Key Insights
- Router Protocol is a cross-chain messaging protocol currently in its alpha mainnet. It uses a mesh network architecture to facilitate communication between disparate chains.
- Router offers a suite of products including its main application, Voyager, a flexible widget, and an SDK called CrossTalk.
- Voyager enables cross-chain asset swaps by leveraging DEX liquidity and aggregators such as 1inch.
- The CrossTalk SDK and widget enable other applications and developers to build interoperability directly into their systems.
- Router allows users to pay transfer fees with the source chain’s native gas token, USDC, or with ROUTE or DFYN with rebates given for fees paid in ROUTE.
Introduction
Interoperability is increasingly becoming an important part of how the crypto ecosystem evolves. As more and more Layer-1s and Layer-2s become specialized, more of the value becomes siloed, solving one problem but creating another.
These ecosystems are not interoperable by default. They create a set of isolated environments, but all of the chains and apps built on top need to talk to one another to fully maximize their potential. This problem has sparked a new wave of bridging solutions with the goal of connecting these ecosystems.
The most common design approach for bridging chains involves the use of dedicated chains as bridges, also known as middlechains — think Wormhole or Ronin. These middlechains connect two blockchains by establishing two-way communication between them on a 1-1 basis (e.g., Ethereum to Solana). But this approach is limited. Adding a new chain to the network becomes exponentially more difficult for every chain that is added. For each new chain, new connections or 1-1 bridges need to be added for the chain to be connected to the new network. Router Protocol has taken an innovative approach to avoid the additional complexity and costs of this process.
Instead of implementing a 1-1 bridge for every connection, Router generalizes the process of plugging in new chains. The protocol adopts a mesh network architecture where chains can plug into and immediately be connected to other participating chains.
In this report, we will cover how the Router Protocol works, its features and roadmap, and what it seeks to unlock in this increasingly cross-chain world.
Lay of the Land on Cross-Chain Bridge Protocols
When considering bridging solutions, all design approaches adopt certain tradeoffs and require certain trust assumptions. As outlined by Berezon in his piece, Blockchain Bridges, there are three common validation mechanisms currently used:
- External Validators & Federations — as the name suggests, these consist of an external set of validators that sit between the source and destination chain.
- Light Clients & Relays — both source and destination chains implement light clients, and relayers facilitate the passing of messages between them.
- Liquidity Networks — individual liquidity nodes holding both source and destination chain assets operate on a P2P basis.
They can all be compared by how they optimize for some of these factors:
- Security
- Speed
- Connectivity
- Capital Efficiency
- Statefulness
External Validators & Federations are the most widely used, given that they present an attractive combination of statefulness, connectivity, and speed. However, what they offer in those areas, they sacrifice in security. Their users have to rely on the security of the bridge as opposed to that of the underlying chains.
Light Clients & Relays are the second most popular and optimize for statefulness, capital efficiency, and security. The high level of statefulness is possible because of the wide range of data that can be passed through header relay systems. They are also capital efficient because they don’t need capital lockup. Lastly, they provide high security because they don’t require additional trust assumptions. The limiting factor is connectivity since adding new chains is not as straightforward.
Liquidity networks provide speed and security because nodes operate in a peer-to-peer fashion. The nodes don’t require consensus with the rest of the nodes, which is why they are referred to as “locally verified systems.” They are also quite capital efficient because capital is not such an important component for securing the system. They do, however, sacrifice statefulness, given that it is limited in what the calldata can perform.
Overview of Router Protocol
Background
Router was founded in August 2020 by Ramani Ramachandran, Shubham Singh, Chandan Choudhury, and Priyeshu Garg. The team saw a need for better interoperability infrastructure following the onset of new Layer-1s and scaling solutions. After seeing that official bridges were too slow, they only focused on connecting two ecosystems.
The project raised an initial seed round of $485,000 and in October 2021 raised an additional $4.1 million from investors including Polygon and Coinbase Ventures.
How Router Works
The Router Protocol is an extensible cross-chain bridge built as a mesh network of chains connected via a series of nodes. These nodes have bridge contracts deployed on each of the chains connected to the network. The bridge contracts can listen to and perform transactions in order to facilitate transfers of value between chains. The transfer of value can happen in a number of ways such as locking assets in the source chain and unlocking or minting assets in the destination chain. The protocol can also be used to relay data among chains to perform cross-chain actions without the need to bridge assets.
Router currently connects nine EVM-based chains consisting of Ethereum, Polygon, BNB Chain, Avalanche, Fantom, Arbitrum, Cronos, Harmony, and Optimism. The team is currently working on adding Aurora and Moonbeam to the mesh. The team is also working on integrating non-EVM chains such as Solana, Algorand, and the Cosmos ecosystem to the mesh. Their first step will be the Cosmos ecosystem via building on the CosmWasm module.
Given its early stage, Router is currently in a limited production version. In this version, the team controls three nodes that secure the system. However, the team is working to migrate the protocol to an independent, base-layer blockchain network built using the Cosmos SDK.
Router can be categorized as a generalized bridge, unlike other bridge types which mainly consist of:
- Asset-specific — WBTC, WMATIC
- Chain-specific — Avalanche bridge
- Application-specific — THORChain
Router is called “generalized” because it can perform all three functions on one protocol. For example, it can lock native assets and mint or unlock their 1:1 wrapped representations in another chain, such as asset- and chain-specific bridges. It can also perform application-specific actions since developers can leverage the protocol to build cross-chain apps, e.g., cross-chain DAOs or cross-chain lending.
In Router’s case, its architecture consists of a trusted federation model, in which the validation mechanism is handled externally through a set of nodes. As a result, the security shifts from that of the source or destination chain and on to the node operators.
Features
Voyager: Any Token to Any Token Swap
Router’s dApp Voyage gives users the ability to swap any token on the source chain for any token on the destination chain.
There are seven scenarios in which transfers can take place with Router, and the assets involved can belong to three categories. The three categories of assets are:
- Reserve Assets — These are assets which Router actively maintains liquidity for. Users can stake these assets within Router’s bridge contracts and, in turn, earn yield. Once deposited, users receive wrapped versions or R-assets that represent their native counterpart, i.e., AVAX – RAVAX. Reserve assets drive down cross-chain transaction costs by enabling Router to maintain inventory of popular assets instead of relying on a DEX. Router’s current reserve assets are MATIC, BNB, AVAX, FTM, ETH, and USDC.
- Mintable Assets — These are assets that Router can mint and burn to facilitate cross-chain transfers directly through its bridge contracts, but they are not reserve assets. They currently consist of ROUTER and their partner cross-chain DEX’s Dfyn token, DFYN.
- Arbitrary Assets — These can be classified as the rest of the crop of assets that are not reserve or mintable assets, e.g., AAVE, WBTC, SOL, etc.
Here are a few examples of transfer scenarios that can be executed through Router:
Stable-to-Stable Reserve Asset Transfer
Consider a user who wants to transfer USDC from chain A to chain B.
This is the most straightforward case. In this scenario, a stablecoin such as USDC will be locked in the source chain and unlocked on the destination chain. However, if there isn’t enough liquidity on the destination chain, the user will receive the reserve version of the asset, in this case, RUSDC.
Stable to Non-Stable Reserve Asset Transfer
Consider a user who wants to transfer USDC from chain A to MATIC on chain B. There are two ways the transfer could happen:
In this case, USDC is locked on the source chain and subsequently unlocked on the destination chain. The USDC that is unlocked is then swapped for MATIC.
That said, liquidity conditions vary by chain so this route might not always be possible. This brings us to the second route:
Router will swap USDC for MATIC on the source chain and lock it and unlock MATIC on the destination chain.
Arbitrary Asset to Mintable Asset Transfer
Consider a user who has APE on chain A and wants to swap it for ROUTE on chain B.
Here, Router will swap APE for ROUTE, lock it on the source chain, and mint an equal amount of ROUTE on the destination chain.
Arbitrary Asset to Arbitrary Asset Transfer
Consider a user who wants to swap AAVE from chain A for JOE on chain B.
Router will swap AAVE for USDC on the source chain and lock it. Then, it will unlock USDC and swap it for JOE on the destination chain.
