arjun agrees, noting that Everclear’s programmable nature allows it to support various cross-chain intent systems and large fund movements. He explains that Everclear is an Arbitrum Orbit rollup, functioning as a satellite computer that optimally settles funds based on shared scripts.
Arjun highlights that Everclear aims to enable any cross-chain interaction requiring large fund movements, benefiting solvers and even centralized exchanges facing liquidity challenges across multiple chains. He highlights the potential for financializing invoices within Everclear, similar to traditional finance’s invoice factoring, allowing for futures trading on settlements and enhancing liquidity management for solvers and other participants.

Everclear’s Vision for DeFi Evolution and Security Measures

Kirk expresses excitement about the potential of order books and their capital efficiency in DeFi, suggesting that successful implementation of Connext’s ideas might replace AMMs in many cases. He asks for Arjun’s thoughts on this.
Arjun acknowledges the effectiveness of AMMs in providing passive liquidity but agrees that order books are superior for traders seeking the best performance. He explains that DeFi is already moving towards intent-based DEXs and cross-chain intent-based DEXs, which will eventually use options and order books.
Arjun compares this evolution to the New York Stock Exchange, highlighting the importance of a central clearing mechanism, which Everclear aims to provide in a decentralized and publicly verifiable manner.
Kirk then asks about security measures for Connext, especially given the history of hacks in interoperability. Arjun explains the two types of security: implementation security and economic security. He details Connext’s approach to minimizing implementation risk by using battle-tested infrastructure and simplifying the system’s design. This includes using Arbitrum’s rollup stack and minimal gateway contracts for cross-chain communication.
For economic security, Arjun outlines three additional risks:
- Rollup Attack: Connext mitigates this by using Arbitrum’s fraud proofs, ensuring that any malicious activity by the rollup sequencer can be challenged and slashed.
- Communication Security: The system uses Hyperlane for cross-chain communication, which has been thoroughly reviewed for security. While they currently rely on Hyperlane’s validator set, they aim to move towards more decentralized solutions like EigenLayer.
- Economic Attacks: While economic attacks are less common now, Connext is designed to eventually handle them by using more decentralized and robust economic security measures.
Arjun shares that Everclear is live on Testnet and open for builders. They are gearing up for an alpha mainnet launch in early Q3, 2024, which will involve migrating Connext’s legacy volume and transactions to the new system with some initial guardrails for safety.

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Show Information

Medium: Youtube (Video)
Show: DeFi Revelations
Show Title: Everclear – The First Clearing Layer: Powering Chain Abstraction with Intents!
Show Date: June 10, 2024