Uniswap and Across Propose ERC-7683 for DeFi Liquidity
Uniswap Labs and Across Protocol, a cross-chain interoperability provider, have put forward a groundbreaking Ethereum token standard to handle the liquidity fragmentation issue in the decentralized finance (DeFi) ecosystem. This proposal, known as ERC-7683, aims to create a unified framework to manage cross-chain actions through intents-based systems.
What are Intents-Based Systems?
Intents-based systems are about automating blockchain interactions based on the user’s intended outcomes, making the process simpler by removing the need for users to have specific technical knowledge. For instance, if a user wants to swap tokens across different blockchains, the system automatically finds the best path, choosing the most efficient bridges and exchanges without requiring user input.
How ERC-7683 Works
The ERC-7683 standard is crafted around a common flow for cross-chain intents, yet it provides flexibility in implementation. The process begins with a user, referred to as a swapper, signing an off-chain message. This message is then sent to a filler on the origin chain, who completes the order on the intended destination chain.
Uniswap Labs plans to implement this standard on the cross-chain version of UniswapX. However, the ERC-7683 standard is open for any decentralized application to use, allowing customization in areas like price methods, fulfillment constraints, and settlement processes. The proposal is currently under review by the CAKE Working Group.
Addressing Liquidity Fragmentation
Ethereum’s layer 2 blockchains have solved many scalability issues but introduced new challenges like the fragmentation of assets across smaller, isolated ecosystems. This fragmentation results from each layer 2 blockchain operating independently, keeping its own ledger and smart contracts, which fragments the global state of transactions and impacts liquidity negatively.
Max Shannon, a CoinShares analyst, explains that solving this fragmentation could lead to shared liquidity, improved gas efficiency, seamless updates, and easier development of layer 2 solutions. This initiative by Uniswap and Across could prove vital in enhancing the efficiency and usability of Ethereum's DeFi space.
Significance of ERC-7683
By addressing these liquidity challenges, ERC-7683 promises to revolutionize how decentralized applications operate across chains. This will enable more effective liquidity sharing, better resource utilization, and simplified cross-chain interactions, paving the way for a more integrated and efficient DeFi landscape.