Fee Payment Options
Router gives users several options when paying transaction fees. Users can pay with the native gas token on the source chain (e.g., pay fees with ETH if on Ethereum network). They can also pay with USDC, but users who pay transaction fees in ROUTE or DFYN will get concessions of 50% and 20%, respectively. For example, if a transaction fee costs $4 in USDC, it will cost $2 in ROUTE. These rebate amounts may change in the future.
Pathfinder Algorithm
Router implements a proprietary pathfinder algorithm that is run off-chain with the purpose of searching for the most efficient route to transfer value between chains.
Depending on the type of transfer, the Pathfinder Algorithm will run different scenarios to determine which “route” is the most optimal. These routes could be choosing between using its own liquidity pools to facilitate the transfers, leveraging its partner DEX Dfyn, or relying on a third-party DEX on one or both chains.
CrossTalk SDK and Widget: Platform for Developers
The end goal for projects like Router is not to merely work as bridges but as a developer platform. These platforms will allow developers to unlock new use cases that are only possible through the simultaneous interaction of multiple chains. These developer platforms will be the new layers upon which apps can be built and abstract the complex interactions taking place in the background from the end users. With that in mind, Router has been developing its dedicated SDK and customizable widget so developers can build cross-chain apps leveraging the Router Protocol.
ROUTE Token
ROUTE is the utility/governance token for Router Protocol. It is an Ethereum-based ERC-20 token with a maximum supply of 20,000,000.
ROUTE was launched on January 16, 2021 via a direct coin listing on AscendEx. The ROUTE token can also be found on DEXs such as Uniswap, and centralized exchanges such as Kucoin.
ROUTE can be used for four primary purposes:
Governance
Holders of the ROUTE token can participate in Route’s governance by voting on proposals related to the protocol’s amendments and upgrades on Snapshot. These include matters such as setting liquidity mining duration or what new chains to add to the network.
Revenue Sharing
Router Protocol revenues generated from transaction fees are distributed among validators and liquidity providers.
Concession on Transaction Fees
Router gives users the ability to pay transaction fees in several ways, but users who pay transaction fees in ROUTE or DFYN will currently get concessions of 50% and 20%, respectively.
Unified Gas and Transaction Fees
Users have the ability to combine the gas and transaction fees for cross-chain transactions by paying in ROUTE tokens. However, users can also pay for fees in the source chain’s native gas token.
Usage
Router launched its initial swapping engine between Polygon and BNB Chain in January 2022. In March 2022, they followed with the addition of Avalanche and later Fantom and Ethereum. Router now supports nine chains in total.
Overall, the cumulative volume across the mesh network exceeds $215 million, with over 25,000 transactions. The Polygon-Fantom connection currently stands as the most heavily transacted route, with over $200 million in volume. The Polygon-Arbitrum connection has also recently seen an uptick in activity, reaching over $2.25 million in volume and gaining over 2500 new users, with a majority of volume accruing since the announcement of an incentivized bridging campaign on June 21.
While it’s difficult to differentiate (within transaction data) between human and bot activity, overall activity within the protocol has dramatically increased around Router’s three incentivized bridging competitions. Looking at the sum USD transfer value of addresses across the entire user base shows the spread of volume contributed by the individuals within the user base. The top 5 addresses account for over 14,000 of the total transactions and the majority of the overall volume. This concentration is not out of line with other large DeFi protocols, as Dustin Teander noted, where a single wallet continues to make up nearly 25% percent of all Aave debt over $1 million.
As the protocol matures, creates connections across new chains, and ceases incentivized bridging campaigns, bot activity will likely plateau and organic usage will increase.
Roadmap
Non-EVM Chain Integrations Q2–Q3 2022
Router has set its sights on more than just connecting EVM chains. It wants to connect every chain that can support a bridge contract. The list starts with chains such as Solana, Algorand, and Terra. The difficulty of connecting these chains will vary by chain, but the Router team has made significant progress on deploying the first non-EVM bridge contract through the CosmWasm module.
Launch of Router’s CrossTalk Library Q2–Q3 2022
The team recently launched its cross-chain SDK called CrossTalk. It enables the relaying of generic messages and state transitions between different chains, enabling developers to build native cross-chain applications. The framework previously underwent three security audits from Certik and Halborn and Hacken and is currently performing additional auditing procedures. However, developers can now start building on dev environments.
