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Chainlink CCIP: The Final Multi-Chain Solution?

By Michael @ CryptoEQ | CryptoEQ | 25 Jul 2023


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CCIP: Cross-Chain Interoperability Protocol (CCIP)

Chainlink, the premier oracle network facilitating data feeds and messaging across blockchains, has launched its Cross-Chain Interoperability Protocol (CCIP) on Mainnet. The Mainnet Early Access for CCIP is now available for users on Ethereum, Polygon, Optimism, and Avalanche. CCIP is a novel cross-chain communication standard that operates on Chainlink's consensus and transport layer, powered by its oracle network. It enables arbitrary messaging and programmable token transfers between different blockchains, allowing developers to execute more intricate multi-chain tasks. CCIP incorporates security features, including an Active Risk Management (ARM) Network, which consists of a unique set of nodes separate from the primary CCIP system that monitor for malicious activity.

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Chainlink’s new Cross-Chain Interoperability Protocol (CCIP) features a cross-chain message relaying service and a cross-chain token bridge. The CCIP aims to establish a standard interface that enables communication and asset transfers between various blockchain networks and to achieve this, it employs a Programmable Token Bridge that offers users a secure, scalable, and cost-efficient means of moving assets across chains. Cross-chain bridges rely on a committee of nodes that collectively attest to information on one chain and relay it to another by cryptographically signing transactions. With OCR 2.0, Chainlink intends to increase the number of nodes that can sign committee-based reports, which enhances the security of locked funds while maintaining cost efficiency for users.

How CCIP’s cross-chain message relaying service works as follows: A smart contract from a source chain can invoke Chainlink’s Messaging Router to leverage the Chainlink DON to securely send messages to the destination chain. After which, another Messaging Router will validate it and send it to the destination smart contract. The use cases this feature enables include cross-chain yield harvesting, cross-chain collateralized loans, low-cost transaction computation, and new categories of DeFi applications over time. The CCIP token bridge is powered by Chainlink’s OCR 2.0, which involves Chainlink’s nodes cryptographically signing and validating all cross-chain token transactions. The token bridge supports minting and burning and locking and unlocking of ERC-20 tokens and is secured with Chainlink’s anti-fraud network. The bridge offers developers a universal interface that can transfer tokens to any Chainlink-integrated blockchain across both EVM and non-EVM chains. This eliminates the need for developers to build separate bridges with complex security vulnerabilities.

The Programmable Token Bridge serves as a reference bridge implementation that utilizes CCIP to allow developers to create cross-chain applications via a unified bridge system. Unique committees of nodes ensure secure and universal interoperability between various bridge connections, and existing token standards are supported. This means that users do not need to know how to use other blockchains but only have to send instructions to the bridge on how to interact with other chains. The bridge will then automatically move tokens cross-chain and deploy them in smart contracts on the destination chain, allowing users to remain on their blockchain of choice while accessing smart contract ecosystems on other networks. Other forms of off-chain computation are also in development, such as FSS, DECO, and Town Crier. The advancements of CCIP can create a sort of cross-chain hybrid smart contract that can allow blockchains to communicate with each other. 

LINK CCIP Source

The token bridge that's part of the CCIP uses hundreds of independent Chainlink nodes to sign and validate cross-chain token transactions, which reduces a single point of failure and enables cross-chain asset transfer. CCIP creates a universal ‘plug and play’ standard for developers working on smart contracts and allows developers to select the best code for the task at hand. Developers using CCIP can take advantage of Ethereum’s security and another chain’s speed and scalability all in one smart contract.

CCIP table

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In June, SWIFT announced a partnership with major banking partners, including DTCC, BNY Mellon, Citi, BNP Paribas, and others, to test tokenized value transfers with blockchains. This initiative combines the existing Swift infrastructure with Chainlink's connectivity across public and private blockchains. Several DeFi protocols have also adopted CCIP. For instance, Synthetix launched the Synthetix Teleporter, which uses CCIP to facilitate efficient, secure cross-chain transfers of sUSD between Ethereum and Optimism. BGD Labs is using CCIP to power the upcoming Aave Delivery Infrastructure for native cross-chain governance for Aave v3. Chainlink founder Sergey Nazarov envisions Chainlink and CCIP enabling more traditional financial assets to flow into blockchains, potentially leading to rapid growth in the blockchain industry.

The tokenization of real-world assets (RWAs) has been a significant trend this past year, driven by the demand to bring Treasury yields on-chain following a decline in DeFi yields. For example, RWAs now generate the majority of Maker's revenues and this trend is expected to grow for other protocols, as well. Oracles play a crucial role in tokenization as the middleware connecting smart contracts with off-chain data. 

Beyond tokenization, CCIP has the potential to transform and accelerate the adoption of DeFi. It can reduce user frictions and enable protocols to meet user needs by securing cross-chain messaging, unlocking more liquidity, and enabling greater asset composability. Aave and Synthetix showcase a few of CCIP's promising use cases, and their adoption of CCIP can spur further adoption by other leading DeFi protocols. In an increasingly multi-chain universe, cross-chain messaging solutions like CCIP are clearly in demand. One potential concern with CCIP is DeFi's significant reliance on Chainlink's services. It will be crucial to uphold the values of security and decentralization as we usher in this next evolution of DeFi. Nevertheless, CCIP is a promising development that could lead to a significant increase in value transferred across blockchains.

 

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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


CryptoEQ
CryptoEQ

Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.

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