NEW YORK, Nov. 08, 2021 (GLOBE NEWSWIRE) – Elk.Finance, a cross-chain liquidity network, recently announced its uses in Reality Cases. Elk performs well as its primary gateway, bringing critical infrastructure to the rapidly growing field of decentralized finance. Elk.Finance briefly explains why the Elk network should be seen less as a bridge and more as a multifunctional DeFi gateway. Start by describing ElkNet in its current form and the purpose of the ELK token, before moving on to explaining two upcoming upgrades that demonstrate Elk’s broad vision for the future of multi-channel DeFi. These are CHFT, a native multi-chain stablecoin and Proxy tokens, cross-chain virtual assets.
The Elk blockchain, with ElkNet at the center, is designed to overcome the current limitations of existing bridges and blockchain interoperability more generally. In short, the three main problems are:
- The problem of fragmentation of bridges
- The issue of exit liquidity
- The inter-chain messaging problem
The problem of the fragmentation of bridges
As new chains and projects scramble to capture market share on existing networks, proprietary bridging solutions have spawned dozens of individually wrapped bridge tokens based on the same underlying asset. This in turn has resulted in widespread liquidity fragmentation, as two different encapsulated tokens based on identical assets become incompatible once they reach their destination. This creates confusion and slows growth by producing thin reserves of cash with artificially high price impacts for traders.
The issue of exit liquidity
Conventional bridges work through a simple lock-and-release mechanism: To link the USDC from chain A to chain B, a user initiates a transfer by locking the USDC tokens in a smart contract on chain A, which then indicates to a contract on chain B to release the same number of USDC tokens. The fundamental problem with this model, however, is that there must be enough tokens already locked on the destination chain (Chain B) to complete the transfer. If there aren’t enough tokens – which is quite common – the transfer fails and the bridge becomes unusable.
There are ways to minimize the issue of egress liquidity, such as priming a bridge with egress liquidity provided by the protocol or restricting the number of tokens that can be transferred. As we have seen, however, liquidity can still dry up during mass migration events, which tend to occur exactly when bridges are in greatest demand.
The inter-chain messaging problem
This one is less of a problem for DeFi as it currently exists, but it is essential to realizing the vision of a multi-channel future. The radical promise of programmable cryptocurrencies like ERC-20 tokens is that they carry packages of data, turning them into data stores as well as value. This opens up a whole universe of potential applications that form the basis of what we now call web3.
The problem, however, is that relaying information that exists on one channel to another is currently a slow process and very inefficient. Current solutions are often a patchwork of systems involving subgraphs, oracles, proprietary APIs, etc. which mainly reside outside of the blockchain. Today, there is no simple solution to relaying information between chains, but such cross-chain messaging is essential for building truly interoperable blockchain applications.
The Elk Network provides elegant solutions to overcome each of these issues, while simultaneously unlocking new use cases that take advantage of ElkNet’s unique cross-chain architecture.
ElkNet and the ELK token
ELK is Elk’s native settlement currency. Unlike conventional bridges, ELK is the alone token that travels on ElkNet, which connects the Elk network to all networks supported by Elk (to date: Avalanche, Polygon, Fantom, Huobi ECO, xDai and Binance Smart Chain).
All liquidity pools on our multi-channel exchange, ElkDex (app.elk.finance), are linked to ELK. The structural advantage of this approach is that traders can transfer funds between chains by exchanging their tokens for ELK, migrating across the bridge, and exchanging them at destination for tokens of their choice. Cross-chain exchanges automate this process, allowing users to exchange arbitrary tokens, which are seamlessly exchanged for ELK under the hood.
This model has multiple advantages: since there are no wrappers or bridge tokens involved, no fragmentation is introduced. Users can of course swap their tokens for an existing bridge token, but ElkNet does not add to the fragmentation problem by introducing new tokens. This is why Elk is best described as a “value transfer” protocol: it is designed to value, not tokens (other than, of course, ELK).
ElkNet also solves the issue of egress liquidity. Since ELK moves freely on the Elk network, which functions as a warehouse for ELK, egress liquidity is by definition never an issue. ELK is always transferred in a perfect 1: 1 ratio; An ELK comes in, an ELK comes out.
ElkNet also provides an original solution to the problem of inter-chain messaging, since it incorporates a data relay function. Going forward, developers will be able to leverage ElkNet to make calls to information stored across multiple chains, transforming the cross-chain interoperability landscape and paving the way for true multi-chain dApps and smart contracts. . This way, you can think of ElkNet as a kind of DeFi standard, automatically routing calls between multiple networks on demand.
