Conflux ShuttleFlow: A Cross-Chain Asset Protocol
A more detailed look at our cross-chain asset protocol, ShuttleFlow.
Decentralized Finance (DeFi) is a more open, transparent, and more efficient system than traditional finance. In addition, deposit and loan interest rates are also lower compared to their counterparts in traditional finance. In 2019, DeFi attracted the attention of a large number of investors and became the most eye-catching field in terms of cryptocurrency applications.
As investors increasingly transfer their assets into the DeFi ecosystem on Ethereum, various DeFi products have been launched on it. Till the end of 2019, the total volume of locked assets in the DeFi ecosystem on Ethereum had increased to $651.6 million. A brand-new digital financial system is forming on Ethereum thanks to the flourish of well-known DeFi projects like MakerDao and Compound.
However, since most of DeFi applications are established on top of Ethereum, DeFi is hampered and cannot be applied on a large scale due to the limited assets available and the low-performance bottleneck of Ethereum.
In March 2020, a series of black swan events led to the plunge of major digital currencies such as Bitcoin and Ethereum. The performance bottleneck of Ethereum triggered several incidents in the DeFi ecosystem on Ethereum. These incidents affected the DeFi market negatively and weakened people’s confidence in it. The recent failures urge the launch of a high-performance infrastructure to fulfill users’ needs.
Meanwhile, the lack of high-quality assets available in the blockchain industry limits DeFi development. Currently, Bitcoin is still the throne-keeper within the cryptocurrency space and has the largest market capitalization with over $100 billion USD, which is eight times larger than Ethereum. In order to further integrate Bitcoin into the ecosystem, applications on Ethereum have to introduce the assets of other public chains into the Ethereum network in a tokenized form via cross-chain technology. Nevertheless, most cross-chain assets on Ethereum are plagued by problems including disqualified issuers and greatly limited amounts of distribution under a single endorsement. These complications restrict DeFi’s growth speed and, in extreme cases, may bring a life-or-death liquidity crisis.
Ethereum 2.0 is on the way. It is still unknown whether PoS mechanisms can stand the test of security, decentralization, and performance. Coming off the recent somber events, where DeFi is in question, Conflux appears with high performance, great security and high-levels of decentralization. In order to promote the development of the DeFi ecosystem, Conflux’s technological team developed a cross-chain asset protocol — ShuttleFlow, which is a more secure, efficient and convenient cross-chain asset protocol for users. “Shuttle between chains, while flowing like water.”
ShuttleFlow shows Conflux’s vision which is to let cross-chain assets flow freely across different public chains through the protocol.
Existing Cross-Chain Solutions
Due to the independent development of public blockchains such as Bitcoin and Ethereum, the assets on different chains cannot be directly transferred for matching and settlement. The two existing cross-chain solutions of ShuttleFlow are cross-chain atomic swap and cross-chain atomic mapping.
Cross-chain atomic swap is performed via hashed timelock contracts. The parties involved in the swap must complete the transaction and provide the transaction private key within a given time. Although this method is safe, it requires both parties to be online concurrently, which takes a long time to verify transactions and thus it is not user-friendly for small transactions.
Cross-chain atomic mapping is to lock the assets of one chain and mint the same amount of assets on the other chain at the same time to realize quick matching between assets on different chains. Let us take Bitcoin as an example. So far, a number of issuers on Ethereum have launched ERC20-Bitcoins this way, such as wBTC, tBTC, imBTC, hBTC, etc.
Conflux ShuttleFlow will adapt cross-chain atomic mapping as a solution to achieve cross-chain asset mapping.
Conflux ShuttleFlow: A Cross-Chain Asset Protocol
Conflux ShuttleFlow will form a Cross-Chain Custodian Alliance (“the Alliance”). Together, with important participants in the Conflux ecosystem, including well-known wallet providers, trusted merchants, decentralized exchanges, and implementing cross-chain asset mapping using 2/3 multisignature technology, constituting the primary minting and burning mechanism of cross-chain assets on top of Conflux.
