Uniswap and Across propose new Ethereum token standard to tackle liquidity fragmentation

Uniswap Labs and cross-chain interoperability provider Across Protocol have proposed a new Ethereum token standard for cross-chain intents to address liquidity fragmentation challenges.

The new standard is under Ethereum Request for Comment 7683 (ERC-7683) and aims to establish a unified framework for specifying cross-chain actions in intents-based systems. Intents are automated blockchain interactions based on the user’s desired outcome, excluding the need for specific knowledge.

For example, intents can automate a cross-chain token swap through an optimal route without requiring additional effort from the user, like knowing the most efficient bridges and exchanges.

ERC-7683

The ERC-7683 standard is designed around a common cross-chain intents flow while allowing for flexibility in implementation details. This flow starts with the swapper signing an off-chain message, followed by his order being disseminated to a filler on the origin chain. The order is then filled in the destination chain.

Notably, Uniswap Labs highlighted that they will implement this standard on the cross-chain version of UniswapX, but the ERC-7683 standard is already available for any decentralized application to implement.

Moreover, the standard allows customization of various aspects, such as price resolution methods, fulfillment constraints, and settlement procedures. The proposal has been submitted to the CAKE Working Group for discussion and review.

Intent-based systems have emerged as a leading solution for end-user cross-chain interaction, simplifying the complexity and time constraints associated with traditional bridges.

However, these systems face challenges in accessing sufficient liquidity and maintaining active filler networks across chains, issues that may intensify as the number of distinct chains grows.

Liquidity fragmentation issue

Ethereum’s layer 2 blockchains address the scalability issues that the industry has struggled with for years. Yet, they present a new challenge: the fragmentation of funds flowing into different smaller ecosystems.

Furthermore, this issue goes to the technical level, as each layer 2 blockchain processes and orders transactions in blocks in a centralized manner, according to CoinShares analyst Max Shannon.

Shannon explained that each blockchain keeps its own ledger and set of smart contracts, resulting in a fragmented global state of transactions that negatively affects liquidity efficiency. He added:

“Addressing fragmentation promises shared liquidity, gas efficiency, bridge-less bridging, seamless app upgrades, and easier L2 bootstrapping and development.”

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