A theoretical downside to using ELK as a medium for value transfers is that the price impact (slippage) of transfers can be high if there is not enough liquidity to facilitate conversion into tokens. ELK during an inter-chain exchange. This is the main tradeoff in solving the exit liquidity problem, and this is the reason why pairs on ElkDex are always tied to ELK.
Ensuring that the pools have depth in all chains is therefore essential for making the Elk blockchain work. ElkNet is also able to interface with other AMMs on the network, applying an âintelligent order routingâ algorithm to find the most efficient trading path for tokens at either end. Using DEX aggregation, users will be able to trade any token of their choice with minimal price impact.
Since ELK is not a pegged token, its price can vary from network to network, leading to potential price disparities during cross-chain transfers. However, as many in our community have already discovered, this “problem” also presents an opportunity for arbitrage, so the transition can actually result in a bottom line in some cases. As Elk grows up, price arbitrage will surely become more sophisticated, ensuring relative price parity across all channels.
Of course, many traders would prefer to avoid any price differential when moving between chains. With that in mind, we are preparing to release a stablecoin designed to interact with ElkNet.
CHFT, a native multi-chain Stablecoin
CHFT will be the first cross-chain stablecoin based on an innovative âgyroscopicâ design, which allows it to be minted natively on any network supported by Elk. Like the ELK token, CHFT will carry the same token address on all Ethereum Virtual Machine (EVM) compatible chains and unique addresses on non-EVM chains, reducing fragmentation and avoiding the need for custom wrappers.
The price of CHFT will be pegged to the Swiss franc (CHF), which is widely considered to be one of the most stable currencies in the world. Users will be able to hit CHFT using various whitelisted tokens as collateral. CHFT tokens will be oversized, which means that users are required to deposit tokens whose value exceeds the amount of CHFT issued based on a guarantee factor assigned to the token used as collateral.
This design follows the most common method of issuing stablecoins backed by cryptocurrency. Once CHFT has been issued, however, users can be freely moved to any channel through ElkNet at a stable 1: 1 ratio, where it can be traded, pooled, or mined. CHFT can then be redeemed against a blocked collateral on any channel. In the unlikely event that there is no collateral available for redemption on a specified channel, users can simply move CHFT to another channel where collateral is available. Since the CHFT is oversized, the liquidation risk is low and the exit liquidity is guaranteed.
Proxy tokens: cross-chain virtual assets
As ElkNet addresses the issue of bridge fragmentation, the very existence of bridge tokens demonstrates a widespread desire among DeFi users to trade, provide liquidity, and generate return using assets currently segmented over dozens of networks. Our proxy token concept offers a practical solution to the bridge fragmentation problem by decoupling a token from its underlying asset, allowing it to move between networks in the same way as ELK or CHFT.
In this case, users will be able to create proxy tokens by locking down the asset they want to convert to a proxy token with a small amount of ELK. Unlike CHFT, proxy tokens are issued in a perfect 1: 1 ratio, and they can be exchanged for the underlying asset at any time.
Proxy tokens offer a solution to the exit liquidity problem since they are converted to a virtual asset on their original chain (similar to an encapsulated token), which means that no exit liquidity is required on the destination string. Unlike a conventional encapsulated token, however, proxy tokens can travel through ElkNet on any network, where they can be traded or used to farm with tokens native to that network.
The possibilities of proxy tokens are endless, and the community will undoubtedly find out about their uses in time. A clear application will be to bring popular tokens, including those that exist on non-EVM channels, to the networks supported by Elk. Another exciting potential is multi-chain dApps, where the provision of a token can exist on a single chain, and proxies can be used to deploy across multiple chains without fragmenting the offering.
Elk plans to release a Developer SDK in the near future, which, combined with proxy tokens, will open up all kinds of possibilities for cross-chain applications. Since ElkNet serves as an on-demand messaging standard, the potential for new inter-chain interoperable smart contracts and applications really has no limits.
Ultimately, these are just a few of the potential use cases for the Elk Network. We’re only beginning to imagine all the ways each will be used, and we’re excited to see what new concepts the community is inventing for them. Together, they demonstrate how Elk is more than just a bridge; it is a real DeFi gateway.
Name: Susie Zhu
Email: [email protected]