Let us take BTC as an example. Using multisignature technology, members of the Alliance can mint cBTC on Conflux, pegged 1:1 to BTC, providing minting and burning services. The specific process works like this:
First, we need to create a multisig account on Bitcoin in order to lock the BTC collateral required to mint cBTC. We also need to deploy a smart contract on Conflux that manages and records minting and burning of cBTC. The Bitcoin multisig account and the cBTC smart contract are jointly managed by the members of the Alliance discussed above. Each member of the Alliance runs a custodian node, this custodian node is responsible for monitoring and verifying on-chain events on both Bitcoin and Conflux, as well as submitting the corresponding transactions after an event has occurred.
1. An Alliance member’s Bitcoin account A submits a token minting request to the Alliance’s multisig BTC account on Bitcoin to “mint x cBTCs to Conflux account B”. As part of this transaction, A needs to transfer x BTCs into the multisig BTC account. The information of the Conflux account B will be stored in the op_return field of the Bitcoin transaction (up to 83 bytes).
2. The custodian nodes in the Alliance detect the token minting request to the multisig account on Bitcoin.
3. After a custodian node has detected the request, it proceeds to verify it:
3.1. First, it waits for the corresponding transaction on Bitcoin to get confirmed and achieve finality which then verifies that x BTCs have been received.
3.2. Then, it checks whether the target address B stated in the op_return field is a valid address. If the address is invalid, the sender can either apply for a refund or apply for an address update. For refunds, after the Alliance has verified and signed the request, x BTCs will be refunded to A. For updates, if the new address is valid, the process continues normally.
4. Once the token minting request has been verified, the custodian node signs a token minting request “mint x cBTCs to Conflux account B” on Conflux and broadcasts it to other custodian nodes.
5. Each custodian node collects signatures independently:
5.1. Once a custodian node has received more than 2/3 of all nodes’ signatures for this operation, it submits the collected signatures to the cBTC smart contract on Conflux to perform the token minting operation. Repeated submissions are ignored.
5.2. After the smart contract has executed the token minting operation, x cBTCs are automatically transferred to the Conflux account B.
1. An Alliance member’s Conflux account B submits a transaction to the cBTC smart contract to state a burn request “swap x BTCs to Bitcoin account A”. B needs to transfer x cBTCs to the smart contract as part of this transaction, and the transferred cBTCs (amount x) will be destroyed. The information of the Bitcoin account A is specified as a request parameter.
2. The custodian nodes of the Alliance detect the burn request in the cBTC contract on Conflux.
3. After a custodian node has detected the request, it waits for the corresponding transaction on Conflux to get confirmed and achieve finality. Which then verifies that x cBTCs have been destroyed.
4. Once the burn request has been verified, the custodian node signs the burn operation “transfer x BTCs to Bitcoin account A” on Bitcoin and broadcasts it to other custodian nodes.
5. Each custodian node collects signatures independently:
5.1. Once a custodian node has received more than 2/3 of all nodes’ signatures for this operation, it submits the collected signatures to the multisig account on Bitcoin to perform the token burn operation. Repeated submissions are ignored.
5.2. After the multisig account has executed the token burn operation, x BTCs are automatically transferred to the Bitcoin account A.
One-Click Cross-Chain Experience for Multiple Scenarios
Cross-chain assets are needed in specific scenarios, such as transactions in decentralized exchanges or in cryptocurrency lending, which means users need to undergo cross-chain operations to deposit assets in different scenarios before the usage. The process requires a users’ understanding of the interim assets such as wBTC. The cognitive threshold is high and the operation route is time-consuming.
ShuttleFlow protocol combines the cross-chain asset operations process with transaction process operation in a DApp using a unique recipient address for multiple scenarios on Conflux. The one-click solution provides users with a smooth and easy process without the need of knowing and step-by-step executing the cross-chain asset mapping process.
Let’s look at a scenario of a DEX developed on Conflux as an example. If a user wants to use the DEX on Conflux, complicated procedures are not necessary. They do not have to transfer assets from a centralized exchange to the Conflux on-chain wallet, then authorize the transfer of assets on to the DEX or other complicated operational steps. With ShuttleFlow, users only need to transfer their assets from a centralized exchange or on-chain wallet of choice to a customized recipient address from the DEX, and will then automatically receive minted multisignature tokens on their DEX account and can start trading! In the one-click process, the Cross-Chain Alliance completes multisig minting into the user's DEX accounts, which assures high security as well as an experience comparable to centralized exchanges.
