Connext and Alchemix Introduces xERC-20 to Counter DeFi Bridge Exploits

Image: Shutterstock

Connext, a leading cross-chain bridging protocol, and Alchemix Finance, a prominent DeFi platform, have joined forces to tackle bridge security concerns in the decentralised finance space. Together, they have introduced a new token standard named "xERC-20" with the aim of combatting losses resulting from bridge hacks.

The xERC-20 token standard, proposed as Ethereum Improvement Proposal (EIP) 7281 and pioneered by Arjun Bhuptani, founder of Connext, offers a practical solution to address the vulnerability posed by bridge hacks. Token issuers often bear the brunt of such exploits, prompting the need for greater security measures.

The core principle behind the xERC-20 standard is to empower token issuers to maintain a curated list of official bridges and regulate the issuance of tokens across different networks. Each bridge can mint only the "official" or "canonical" version of a particular token, subject to permission from the token issuer and enforced through smart contracts. Additionally, token issuers have the authority to limit the number of coins that a specific bridge can stamp, adding an extra layer of control and security.

The introduction of the xERC-20 token standard by Connext and Alchemix represents a proactive step towards enhancing DeFi security. This move allows users to immediately benefit from the standard's features and protections while awaiting its potential inclusion in the Ethereum ecosystem.

According to Arjun Bhuptani, the xERC-20 standard fosters open competition and innovation among bridges by allowing token issuers to update their preferences for supported bridges over time. This approach reduces the focus on monopolising liquidity or cornering market share, incentivising bridges to prioritise security and improve their services. Bridges with subpar security measures or excessive centralisation will face scrutiny and potential delisting, leading to a safer DeFi environment.

The urgency of addressing bridge security concerns was underscored by a recent security incident involving the Multichain Bridge, where mysterious withdrawals totalling over $100 million occurred. Such incidents highlight the importance of implementing robust security measures in the DeFi space.

As the xERC-20 standard is implemented and tested, it is expected to pave the way for a safer and more secure decentralised financial ecosystem. By empowering token issuers and enhancing security measures, Connext and Alchemix’s collaborative effort signifies a significant step forward in mitigating risks and protecting DeFi participants.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash