In this episode of Edge Podcast, which took place on February 10, 2024, DeFi Dad, Nomatic, and Robinson discuss Wormhole, its competitors, interoperability, and security. Read our notes below to learn more.
Background
- DeFi Dad (Host) – investor at 4RC Capital
- Nomatic (Host) – investor at 4RC Capital
- Robinson (Guest) – Co-Founder of Wormhole
- Wormhole – interoperability platform powering multichain applications and bridges at scale
Robinson’s background
- Robinson says that he has been working in startups for nearly a decade, focusing on growing products that make a meaningful impact. He previously worked at a small text messaging AI startup before joining DoorDash to work on their new verticals. At DoorDash, he worked on expanding the business beyond food delivery, such as catering orders for businesses and pharmaceutical sales reps’ food orders.
- He adds that in 2017, he got involved in crypto by mining Ethereum after DoorDash went public. He became interested in interoperability within the crypto space and how different systems can communicate with each other.
- He adds that the Wormhole Foundation was launched or announced in August 2023. The Portal Bridge supports bridging between over 30 networks, including layer-1s and layer-2s, EVM-based chains, and non-EVM chains. Wormhole is not solely focused on token bridging but has additional features under the hood.
- Robinson says that interoperability is crucial for enabling different systems and chains to communicate with each other. It allows for seamless transfer of assets and data across multiple networks, enhancing the overall functionality and efficiency of DeFi applications.
- He adds that Polkadot is an app chain network that enables communication between different blockchains. It allows for seamless data transfer and interaction between these blockchains. He found Polkadot fascinating and worked in that ecosystem for a while.
What is Wormhole protocol?
- Robinson says that Wormhole originated as a hackathon project during the Solana hackathon. The team won the hackathon, which caught the attention of prominent players in the space. The original idea was to connect Ethereum and Solana. Jop, a significant player, realized the potential of connecting blockchains and incubated Wormhole as a product. He joined to help scale Wormhole into a company that could connect various objects across different blockchains.
- He adds that interoperability refers to two different systems working together at a high level. Examples include cloud servers needing to communicate with each other or banks using SWIFT for interbank communication.
- Robinson says that blockchains are typically isolated systems that do not communicate with each other. Wormhole acts as a translation layer or intermediary, connecting and enabling communication between different blockchains. It allows sharing states or information between chains, recording actions on one chain and replicating them on another.
- He adds that Wormhole is an interoperability protocol that connects over 30 blockchains. It enables applications to build multi-chain bridges, expanding their capabilities across different chains.
Wormhole competitors
- Robinson says that Wormhole’s competitors are;
- Messaging Protocols: These protocols facilitate the secure sharing of state between chains. Examples include Axelar, Wormhole, and LayerZero.
- Token Bridge or Liquidity Layer: This layer focuses on enabling seamless token transfers between different chains. Examples include Portal and other token bridge solutions.
- Aggregation Layer: This layer combines multiple messaging providers and exposes the best routes for users. Examples include Socket, LI.FI, and Bunge.
- Application Layer: This layer packages all the interoperability components into a user-friendly wallet or application.
How Wormhole Improves Interoperability
- Robinson says that during the bull market, Portal allowed users to bridge tokens and NFTs across different chains. Examples include sending punks and Bored Apes through Portal. Token bridging is not possible without the bottom layer of Wormhole’s assistance.
- He adds that Pyth is an up-and-coming Oracle provider that works with financial firms like Jane Street. They use high-quality data from these firms to provide Oracle price feeds on Solana. Wormhole acts as a messaging layer for Pyth, allowing them to reach multiple chains without rebuilding their infrastructure.
- Robinson says that Uniswap, the largest decentralized exchange, has deployments across different blockchains. Voting on governance decisions happens on Ethereum but needs to be reflected on other chains where Uniswap is deployed. Wormhole broadcasts the outcome of votes from Ethereum to other chains, enabling multi-chain functionality for applications like Uniswap.
- He adds that there are several non-token use cases that are live in production today. Examples include Pyth’s integration with multiple chains facilitated by Wormhole’s messaging layer. Wormhole enables applications to be more multi-chain without users having to manually send assets across chains.
Wormhole vs CCIP
- Robinson says that Chainlink is in a unique position as an Oracle provider.
- He adds that developers need to consider tradeoffs when deciding to use Chainlink. Education is crucial for understanding these tradeoffs. Security is a significant consideration, including the number of people needed for consensus on the bridge. Chainlink offers leverage through its Oracle price feeds but at a higher cost. Developers should assess their comfort level with these tradeoffs before integrating Chainlink into their projects.
- He adds that while acknowledging that Chainlink is formidable competition, the Wormhole is primarily focused on messaging interoperability. Their goal is to have teams build on top of their blockchain while they concentrate on providing interoperability services. Having a single core focus allows them to avoid split focuses and maintain a strong position in the market.
