Impact of CCTP on the Bridge Ecosystem

Transcript

foreign [Music] my name is Darren I'm from the data science team at Circle so some of you might not know who circle is but I'm pretty sure everyone if not or most of you if not everyone in this room knows our product which is usdc um but so today I want to talk about uh bridging so quick show of hands how many people in this room have used a bridge okay and keep them up if you've bridged usdc that's like everyone to anyone lower their hand

okay that's cool I expected I was guessing like 70 80 but it's not a surprise because uh by volume usdc is actually the most Bridge asset um so on a daily on typical day around 35 of total Bridge volume is usdc this is the most although ethereum is also usually around there as well and this is about daily you're looking at about 80 to 100 million dollars of usdc being bridged so to give some perspective um uh deck swaps on these on using the same measures we see about about like seven times this so about like 14 of Dex volume you get in Bridge

volume so there's like a significant amount of economic activity occurring over Bridges by wallets uh uscc is the most Bridge erc20 token about 1.8 million wallets have bridged usdc and this is the second only to Ether um so all the data you're seeing here by the way this is from my team and I have put together so 50 million transactions with decoded logs covering uh the nine major blockchains up there so um ethereum l2s and polygon Avalanche as well as all the protocols you see so along with the canonical Bridges you have like synapse hop seller Etc anyone

from one of these protocols in this room which which one Hub okay you can complain to me afterward if your day looks wrong um cool um so before we go further I want to differentiate between the two types of bridges that we think uh that I um think of the ecosystem in so first you have your like canonical Bridges um so this is the bridges that will actually mint the token on the destination chain so for example um you lock uscc and ethereum and then mint it on arbitrum so these chains generally get you the highest amount of

security especially with l2s because they're like you're basically relying on the consensus on both chains you get one-to-one assets if you miss a thousand uscc on ethereum you're going to get a thousand usdc on arbitrim it's not dependent on slippage or like liquidity you just have to pay the gas costs um but it's only bilateral right because you can only send between ethereum and arbitrum so when we look at these Bridges like we see these ridges as functioning as like the major arteries of uh for multi-chain defy ecosystems so this looks at what percent of transaction volume is done by transactions over a hundred thousand

dollars so these are pretty big transactions generally a few wallets they're supplying liquidity to all these chains so you're looking at canonical Bridges it's like 85 90 of volume being done by these actors whereas it's closer to 30 50 for the smaller protocol Bridges um so which is the other kind so these protocol Bridges um some of them do you know message passing in general admitting and burning but in practice they are basically networks of liquidity that operate on either side of the blockchain um so you're swapping like for like so USC on ethereum for for example uscc.e on Avalanche or arbitrary and the advantage of these Bridges you

get generally much faster sediment times you get a better user experience because these are applications that developers are building these are like dedicated developers whereas the core the canonical bridges are built by core devs so they really get like only one shot at it um and this is multilateral so these are all networks you can swap between ethereum arbitrary and polygon you don't have to like re-transit back to ethereum um yeah and looking at like you know settlement timing you can see that like the protocols are much much faster than the canonical Bridges you're generally waiting a few minutes maybe sometimes last to a few minutes whereas he's in canonical bridge moving to the l2s you're still going to wait 10 20 minutes and this is not even looking at bridging

back from l2s to L1 because that adds an additional few hours or two days for uh frog troops okay um and so looking at what what users are actually using these Bridges like we see a strong preference a real preference for users to use protocol Bridges uh over canonical Bridges so this looks at what percent of transactions are coming from uh the canonical bridge and you can see that on ethereum like there's mostly it's mostly using canonical Bridges to send liquidity to other chains uh but on the l2s and even on the LL ones right like over 75 transactions are done by protocol Bridges um all right

uh and we also see that like users tend to come back when they use protocol Bridges right it seems to offer a better user experience and this is just a rough you don't worry about like what the numbers here in me exactly um but in general you see a relatively higher retention when controlling for other factors when you look at use wallets that are using protocol Bridges um the problem with these Bridges is obviously security so we recently had a reminder of like Bridge security and according to PEC Shield over 2 billion uh of the two billion dollars have been lost to Red tracker since 2021. but we also can't not have Bridges because