Cold and Hot Wallet Combined to Ensure Asset Security
Conflux and well-known wallet providers, trust merchants, and decentralized exchanges, in a joint effort, will be the issuers to make the users’ assets safe in a reliable system. In the minting process of every currency, the user’s recipient wallet and the Alliance’s custodian wallet are involved.
ShuttleFlow will automatically transfer the assets to the user’s receiving wallet from the custodian wallet. Everyone can publicly audit and trace the minting and burn process of all cross-chain assets to ensure the authenticity of the original assets.
To further ensure asset security, the Alliance’s custodian wallet is a combination of a hot and a cold wallet. ShuttleFlow will set an upper and lower limit for the minting and burning of multisig tokens. The upper limit is checked daily. If the amount of assets in the hot wallet surpasses the upper limit, the excessive assets will be transferred into the cold wallet. The lower limit is checked in real-time. If the amount of the assets in the hot wallet is below the lower limit, the Alliance’s members will be alerted to initiate the multisig process to transfer part of the assets from the cold wallet to the hot wallet.
ShuttleFlow Alliance Governance
Within the ShuttleFlow ecosystem, each Alliance member will maintain a custodian node independently and keep the multisig private key to themselves. Conflux manages to achieve efficient Alliance governance through the following mechanisms:
1) Invitation System: Alliance members are determined through an invitation system, mainly within highly reputation partners with a strong connection to the Conflux DeFi ecosystem (up to 11 members). To promote the ecosystem growth, Conflux Foundation will provide option incentives to members who join the Alliance at an early stage.
2) Early-Stage Governance: Multiple proposals need decision-making in the early Alliance ecosystem, such as changes of Alliance members, support of new tokens and various parameters like withdrawal fees. Since business iterations are frequent in the early stage as the market changes, Conflux Foundation will organize offline alliance member meetings to make proposals and decisions in order to shorten the decision-making process and promote business development.
3) Stable-Stage Governance: As the ecosystem becomes mature and Cross-Chain Alliance development becomes more stable, the Cross-Chain Alliance will establish a legal Cross-Chain Alliance DAO which will be used to govern the ShuttleFlow Alliance ecosystem. When the Alliance members are autonomous, they can coordinate and develop resources themselves, and even make decisions, such as deciding how to control risks, etc. They will also benefit from the services in the ecosystem.
ShuttleFlow is an important aspect in the development of the DeFi ecosystem on the Conflux network, and it is also the entry point for assets flowing into the entire DeFi ecosystem. The first phase of the Conflux network and ecosystem will be launched in late April. The first DEX developed based on the Conflux DEX protocol BoomFlow will begin trial operations after the first phase of the Conflux network is launched. ShuttleFlow will be launched in conjunction with the DEX based on the Conflux BoomFlow protocol.
ShuttleFlow V1.0 development is currently completed and it is undergoing its final audit. It will be open-source after the audit. Later, we will continue to develop ShuttleFlow V2.0 that supports more public chains and asset protocols.
There is no doubt that the cross-chain assets supported on ShuttleFlow have a wide range of application scenarios. These cross-chain assets can directly enter DEXes and other DeFi products on the Conflux chain. In addition, these assets will support more public chains and allow cross-chain asset operations among them in the next step. And they will become universal cross-chain assets. The DeFi ecosystem blueprint of the Conflux network is not limited to the Conflux network development. We hope that it will be expanded to decentralized exchanges on different public chains to increase the liquidity of digital assets in the whole blockchain world.
We know that the DeFi ecosystem is still in its infancy, but with the development of different protocols by Conflux, We hope to work with more partners who are willing to expand and utilize the cross-chain asset blueprint, providing more application scenarios and better assets for DeFi. We look forward to working with the DeFi community to develop the space further and make new strides in the ecosystem.