Router V2 Launch on Dedicated Chain Q4 2022 to Q1 2023
Router is expected to migrate to its own dedicated blockchain built using the Cosmos SDK. Operating as an application-specific chain will have a number of benefits. Namely, Router will be able to maintain an on-chain account of all the actions performed by the protocol as well as enhance interoperability through IBC and Cosmo’s governance framework.
While the high-level architecture will remain the same, the current validation mechanism will switch over from a set of Router nodes running on a GoLang instance to its own Cosmos Hub chain with validation based on Tendermint consensus.
Competition & Risks
Router competes in a diverse market with some solutions facilitating billions of dollars in transfers on a monthly basis. However, this is a nascent market, and it isn’t likely to see the same power law (or winner take all) dynamics as the AMM space.
As opposed to the DEX sector where Uniswap dominates around 77% of the market, the market for interoperability infrastructure sector players will likely be more evenly distributed. Interoperability solutions have a wider design space, as opposed to the AMM model, which is hard to improve upon. Several projects have been rapidly adopted due to their unique solutions: WRAPPED has asset-specific bridging; THORChain focuses on native asset swaps; and Synapse leverages its own multichain liquidity pools. The success of such different projects demonstrates the high demand for bridging solutions with different focuses.
Security continues to be a major factor in the interoperability space, as there have been many well-documented cases of exploited bridges, most recently with Ronin. Router has taken numerous measures such as performing various audits and launching a bug bounty program in conjunction with Immunefi.
At the contract level, Router has implemented a dedicated proxy architecture which enables contract upgradeability in case of vulnerabilities or bugs. The protocol also features an isolated execution pallet which enables tamper-proof function calls.
Governance
The core team is currently the sole code contributor and internally manages the three validators currently operating. However, the team is committed to moving to a fully decentralized model. It will start with the upcoming migration to its own Cosmos-based blockchain, where Router will adopt a Cosmos-based governance framework. There are also plans of rolling out a validator program.
The team has also tapped into the community for various governance proposals, currently operated through Snapshot. Some examples include voting on vesting parameters for early investors and determining which EVM chain integrations to prioritize.
Conclusion
The multitude of currently live chains are clearly at a different stage in terms of number of assets, apps built on top, and corresponding liquidity. There are also cases of having different virtual stacks, e.g., EVM/non-EVM. Due to these differences, the conditions for cross-chain activity, namely, value transfer between them, will vary depending on the source and destination chain combinations. For this reason, a competitive bridging solution will need high modularity in terms of its functionality.
A protocol like Router can solve these issues. It can leverage the best of the comparable bridging solution approaches such as cross-chain data transfer for performing cross-chain actions. Router can also leverage its own multichain liquidity pools. It provides native asset transferring as well as plugging into any DEXs available and packaging them into a single solution. Through its architecture, Router is able to facilitate large transfer volumes with low TVL thereby increasing its capital efficiency.
So far, Router has successfully connected nine EVM chains. It also offers Voyager, providing an intuitive, DEX-like UX with the added functionality of choosing the source and destination of assets. However, Router still faces its biggest challenges of capturing a significant portion of the cross-chain infra market. These include:
- Decentralizing the validation mechanism — Router needs to improve security by not relying on a few key players.
- Adding non-EVM chains — So far, no cross-chain infrastructure protocol has successfully shipped a fast, intuitive, and comprehensive asset availability solution that bridges EVM and non-EVM chains.
- Providing a robust development platform — The future of cross-chain is not just about bridging assets. It’s about building applications on top of these cross-chain infra primitives. These applications should allow developers to perform complex operations without needing to port assets from one chain to another.
Router has set out to address these challenges by first finalizing plans for hosting their own Tendermint-based chain. Once deployed, Router will be able to fully decentralize the validator set. The team is also adding support for non-EVM based chains, starting with Cosmos through CosmWasm, followed by Solana and Algorand. Router has also just released CrossTalk, a cross-chain communication framework for developers to build native cross-chain applications. CrossTalk will help Router build a foundation as a chain-agnostic development platform. Ultimately, if Router successfully implements said solutions, it may find itself in a unique position to capture users and market share.
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