However, Hugo Philion, co-founder and CEO of Flare Networks, said the so-called bridge exploit incident in 2022 showed that the decentralized finance (defi) ecosystem still lacks sufficiently secure solutions. Proved again. Philion claims the lack of such a secure solution is limiting the growth and usage of his defi product.
Lack of communication between chains
Bitcoin. In a written response to com News, Fillion argued that it could largely explain the large scale cross-chain experiments he saw in 2020 and he in 2021. Why he lost over $2 billion to so-called bridge exploits over the past 12 months. However, according toFlare Network’s CEO,it may not be possible to completely eliminate risk for users, but the bridge could be “significantly more secure.”
In addition to addressing security-related issues, Fillion will also address everything from possible use of non-smart contract digital assets in defi and Web3 to guarantees when digital assets move between chains. provided thoughts on a wide variety of other issues.
Below are Fillion’s answers to the questions submitted.
Bitcoin. com News (BCN): Why hasn’t anyone been able to safely integrate the ecosystem?
Hugo Philion (HP): Blockchains have historically been designed as distributed ledgers that process native transactions. In other words, the Bitcoin chain cannot tell what happened to block #1083483 on the Ethereum chain. This creates communication problems. How can we reliably collect information about various chains and verify it using decentralization similar to the chains themselves? Additionally, how can this be achieved while taking into account the risk of chain rollbacks.
To date, other than rollup, no sufficiently secure and decentralized mechanism has been built to obtain and verify state between different blockchains. A single solution may not exist. Instead, different possibly different solutions are better suited for different use cases.
BCN: How does the lack of efficient communication mechanisms between chains affect dapp (decentralized app) developers?
HP: Today, the biggest use case for blockchain is decentralized finance (Defi). Lack of proper cross-chain communication limits the scale, participation, and efficiency of the Defi market. The existing design has not only resulted in billions of dollars in lost capital, but is also difficult to use and restricts participation for more sophisticated users. As a result, market size, liquidity, and returns are limited.
Additionally, no use cases have yet been discovered to leverage communications that could drive adoption. A simple example would be an asset purchased or traded on a smart contract chain that pays directly in Bitcoin. For blockchain engineers, this enables many protocols that could ultimately revolutionize the digital ticket market, games, or payment gateway technology, for example. This simple example is just a starting point for reliable communication between chains.
BCN: Does cross-chain activity pose systemic risks to the industry? If so, how.
HP: Yes. A case in point is that failures in cross-chain communication can wreak havoc across the downstream blockchain ecosystem. This has recently been seen in multiple bridge exploits. Without sufficiently secure and decentralized mechanisms to capture and reliably move data between siled blockchains, misinformation can be reported and relied upon to signal asset movements. There is a nature. It poses risk to the entire system if the information turns out to be incorrect after the transaction has been validated and the asset has subsequently been reassigned to a more established chain.
BCN: What do you think makes cross-chain bridges so notorious in 2022? Are there any innovations that will help restore user confidence in the bridge? Also, bridging solutions can protect users considerably from the risk of losing their assets.
HP: [years] In 2021 and 2022, large-scale cross-chain experiments were conducted. As a result, the cross-chain bridge underwent its first real stress test. Ultimately, a number of companies have tapped into his $2 billion+ funding over the past 12 months to perform horribly. The general inability to safely move assets between chains may hamper development in this area.
Like the underlying blockchain consensus mechanism itself, I believe the bridge will be significantly more secure by integrating properly decentralized cross-chain communication. Additionally, additional risk can be mitigated if assets are insured at the protocol level as they move between chains.
Protection is therefore his two-step process. First, we need to minimize risk at the protocol level. Second, use should be insured where possible. No complex financial system is risk-free, but users should be protected as much as possible.
BCN: How do we connect non-smart contract chains to each other? Is it possible to upgrade a crypto asset like Bitcoin or make it compatible with the defi world?
HP: Blockchain is a siled public database and cannot natively read or report external transactions. At Flare, we are working on two popular models for upgrading non-smart contract chains: payment triggers and bridging.
Payment triggers include smart contract functionality that is triggered on one chain by a transaction on another chain. This provides simple and useful features such as using Bitcoin or other tokens to pay for collectibles on smart contract platforms. Doing this successfully requires a well-decentralized data acquisition protocol that requires a large number of participating validators to prove a transaction on a particular chain. At this point, data can be queried, retrieved, and safely reported back to another chain. Other blockchain events can then be triggered. Such a mechanism can be implemented for multiple non-smart contract chains so that they can be referenced and connected.
Bridging, by contrast, brings full smart contract functionality to tokens such as Bitcoin. Secure data acquisition and natively available on-chain decentralized prices make it possible to create synthetic versions of these assets on smart contract chains. Importantly, in Flare’s proposed model, users only need to provide the underlying token itself, such as Bitcoin, unlike previous synthetic models. This removes excessive collateral requirements and removes direct market risk from users. This means you no longer need to actively manage your positions. These 1:1 representations of Bitcoin-like assets can be deployed in DeFi and other decentralized applications.
BCN: What new opportunities and use cases do you foresee if non-smart contract assets can be used for defi and Web3 activities?
HP: Bitcoin,XRPand Dogecoin make up about 70% of the total market capitalization of digital assets. Extensive use of non-smart contract assets in DeFi means increasing market liquidity and reducing users’ reliance on centralized services.
Creators have a larger available marketplace, and token holders have decentralized access to this marketplace. Additionally, onramping non-smart contract tokens onto scalable chains also enables alternative means of payment beyond initiatives like Lightning. We also believe that Web3 needs greater reach, utility, and consumer appeal through a well-decentralized and reliable communication protocol between blockchain and non-blockchain networks. We would like to be able to use tokens like Bitcoin in these applications.
BCN: Could you explain in very simple terms what a native interoperability protocol is?
HP: Flare has two of his own protocols built natively into the network. State Connector and Flare Time Series Oracle. It is native as it is embedded directly into the blockchain using the FLR token, encouraging data submissions and using the network itself to protect accurate data submissions.
Simply put, to a real 5-year-old, these protocols are Flare’s sensors that can reliably “see” what’s happening on other blockchains and refer back to them later. Record as much as you can and make decisions based on that. This is similar to how our senses see what is happening around us and interact with the world.
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