Connext and Alchemix Collaborate to Introduce Secure Cross-Chain Token Standard, Mitigating Bridge Exploit Risks

Connext, a leading cross-chain bridging protocol, has made a groundbreaking announcement aimed at addressing the persistent issue of bridge hacks and associated losses. On July 24, the protocol unveiled its innovative “xERC-20” token standard, designed to empower token issuers and significantly reduce exploit risks.

This novel token standard enables token issuers to establish a list of official bridges and exert control over the number of tokens that each bridge can mint. Joining forces with Connext in implementing this pioneering standard is the decentralized finance (DeFi) platform Alchemix Finance.

The concept behind the xERC-20 standard was initially proposed through Ethereum Improvement Proposal (EIP) 7281, co-authored by Connext’s founder, Arjun Bhuptani. Bhuptani emphasized the importance of mitigating losses incurred from bridge hacks, asserting that token issuers bear the brunt of such incidents.

Under the new standard, bridges will have the ability to mint “official” or “canonical” versions of tokens, but only with the explicit permission of the token issuer. The enforcement of this permission will be carried out through smart contracts, ensuring transparency and security. Furthermore, token issuers retain the prerogative to limit the number of coins minted by a specific bridge.

While bridges will still have the option to mint derivative coins independently, these versions won’t hold the same standing as “canonical” versions, potentially leading to consumer rejection of unofficial coins. According to Bhuptani, this approach incentivizes token issuers to take responsibility for protecting against bridge hacks, ultimately safeguarding end users from suffering losses.

To become officially integrated into the Ethereum ecosystem, an EIP must undergo approval by EIP editors, a process that typically takes considerable time. However, Connext and Alchemix are taking a proactive approach, implementing the xERC-20 token standard ahead of official approval, enabling users to benefit from its enhanced security and reliability immediately.

Connext emphasized that their implementation of the token standard will remain “forward compatible” with the official version if it attains EIP editor approval in the future. Bhuptani believes this implementation will hold bridges accountable for their security and quality of service, discouraging poorly secured or overly centralized bridges from gaining traction and recognition.

Bridge security has been a prominent topic of discussion within the crypto community, particularly following a significant incident on July 7, where over $100 million was mysteriously withdrawn from the Multichain bridging protocol. The incident raised concerns and highlighted the importance of developing robust solutions to protect users’ assets and preserve trust in the DeFi space.

By introducing the xERC-20 token standard, Connext and Alchemix are taking proactive steps towards enhancing the security and reliability of cross-chain bridges, fostering a safer and more resilient DeFi ecosystem for all stakeholders involved.

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