Stargate - the Prosperous Future of Blockchain Interoperability
Updated December 1, for the latest on Stargate and LayerZero, please check [Buidl on LayerZero – the Emergent Cross-Chain DeFi Applications].
On March 15th, 0xMaki posted a twitter thread about the launch of LayerZero mainnet, an infrastructure of multi blockchains ecosystem, along with a mention of a brand new first-of-its-kind of its kind cross-chain application dApp called Stargate.
Within a day, Stargate announced a community auction with a 10% allocation of their native token $STG. Although these tokens are sold with a 12-months locking period, $0.25 per token, Alameda still swept away all of them within 5 days, which made Stargate more heated than before. The $STG price hyped from less than 1 dollar to $3.5 (rising over 348% ) within a week!
After two weeks, the TVL in Stargate reached 3.6 billion dollars, which is the same TVL scale as Balancer and Sushiswap, according to the DeFiLlama data.
So what is Stargate and LayerZero? Why does it gain favour from Sam Trabucco (CEO of Alameda) and 0xMaki? What is the difference between Stargate and other major cross-chain protocols and Bridges? Is it truly a revolution in cross-chain? This article gives a brief intro and analysis about Stargate and its native token STG, showing the creativity and the pros&cons about its composabilities.
What is Stargate exactly?
Well, according to Stargate's official definition, Stargate is a fully composable native asset bridge with unified liquidity and instant guaranteed finality built on top of LayerZero.
It is a combination of cross-chain bridges and DEX. It means if you only have ETH on your Ethereum wallet, you can swap your native Ethereum ETH to BNB Chain's native BNB, without preparing any other wallets, exchanges, gas, wrapped tokens, or interacting with other native BNB Chain DEXes like Pancakeswap.
Currently, Stargate supported Ethereum, Polygon, Avalanche, Fantom, BNB Chain, Arbitrum, and Optimism. Stargate will deploy on Solana, Cosmos, and Terra shortly after initial launch.
The cross-chain part sounds like a Multichain (Anyswap), but the mechanism is totally different. Stargate is the only cross-chain dex realized instant guaranteed finality, cross-chain composability and unified liquidity.
Before we dig into Stargate's mechanism, we need to know more about LayerZero.
Origins from LayerZero
According to the official doc, LayerZero is an Omnichain Interoperability Protocol. You could think of that as a blockchain communication tool. It enables Dapps to deliver messages across different blockchains. It is an infrastructure for Dapps to realize cross-chain communication.
It is different from IBC on Cosmos ecosystem. IBC works only for blockchains within Cosmos hub and built using Cosmos SDK. LayerZero can access different layer 1s with its communication mechanism. It is more like the TCP/IP to the internet. For a more detailed explanation, go here: https://www.youtube.com/watch?v=WGdh0dMw6-4
LayerZero's interoperability realized from the following three concepts:
- Endpoints. A series of on-chain deployed smart contracts on supported chains (like Ethereum, BNB Chain, Avalanche, Fantom and Arbitrum) allow applications to send messages from one chain to the other. (eg. From chain A to chain B, you can call chain A's endpoint to help you deliver messages to chain B) Each chain in the LayerZero network has one LayerZero Endpoint.
- Oracles. The oracle is a third party service that provides a mechanism to, independently of the other LayerZero components, read a block header from one chain and send it to another chain. (In practice, LayerZero chooses Chainlink).
- Relayer. It is an off-chain service that is similar in function to an Oracle, but instead of fetching block headers, it fetches the proof for a specified transaction
Any Dapp (like Stargate) that wants to deliver a cross-chain (e.g. from chain A to chain B) message first needs to call endpoints' contracts. The message first goes to the endpoint on chain A, then the chain A endpoint wraps the message (proof of transactions and block headers) and the destination together to specific oracle and relayer. Then, oracle reads and confirms the block header. Meanwhile, the relayer reads the transaction proof, and stores it off-chain. After confirmation, Oracle and relayer will send relevant transaction information to chain B, the destination chain, finishing the process of cross-chain communication.
The use case of LayerZero can be wide. Cross-chain DEXs like Stargate, multi-chain yield aggregators and multi-chain lendings can all benefit from this breakthrough to achieve better cross-chain communications and higher capital efficiency.
More specifically, you can use one chain's native token to swap other chains' assets, to stake & borrow other chains' assets, to stake & farm directly on other chains, with a few clicks without leaving Stargate UI and without preparing the other chain's native token as gas to burn.
