As blockchain technology advances and the number of blockchain networks increases, blockchain interoperability is becoming more important than ever. Interoperability is simply the ability of blockchain networks to communicate with one another, exchanging assets and information. Blockchain bridges are a mechanism that addresses partially this problem, by enabling the transfer of assets between blockchain networks. Stargate is a blockchain bridge that aims to make cross-chain asset transfers seamless between blockchain networks.
What is Stargate?
Stargate is a bridge protocol that allows the seamless transfer of assets from one blockchain network to another in an efficient manner. Stargate currently allows the transfer of the stablecoins BUSD, USDC and USDC across 7 blockchain networks: Ethereum, Arbitrum, Optimism, Avalanche, Polygon, BNB Chain and Fantom.
According to Stargate, when developing a bridge protocol, protocol designers or architects face what is called the Bridging Trilemma. The Bridging Trilemma refers to the trade-off between having instant guaranteed finality, unified liquidity and support for native assets. Many existing bridges have to sacrifice one or more of those three properties.
Instant Guaranteed Finality
Bridges, since they are connecting two different networks, they have to deal with both networks when transferring assets. This implies that the process usually has multiple legs, one executed on the source chain, and the second executed on the destination chain. Since the two networks are completely unaware of the existence of the other side, depending on how the bridge is designed, you might end up in a situation where the first leg is executed, while the second one is not. The user or the protocol on the source chain will have to revert the transaction and try again.
Instant guaranteed finality refers to the property of a bridge that enables the seamless transfer of assets from a source chain to a destination chain, by guaranteeing that both legs will be executed or none will.
One way that previous blockchain bridges use to address this problem is by using wrapped tokens. Creating wrapped tokens is not ideal, especially when there are multiple bridges, minting the same asset on a network. This leads to poor user experience due to fragmented liquidity on the chain.
Stargate with its novel ∆Bridges eliminates the use of wrapped tokens altogether. It provides instant guaranteed finality of transfer using only native assets from the source chain to the destination chain. This improves the user experience, as no need to exchange from one representation of a wrapped token to another.
Many of the existing liquidity-based bridges rely on a single liquidity pool per asset per connection. For example, if a bridge integrates Ethereum, Polygon, and Avalanche and allows the transfer of USDC and USDT, then it will require 4 pools per bridge. On polygon, it will require a USDC pool for transfers to Avalanche and another USDC pool for transfers to Ethereum.
That’s not the best way of managing the capital on the bridge, as one pool might have $1M USDC, while the other might be empty. This prevents the pool from receiving funds from one connection.
The unified liquidity concept of Stargate refers to the idea of having a single pool per asset for all connections on each chain. Hence, unified liquidity. This also allows Liquidity Providers (LP) to deposit their funds in a single pool instead of having to decide how to split and manage their funds across the liquidity pool. This also allows the protocol to be more efficient in transferring assets across networks, by fully utilizing the deposited funds.
Native support refers to the property of a bridge to support native assets instead of minting wrapped tokens. As mentioned above, some existing bridges use the concept of the wrapped tokens to guarantee instant finality, which is not ideal. Stargate instead, have liquidity pools supporting only native assets. The bridge won’t have to deal with creating liquidity of the newly wrapped tokens on the network’s decentralized exchanges. This allows users to send and receive assets they are familiar with, and assets that are native to the network.
Another problem that is usually created with wrapped tokens, is the fact that tokens lose their properties when wrapped. For example, some tokens might have a burn mechanism, a dividend mechanism, or a tax mechanism implemented in their contract. When wrapping the token on a separate network, it loses the original properties. Using native assets, you guarantee that the receiving token is the token issued by the creator of the token, and tokens behave as designed.
Another core feature of Stargate and Stargate’s underlying technology is cross-chain composability. Stargate is composed of Smart Contracts on both source and destination chains. Current bridges only have traditional composability which means that they only can be composed of smart contracts from the origin chain and cannot be composed of smart contracts from the destination chain. The option to be composed with other smart contracts on both the origin and destination chain gives Stargate an extra layer of flexibility.