these they are like essential for moving liquidity and moving assets between defy ecosystems uh so our solution to this problem is the cross-chain transfer protocol so or cctp so this is a permissionless on-chain utility that facilitates native usdc minting and burning so anyone can use it and we think of this we think this is a breakthrough in stable infrastructure it makes usdc natively multi-chain letting anyone tap into it as a way to move uscc freely and securely across multiple blockchains and we think this tries to achieve The Best of Both Worlds where you have the security of knowing that you're using usdc that is backed by Circle while

giving developers the flexibility of how they want to integrate it into their application or to you know where it's not used at all so how does it work at high level the user initiates access to the app an app to initiate a transfer usdc specifies a recipient wallet and the the protocol facilitates a burn of the uscc on the source chain our attestation service observes this and the burn event so this is an off-chain service although I promise you it's running in the cloud account that more than one user has access to um the app then requests the attestation from Circle which provides authorization to Mint the specified amount usdc on the

destination chain um and then finally the app uses the attestation to trigger emit on the destination chain um so we really don't think of cctp as competing with Bridges but as a primitive to leverage and extend we want to make it easier to embed cross Gene transfers into any application and so that users and then users might already inherit cccp functionality from an existing protocol that they interact with so we launched cctp for Avalanche back in May and then arbitrum a few months ago a few weeks ago actually so how have we been doing so when we look at our

measure of transactions counts around 40 percent of transactions between ethereum arbitrary and Avalanche are already using cctp um the interesting interesting thing is that like users might not even be might not even know they're using cctp because this is really looking at the back end like what is actually facilitating the transfer of usdc you can also look at the front end like what contract are users actually interacting with and we look at this only around 10 are using the cctp contract directly the other 30 is using um of cctp usage that's coming through our partners um so those include the metamask bridge uh synapse Etc um

so um as a developer uh why why should you think about adding yourself to this list well so like one reason is inflation not that inflation but token inflation um so this is something that the bridges are expensive to maintain you need to have liquidity on both sides of the bridge and we look at how the LPS today are being compensated like overwhelmingly like 90 of the return is coming from token inflation um so we're already seeing discussions Within These protocols what is like the appropriate level and use of token emissions which which pools do they incentivize and how much so what ends up happening is like you're

basically like swapping from one bridge to another is actually quite cheap on the order of a few basis points because the Ops are being compensated through token inflation so if you're a token holder online protocols you have a direct incentive to implement it's a great cctp it reduces completely reduces over it can completely reduce or reduce the liquidity requirements of the most Bridge asset uh which you can then redirect to other pools or you can just or used to reduce the overall level of token inflation um another like difficulty or pain point we see with bridging is gas costs um so if you look at the distribution of

transactions being sent I'm using seller as an example here but seller transactions uscc transactions by which chain they're sending to you see like typically when essential other chains it ranges between 50 and 200 as a median amount but when you're saying to ethereum the median amount is almost 1500 and this is because to receive usdc on ethereum you need to pay a medium amount medium of like 40 in gas or 40 in fees which is primarily driven by gas and this is still an issue because over 60 to 70 percent of users who use bridges are still translating ethereum at some point people are not just swapping back between the l2s most

people seem to need some reason to go back to L1 um so while we can't fix gas on L1 we have tried to build the most efficient bridge that we can so cccp uses 150 000 gas units so compared to other like General message passing Bridges it's about 30 to 50 percent lower um although not as efficient as some of the dedicated L2 Bridges um we also see it you can also see like the higher dispersion in the cctp transactions and this is because we've uh it's a we've built in to borrow a phrase like hooks so this allows developers to batch other transactions

into the meeting Trend into the minting transaction on ethereum and making it more efficient because you're able to batch all those transactions into a single one um and like ultimately that's you know that's what we want to promote because our success is going to be dependent on the entire ecosystem success and if you're here you probably believe that like crypto will scale to millions of billions of users and they'll you probably believe you'll do so across multiple different blockchains so like we're going to be in this multi-chain Paradigm for at least like the near future um at the same time like if you're going to build an application that has millions of users like users are probably not going to be aware of which

blockchain they're interacting with um so we see cctp as a key piece of infrastructure to enable you guys to abstract out complexity for users so they don't have to worry about you know okay which chain am I on which how do I get usdc from one place to another um and yeah we hope that people find this uh valuable and we'll build on top of it um still some time question yeah thanks um so I think now that cctp is launching for example in arbitrim we have like usdce which like the bridge