For instance, say you're currently providing liquidity of USDC in some lending protocols on Ethereum, but now you find a cool new farm opportunity on Solana. Traditionally, you need you unstake your USDC, bridge it to Solana using either a wormhole bridge or a centralized exchange. You need to prepare a wallet on Solana, and you also need to deposit some SOL into that wallet as gas. But stargate allows you to unstake, swap your USDC to Solana and stake it into the new protocol in one or two transactions. You do not need to prepare SOL as gas in advance. You only start with ETH in your Ethereum wallet.
Note: Non-EVM compatible launching is still brewing. https://twitter.com/0xMaki/status/1504972858610626561
So how is LayerZero different from other cross-chain solutions? I would like to cite 0xMaki's word has our answer: it has the ability to seamlessly bundle complex transactions into a single one: unstake, swap, bridge, swap, stake from one protocol to another anywhere supported.
In our case, LayerZero helps Stargate realize cross-chain message communication and transaction-proof finality, meanwhile remaining cross-chain composability, which allows a cross-chain transfer to be composed with smart contracts on the destination chain, a feature not present on any existing bridge.
Both LayerZero and Stargate are developed by LayerZero Labs. Stargate is also the first Dapp built on top of LayerZero.
What problems does Stargate solve? And how it did do that?
Current cross-chain bridges have a couple of key problems:
- Rely on intermediate or wrapped tokens, rather than native assets.
- Can only support a small, limited number of chains.
- Cannot be composed of smart contracts on the destination chain.
- Don't offer guaranteed finality, especially for high volumes of transactions.
This ultimately results in a poor user experience:
- Multiple manually swap the intermediate tokens in separate transactions and in separate chains.
- High gas costs and long time lagging.
- Multiple wallets management
What Stargate wants to solve:
- Instant guaranteed finality: the guarantee that assets will arrive at the destination chain when a transaction is successfully confirmed.
- Unified liquidity: shared access of one single liquidity pool between multiple chains.
- Native assets: desired assets on the destination chain.
The instant guaranteed finality is realized by the use of LayerZero communication. With LayerZero's endpoints on different chains and oracle&relayers, Stargate could allow any transactions request that is committed on the source chain will be successfully committed on the destination chain as well.
Most cross-chain bridges deployed separated liquidity pools on different chains. This highly limited the scalability of the bridge. When there is a new chain added, the bridge needs to add a new liquidity pool with tons of money. If the the amount of chains supported by the bridge reaches over 10 or more, the requirement for liquidity is an astronomical figure and the capital efficiency is extremely low.
Stargate uses a Unified Liquidity method, where all connections deposit and withdraw from a single pool of liquidity. In other words, in unified liquidity scheme, all chains shared a same pool for a single token. One chain can access other chains' liquidity.
However, the unified liquidity combines potential risks. If multiple concurrent transactions withdraw from the same liquidity pool, care must be taken to ensure that the liquidity pool is never exhausted before all transactions can complete.
Stargate's innovative Delta algorithm design gives this a solution. The Delta algorithm is a balancing algorithm that allows native token pools while providing instant guaranteed finality and unified liquidity.
According the whitepaper, the Delta algorithm will manage all deposit funds in a "soft-partitioned" way. Intuitively, in a network consisting of chains X,Y, and Z, $100 of liquidity available locally on chain X would be soft-partitioned into $50 belonging to chain Y and $50 belonging to chain Z.
Just like balance sheets management, delta algorithm will carefully manage the virtual balance sheets for each chain and allow borrowing and return to happen in different chains, as long as it can prevent overdraft. If the partition balance drops below the initial, then there is a deficit, otherwise, there is a surplus.
When a new transfer request (from A to B) happens, deposited funds in source chain A will first cover any deficit that A has. Then the remaining funds after closing the deficits will be distributed across all channels based on the associated weight.
In order to incentivize users to conduct swaps that "refill" native asset balances and deter users from engaging in transactions that could drain the reserve balance completely, Stargate implements rebalancing fees that depend on any potential transaction's current balance and transaction size. The rebalance fee calculation is shown here: https://stargateprotocol.gitbook.io/stargate/v/user-docs/tokenomics/protocol-fees
The delta algorithm eliminates overheads associated with the lock and mint system, hence benefitting both users and liquidity providers. Using the delta algorithm, users no longer have to bridge assets numerous times in order to get native tokens on the destination chain.