This design allows third party application such as Uniswap or other Decentralized exchanges, to leverage to protocol and provide their users a cross-chain token swap from any native token of the source chain to any native token on the destination chain. Other type of protocols could also leverage this design to provide their users with seamless cross-chain experience.
How does Stargate work?
Stargate, similar to other decentralized protocols, like Uniswap or Aave, relies on the concept of Liquidity Pools to function.
First, users have to deposit their idle funds in liquidity pools on all supporting blockchains. Users, depositing their funds into the protocol’s liquidity pools are called liquidity providers. Liquidity Providers are then rewarded for their services by receiving a percentage of the fees users pay when transferring funds from one network to another.
Since Stargate currently supports only the transfers of stablecoins, the fees rewarded to liquidity providers are paid in stablecoins. Another percentage of the fees goes to the protocol’s treasury for future protocol developments.
Furthermore, Stargate provides additional rewards in the form of STG tokens, to incentivize liquidity provision. That’s a practice followed by most liquidity-based protocols to attract liquidity in the beginning. Stargate offers an APY between 3-5% at the point of writing for liquidity provision.
As a user, when you decide to transfer funds from one network to another, your funds are send to the corresponding liquidity pool on the source blockchain, and an equal amount of funds is released from the destination blockchain, minus a percentage fee. This fee goes partially to liquidity providers and the remaining to a treasury used for future developments.
Stargate token Utility
Stargate’s $STG is a governance token used primarily for participating in protocol governance decisions, liquidity provision and staking. Token holders can stake their $STG to receive Stargate’s voting escrow token, $veSTG. The protocol uses a time-weighted reward system that boosts the amount of $veSTG that stakers receive the longer they keep it locked. This design keeps circulating supply pressure down and also helps align users that are interested in the long-term success of the protocol.
Changes to the Stargate protocol must go through the Community Forum with a proposal. Proposals can be discussed in the Forum to gain sentiment and classified as “Core” and “Protocol”.
Core Proposals include changes to the governance process itself and Multisig. These proposal are material to the governance process or major structural changes and, as such, carry higher quorum and support thresholds.
Protocol proposals include all other changes to the Stargate protocol, including parameter changes (e.g., changing fee structures, changing Stargate Unified Liquidity Pool connections & weights), protocol code changes, and protocol treasury allocations.
The voting process is divided into 3 different phases and is designed to drive discussion for all proposals, which are then effectuated upon community approval and voting.
- Proposal Stage: All STG Token holder are eligible to submit non-binding proposals, which may result in a governance vote by holders of veSTG voting power.
- Community Calls: Proposals with positive sentiment are elevated to a Community Call discussion. All such proposal made prior to 23:59 UTC the day prior to the Community Call are on the call agenda. Community calls are held Monday. After the Community Call discussion, proposal will remain up for review for 3 days. Feedback in the Community Forum can be applied to the proposal as edits.
- Voting Phase: Proposals with a positive poll sentiment can be submitted to Snapshot by any holder of 150,000 veSTG. Core and Protocol proposals have a voting period of 24 hours or 36 hours, respectively.
How to buy Stargate (STG)
Stargate is currently listed on a few well known centralized exchanges such as FTX, Kucoin and Gate.io. In addition, Stargate can be found on popular decentralized exchanges on each chain supported by the protocol such as Uniswap, Trader Joe, Pancakeswap and Spookyswap.
Stargate came up with a nice a convenient-to-the-user design that allows seamless transfers of stablecoins from one network to another, resolving many of the shortcomings of the previous generations of blockchain bridges.
The ultimate goal of the protocol is to allow users to use the protocol without even realizing. Considering the composability characteristics of the protocol, it allows third party protocols, such as AMM DEXes to leverage the bridge and allow users to swap any token from one chain to any token of another chain. Only time will tell if this will be achieved.