It wasn’t long ago that DeFi protocols were capturing the attention of the world. Just a decade ago, it was merely an investment idea, something as primitive as the concept of zero. Things have changed, from fragmented chains to multi-billion dollar ecosystems, the term “decentralized finance” has bagged itself a few zeros.
The biggest challenge is still the same, accessibility. With stark user experience, complex onboarding flows, and fragmented chains, accessing DeFi services and accessing them is something only an engineer can do. Having a degree in computer science pays off in the DeFi universe.
Chain abstraction is the DeFi user’s best bet. A low-key revolution that does the magic to make barrier-free experiences. Imagine a world where you are able to seamlessly navigate cross-chain interactions, have smarter liquidity routing, and composable infrastructure without any additional effort from your end. That would indeed be revolutionary.
Before Web3 became the current hot topic, we had the possibility of sitting down with someone who has extensive experience with DeFi systems backend engineering, Aleksandr Vorobev, who is a Smart Contract Engineer at Bebop. Watching his insights flow through wildly as he explains the tech that powers chain abstraction, unleashing the associated risks and downsides, examines how it redefines liquidity, user experience and the gap between DeFi and TradFi is what makes this interview with the expert all the more interesting.
This deep-dives into the conundrum behind real-world backend issues, right from ‘what could potentially change DeFi’s next phase be made around?’ to the architectural changes foreseen ahead of us.
Q1. ‘Chain abstraction’ is a buzzword making waves in the Web3 space, but it is yet to take form for many. What, in your engineering perspective, does chain abstraction mean in practice, and why is it a game changer for DeFi infrastructure today?
We can think of it like the early days of the internet, because just accessing websites required knowing different things like protocols, ports, IPs, etc. Then DNS, TCP/IP abstraction and browsers came along. So chain abstraction is doing for DeFi infrastructure what the web stack did for our current internet.
Chain abstraction lets both users and developers relax and forget about which blockchain is being used. As a user, you wouldn’t need to manage which gas tokens to hold for every network or manually bridging assets. For developers, it means having tools that help them focus on product logic and not infrastructure.
This is similar to what the early days of the internet was like: struggling with memorizing protocols and IP addresses. Then, DNS, browsers, and TCP/IP stacks solved those problems. That’s exactly what chain abstraction is doing for the DeFi stack.
This can already be observed with Chainlink’s CCIP and LayerZero’s SDK, which work in overcoming cross-chain messaging and execution. The user is shielded from technical workings, making it effortless for them. Concerning gas abstraction, many dApps use meta-transactions where a relayer offloads the gas fees. Tools like Biconomy and ZeroDev permitted effortless integration for wallets and developers.
From the user’s POV, it feels like magic – but underneath everything, you are managing signature validation, relayer infrastructure, replay protection, and nonces. That’s a lot of moving parts. For a deep dive on this, check out the ERC-4337 spec. It was the first document to explain account abstraction and gasless transactions.
So it goes without saying, chain abstraction isn’t just a user experience coat of paint – it is a structural backend overhaul that has the potential to change DeFi from a developer’s playground into an inclusive environment where anyone can join the action without having to be crypto-native.
Q2. For a while now DeFi has been renounced due to its high fragmentation and steep learning curve. In your opinion, does chain abstraction ease the way users interact with the forked decentralized protocols – and what multi-layer complexity are developers handling on the backend to enable that?
Absolutely. Chain abstraction folds fragmented ecosystems into a seamless experience eliminating endless systems for end users, therefore reducing cognitive load dramatically. Now users can simply express intent and a system does the rest. For instance, a user signs a single transaction to Swap Tokens on Polygon but the system seamlessly detects deeper liquidity on Arbitrum and routes the trade accordingly. The users do not ever need to know what chain they are on, and they were never required to know what chain the final execution happened on.
Backend complexity takes the front stage when trying to provide the end user with the seamless and effortless experience described above. In order to enable intent fulfillment cross chain navigation state synchronization has to be fulfilled by the below mentioned:
- Each cross-chain messaging protocols (LayerZero, Wormhole, Hyperlane) have their own unique method of providing security, with LayerZero utilizing Ultra Light Nodes, while Wormhole relies on a Guardian set.