that you'll see from ethereum and then like the native usdc and there's like large amounts of both and some sort of dapped support ones what the other some support both that kind of creates a ux problem is there an idea of how to like tackle that in future chains where you use cctp um I think to like okay how do you address arbitrary for example I think we tried to partner with some of the major users of ustc so GMX is one of them so they've started to we're working with them to switch usage to the native usdc uh but ultimately like we have limited like we can't just force everyone to use a native uscc um although when we look at like how

that's going like we do see like eventually people do end up swapping over to the native uscc and the way we send devise that is again like working with protocols working with exchanges working with whoever like big actors are using usdc um how to do that in the future um you can talk to RPM over there and he might have some ideas I'm not sure what I'm allowed to say uh thank you for the talk uh so essentially cctp is uh quite a similar thing to the protocol bridges that you mentioned uh because it actually still uses of chain multi-6 to attest the burn and then mint the things with the

exception that it does it just for one or a couple of contracts specifically Circle contracts across different chains so my question is uh how it affects the possible security surface of attack on the circle is it the same set of multi-6 used for the bridging for the cctp part and for the main mint and burn essential mechanism for the circle token um I do I'm pretty sure those are separate attestation Services although they run under the same like overall Cloud infrastructure I am now a security engineer I can't really tell you like

what additional security assumptions are introduced but obviously it's going to be a lot less because you're already than like other services because you're already trusting us to write like observe mids and burns of uscc natively and also custody of the funds um hi uh is a multi-chain still a partner of cctp and also other plans to include Phantom chain into the protocol and issue chain native usdc on Phantom uh what was the first part of the question is

multi-chain still a partner of cctp protocol um I believe they did get integrated before you know two weeks ago um sure but that's like my understanding is that they're no longer no longer operating um is Phantom on the roadmap talk to RPM any other questions um yeah so my question is maybe a bit more around the like Circle strategy so we've seen the market share of um UCC going down after the peg right

and so obviously this is something that will you know improve the utility of usdc compared to tether so you know I guess everything is the market cap but I was wondering other plans over cctp into sort of integrating USD into more applications like you know driving the adoption so like is you know do you have other plans around the um around cctp to like actually make it even more sort of useful integrated into the ecosystem I think yeah I think there are protocols um like kyber swap just today asked us if they want if they want to integrate it um I'm not a BD guy I'm not sure who we're talking to who or not but I do like suspect that we're talking to

various protocols in the space to try to integrate it thanks yeah um could you talk a bit more on how a protocol might go by like integrating cctp is it would they have to like deploy new contracts like how does that process look like um I would assume you have to deploy a new contract if you're already hooking into a protocol like um seller or synapse like you should already just inherit hdp automatically

um but if you want to integrate with a smart contract itself again I'm not a engineer but I assume you have to deploy a new contract I do have an addendum if there's no more questions and so some of you if you might have noticed that uh I've been excluding Stargate from all of the data that I've been presenting um it's all airdrop roaming right like if you look at the transaction amounts over the last since April um they've gone up like 100x 20x um so just to get something like and that's a problem for us because like we want to actually understand the organic

usage of bridges um so one thing that we look at is like we when a new wallet uses usdc we look at the first set of transactions and try to attribute what they're actually doing with usdc or try and further intent and one of those categories is Bridges and before April 1st of this year you see this like it's maybe like two three percent of accounts where the primary use case is Bridges and then since then it's been like 50 of new Wallets on these chains which doesn't really make a lot of sense because like bridges are like a means to an end you're not really there's no real points like Bridge stuff back and forth between a bunch of chains um another way to look at it if you look at

like all the new wallets Who start using Bridges and look at like how hey how many of them over time are there and then which is the first protocol they're using you see these like massive spikes that are like perfectly timed to air drops right like in like the big spike recently in like uh April 1st you see all these ZK sync and um Stargate wallets um yeah and they're like perfectly timed to Miles Deutsche I'm not sure if I'm pronouncing that right but that guy's tweets but that's why I excluded all them all these protocols from the overall data all right um so nothing else if there's anything else you can just contact me um they're

at Circle but otherwise thank you for your time [Applause]