As the above shown, current bridges need multiple manually transfer steps and clicks that are inconvenient. With Stargate, transferring all these native assets to the destination only needs 4 clicks with less time, cost and all from within the same UI.
Products Features and STG Tokenomic
Stargate products have four main features:
- Native assets cross-chain transfer. Each non-STG token transfer will cost 0.06% transfer fee. 0.045% will be distributed to the LPs and 0.015 will be distributed to the treasury. However, Stargate transfer function may incur a pool rebalance fee depending on how imbalanced the source & destination pools are with the equilibrium weights (Mentioned above). STG cross-chain transfer will not be charged any transfer fee or rebalance fee.
- Stablecoins liquidity pools. Currently, Stargate opens 11 liquidity pools in stablecoins like USDC USDT on different chains available for LPs to earn stablecoins rewards. Remove your liquidity will cost 0.06% fee and 3/4 of the fee goes to the pool you are leaving, 1/4 goes to the treasury. You can find detailed info here: https://stargate.finance/pool
- LPs token farm. After you provide your liquidity in some available pools, you will receive a LP token (e.g. S*USDC on Ethereum) representing your share on that pool. Stake your LP token to farm native STG token as rewards. STG is native token of Stargate.
- Stake STG to governance. STG could be staked to exchange veSTG for governance. veSTG is Stargate’s governance token, which can be obtained by locking STG from 3 to 156 weeks. The longer your STG is locked, the greater your voting power is.
STG token has a maximum supply of 1,000,000,000 (1 billion). The allocation is as follows:
- 17.50% - Stargate core contributors (1-year full lock-up, 2-year linear unlock thereafter).
- 17.50% - Investors (1-year full lock-up, 2-year linear unlock thereafter).
- 65.00% - Stargate community allocation. Here's the breakdown of community allocation:
- 15.00% - Stargate protocol launch.
- 10.00% to STG launch auction purchasers. (Acquired by Alameda now, 1-year full lockup, 6 month linear unlock thereafter)
- 5.00% to an STG-USDC pool on Curve.fi.
- 15.95% - Bonding Curve. (Available at the time of purchase)
- 2.11% - Initial emissions program.
- Up to 1.55% will be added to DEXs on BNB, Avalanche, Polygon, Arbitrum, Optimism & Fantom
- The remaining 30.39% is dedicated to future community initiatives.
The community auction round 1 is finished, and all 100m STG tokens were sold out at a price of $0.25 per STG. All $25m USDC will flow into Curve Pool paired with 50m STG ($0.5/STG). The 100m STG sold is locked for 1 year and then it will be linear vested in 6 following months. Flow is shown below. For more bonding curve information, check this medium: https://medium.com/stargate-official/stargate-a-farewell-to-bridges-28831d0f9439
Although the max supply seems a lot, the early circulating supply is hard to estimated. According to the Kamikaz thread, STG early circulation is about 70 million (7%), with 7 million LP rewards each month. In the community, someone revealed that among the 15.95% bonding curves allocation, there is 5.58% sold out. If we plus Curve's 5% supply, the initial circulating supply should be 105m (10.5%)
Below we list some comparable projects' valuation data. Except popular bridges, we also think it is reasonable to add some layer1s and DeFi classics as the reference, just like Kamikaz's opinion in his thread.
We've come a long way since DeFi-Summer and DeFi-2.0 seemingly the blockchain industry as a whole is gearing up for a new level of interoperability and efficiency that will make it possible to bridge the gap between all three important participants (users, blockchains & projects).
LayerZero and its first project Stargate is a breakthrough in today's fractured Defi scene. Security is utmost importance, that's why bridging and exchanging native assets is needed to create more efficient web3 economy & avoid the inherent vulnerabilities in bridges that use wrapped-assets and preserve important ethos such as trustless apps.
Vitalik's Argues that the future of blockchain is Multi-chain and encourages users to hold native tokens to specific blockchains instead of synthetic wrapped assets that are vulnerable to their reliance on bridges' security or custodial.
- September 2021, LayerZero accomplished $6m fundraising, led by Multicoin and Binance Labs, Sino Global Capital, Defiance, Delphi Digital participated in.
- Mar 16th, 2022. 0xMaki jumped in as a full-time advisor.
- Mar 23th, Alameda bought all tokens from the first community token sale. (10% of total)
- Mar 22nd, 0xMaki proposed to integrate the Stargate cross-chain liquidity pools to Sushiswap's community. https://forum.sushi.com/t/enter-the-stargate-omnichain-strategy/9741