- User abstraction where gas is sponsored (Biconomy, ZeroDev) relieves the user from the hassle of possessing native gas tokens.
- Action Abstract Relayers and Sequence, gasless transactions, show the user the advanced side of meta transactions and ERC 4337 account abstraction.
- For liquidity routing distributing gas sponsored navigation pathways enabling real time market antiquing enable instantaneous pathway determination to the execution port – overcoming the hurdles placed by oracle delay and sync consistency.
- And lastly, all developers have to deal with the messaging layer tradeoff: optimistic bridges such as Nomad are fast but require challenge windows, whereas ZK-based methods such as zkBridge require more expensive interactions and proof generation but strengthen finality.
This must mitigate issues from cross-chain consensus pluralities while guaranteeing atomicity in non-atomic environments. A considerable number of teams depend on architectural kit parts like the composable finance SDK and protocol defined standards like Chainlink’s CCIP for interoperability and composability governance.
For additional information, I suggest reviewing the CCIP whitepaper from Chainlink or the engineering documents from LayerZero. These frameworks capture the fundamental structures of the abstracted dApp systems in use today.
Q3. Based on your work at Bebop, how do you perceive the effects of chain abstraction on the liquidity layer as a liquidity fractal? Is it a boon or burden for market makers and data-driven paradigms in multichain ecosystems?
Chain abstraction does not improve on liquidity fragmentation; it only moves and shifts the problem. Market makers and solvers as advanced users have taken over the previously dispersed liquidity pools spread across multiple chains. Those sophisticated actors are multichain ready in both intel and infrastructure.
DeFi has struggled with the problem of liquidity fragmentation for quite some time. Look at the ‘Curve Wars’ for example where different protocols participated in a battle to earn Curve’s CRV token which encouraged liquidity using subsidized spending that led to liquidity fragmentation over illiquid pools. Then there was the forked version of Uniswap called SushiSwap in 2020 which created a split user base and liquidity pool between the two protocols. Studies indicate that high-fee pools on Uniswap sustain 58% of the liquidity but only 21% of the volume leading to inefficient fragmented liquidity.
By integrating liquidity from various sources, CoW Protocol resolves issues related to intent-based DEX models. CoW Protocol uses a network of solvers to optimize execution for intent-based trades and facilitates peer-to-peer orders through ‘Coincidence of Wants’ self-matching systems. This leads to improved average execution prices and protects against MEV. Solvers also having off-chain and on-chain liquidity further improves trading efficiencies due to enhanced MEV protection.
With this, horizontal fragmentation still exists, but the effect on the end user is streamlined. Rather, attention is directed to backend architectures, automated agents that manage and optimize cross-chain liquidity and provide advanced functionalities for streamlined workflows for a better experience in DeFi.
Q4. We’ve seen platforms like Sui, LayerZero, and Cosmos push toward more fluid interoperability. Which technical approaches to chain abstraction do you believe are most promising – and where do they still fall short?
As far as I am concerned the most sophisticated form of chain abstraction still remains intent based architectures, particularly those with implementable solvers. Rather than having to manually conduct transactions on various chains, these systems take care of execution automatically after the user specifies actions needed such as token swap or liquidity provision.
The intents provided by users are captured by off-chain agents, or solvers, who determine optimal paths over multiple chains, protocols, and liquidity venues. They also take care of routing, bridging, slippage, and even MEV evasion. This optimizes the user experience and provides better operational efficiency and security at the same time.
In regard to searching for interoperability features, Cosmos IBC’s approach differs from LayerZero’s messaging framework on:this way:
- LayerZero: Employs a configurable stack of third-party verifiers which provides a trade off in security schema flexibility. This results in higher latency however, with minimums greater than 107 seconds from Base to Arbitrum and 298 seconds from Ethereum Mainnet to Arbitrum. It has a permissioned aspect requiring access control orchestration with LayerZero Labs to initiate.
- Cosmos IBC: Use light clients for verification which provides a trustless level of security. It has median latency and zero in-protocol service fees. It is permissionless to allow free addition of new chains without restrictions to 115 supported chains.