Wormhole powering CCTP
- Robinson says that Circle‘s $USDC faced liquidity fragmentation across different blockchains due to native deployments. CCTP was developed as a solution to address this issue. CCTP acts as a message passing protocol and an interoperability protocol, allowing Circle to burn and mint $USDC on different chains. Wormhole plays a role in providing additional instructions for composing unique transactions using CCTP and Wormhole.
- Robinson says that the relationship between Circle and Wormhole is symbiotic rather than competitive. They leverage Wormhole and CCTP to enable seamless cross-chain transfers of $USDC. Their role is to provide additional instructions for composing unique transactions, such as depositing $USDC into lending markets on different chains.
- He adds that once CCTP is integrated into their infrastructure, they can offer compelling token use cases such as sending, swapping, lending, and paying with tokens like $USDC. These use cases provide a lot of value to users in terms of convenience and accessibility.
- Robinson says that users who trust $USDC as a centralized solution can also accept the trust assumptions associated with CCTP. He emphasizes the importance of trusting Circle, the entity behind $USDC, when using CCTP. It is recommended to ensure that the contracts used by Circle for burning and minting have been audited to maintain trust in the system.
- He adds that if someone already trusts $USDC as a centralized solution, it is reasonable for them to accept the trust assumptions associated with CCTP. Users can feel comfortable using CCTP if they trust Circle since it has been around for a long time.
- Robinson says that it is important to ensure that contracts used by Circle for burning and minting have been audited. While users shouldn’t have to verify this themselves, Circle’s reputation as a trusted entity provides some assurance in this regard.
Solving liquidity fragmentation
- Nomatic says that with the industry moving towards a rollup future, there are worries about added liquidity fragmentation and the challenges of navigating between different rollups. He expresses concerns about how fast rollups are growing compared to the infrastructure supporting them.
- Robinson says that scaling too fast often involves tradeoffs, such as relying on centralized solutions or compromising on audits. He emphasizes that scaling should be accompanied by necessary infrastructure development to ensure user needs are met.
- He suggests that one potential solution is the aggregation of interoperability. He mentions using IBC in the Cosmos ecosystem and setting up a router chain called Wormhole Gateway to connect different chains quickly. Another solution mentioned is the adoption of standards. He highlights the importance of consolidation around interoperability protocols for things to work well in a world with multiple chains.
Security
- Robinson emphasizes that security is crucial for interoperability protocols like Wormhole, as they should function seamlessly in the background without users being aware. Following a past exploit incident, Wormhole has strengthened its security measures. They brought on a CSO who built an internal security team focused on proactive security rather than just audits.
- He adds that Wormhole uses a Proof of Authority consensus mechanism. There are 19 Guardians (validators) in the network. 13 out of 19 Guardians need to agree on every message sent through Wormhole. This decentralized approach ensures that collusion or falsification is difficult to achieve.
- He adds that Wormhole has a strong focus on proactive security. The security team is dedicated to ensuring the security of smart contracts and other aspects. Transparency and open-source nature make hacking easier, but it also allows for better detection. Wormhole implements multiple layers of defense to enhance security. Two separate industry-leading security features have been built into Wormhole. ZK bridging, based on mathematical trust, adds an additional layer of security.
Decentralization
- Robinson says that Wormhole aims to decentralize further in the future. The Guardians will be incentivized with tokens for their contributions to the network’s security and integrity. Power will be given to token holders, allowing them to participate in decision-making processes.
$W tokenomics
- Robinson says that the Wormhole token will have governance utility within the network. Examples include adding/removing blockchain connections, upgrading smart contracts, adjusting fees, etc. The token distribution will have a maximum supply of 10 billion tokens, with an initial circulating supply of 1.8 billion tokens. Tokens will unlock gradually over four years according to a release schedule.
Wormhole x Axelar bridge for Lido
- Robinson says that Wormhole and Axelar teamed up to provide a messaging-agnostic solution based on community feedback. They ensured that the contract could only use Wormhole messaging, allowing for a more decentralized approach.
- He adds that the community’s frustration stemmed from LayerZero claiming to be the canonical standard and official bridge without considering token holder governance rights.
- Robinson says that the argument revolved around permissionless access versus having an official standard. Both perspectives have validity, but claiming something as canonical infringes upon decentralization principles. A significant effort was made to find an infrastructure provider for $wstETH, resulting in Wormhole and Axelar offering a messaging-agnostic solution that aligns with community desires for decentralization.
- He adds that the vote emphasized principles of decentralization rather than just being about $wstETH, ing concerns about vendor lock-in and limiting token holders’ ability to make decisions through governance mechanisms.
Check Out These Important Links
- Watch the original episode
- Follow DeFi Dad on Twitter
- Follow Nomatic on Twitter
- Follow Robinson on Twitter
Show Information
- Medium: Youtube
- Show: The Edge Podcast
- Show Title: Wormhole: The Interoperability Platform for Web3
- Show Date: February 10, 2023