- LayerZero allows more permissive extensibility and network diversity. From a weaker trust perspective, its use of third-party verifiers is a set of trust assumptions. For Cosmos IBC, it focuses more on security features and decentralization, possibly struggling to scale interconnects beyond the Cosmos.
- Purposeful strategies have also shifted with the move to intent-centric frameworks. CUser-centric execution MEV puts value capture aligning with user experience as the solver execution pays for the Precondition And Mitigate (PAM) MEV, harnessing fleet dependability and predictability.
It looks like Cosmos IBC and LayerZero both assist in interoperability, but the foremost region for crossing chains will probably be intent-based paradigms that center around users, their safe engagement, and efficient handling of their requests.
Q5. Many critics argue that true abstraction might come at the cost of decentralization or security. How do you weigh those trade-offs in your own work – and what are the biggest risk vectors developers should anticipate as we abstract away chains?
Absolutely the trade-offs are real. Concerns from multiple blockchains and cross-chain abstracted experiences highlight current risks as well. The Ronin Bridge hack, which resulted in a $600M loss, is a perfect example of showing the systemic risks that cross-chain infrastructures can create.
Looking at it from an abstraction angle, a majority of border gaps fall under security risks.
Focusing on the security standpoint, a user’s experience is likely being broadened, mostly centered around intent-based systems. Some examples include:
- Cross-chain bridges are a major security risk for one-part systems, thus being a bridge exploit.
- Faux representations such as intent spoofing allow actors to mislead goal-oriented systems through masqueraded user actions.
- Solver collusion allows off-chain agents to act against a user’s desires or collude in their actions.
To more effectively devise possible solutions to current risks, borrowing techniques from older traditional Web3 and finance systems might be helpful. Some practical solutions may be:
- Creating smart contracts for formal and on-verifying audits ensures the on-chain logic vulnerabilities are minimized.
- These contracts would also provide kill and circuit breakers that allow abnormal behavior to be halted from cross-chain operations.
- Monitoring risks and sending alerts instantly with services such as Forta or OpenZeppelin Defender.
- Networked off-chain executors with decentralized problem solving to lower trust requirements.
As always, developers need to keep in mind defense in depth. With abstraction comes ease of use, but our systems’ shielding from users should not obfuscate the burdens that are ours to carry.
Q6. Looking ahead, how do you see chain abstraction shaping the future of DeFi – especially in terms of onboarding institutional players or integrating with traditional finance infrastructure?
Chain abstraction has a chance to be the most helpful in narrowing the gap between DeFi and traditional financial institutions. Right now, DeFi is governed by multi wallet, bridging, blockchain, and settlement standards. All of these factors create challenges for users, and as a result, it becomes extremely difficult for users to fully engage in the DeFi ecosystem.
DeFi’s Multi Wallet requirement along with traditional finance account management systems create a mess for institutions that are willing to interact with the DeFi platforms. This issue results in the most opaque parts of blockchains driving automation as the remaining parts of fractal finance require substantial streamlining.
As of now, chain abstraction has built methods to assist institutions by compliance and privacy control frameworks. Institutions require layer compliance embedded on chains due to a dire need of strict verification measures. With the needs of institutions dealing with the bustling web of Technologies comes the need of modern advanced crypto measures like zero-knowledge proofs.
An illustrative example of this integration is when a Swiss bank delves into chain-abstracted DeFi strategies using Fireblocks alongside compliance solutions that utilize zero-knowledge proofs. This allows the bank to retain engagement with DeFi while abiding by rigid regulatory frameworks.
Moreover, Celestia and EigenLayer provide modular blockchain technology which holds additional promise for these enterprises. Celestia enables institutions to concentrate on application-specific logic by offering scalable data availability, removing the need to manage pertinent infrastructures. EigenLayer introduces a restaking mechanism enabling Ethereum validators to secure extra services making DeFi applications more secure and scalable. With these modular solutions, such systems now possess the agility and resilience that institutions desire to interface with decentralized systems.
As stated above, classifying chains along with providing modular blockchain architecture and advanced compliance tools will transform the DeFi landscape. It focuses on institutional requirements and strengthens and enhances collaboration toward building a unified financial ecosystem.