New Ethereum Token Standard Proposed by Uniswap and Across to Address Liquidity Fragmentation
Uniswap Labs and Across Protocol, a cross-chain interoperability provider, have introduced a novel Ethereum token standard, ERC-7683, to tackle liquidity fragmentation challenges. This standard aims to create a unified framework for defining cross-chain actions within intents-based systems. Intents are automated interactions on the blockchain driven by the user’s desired outcome, eliminating the need for specialized knowledge.
The ERC-7683 standard revolves around a standardized flow for cross-chain intents while allowing for adaptability in implementation specifics. The process initiates with the swapper signing an off-chain message, which is then broadcasted to a filler on the originating chain for execution, followed by fulfillment on the destination chain.
Uniswap Labs has announced its commitment to incorporating this standard into the cross-chain iteration of UniswapX. However, the ERC-7683 standard is readily available for any decentralized application to integrate. Additionally, this standard permits customization of various elements such as price resolution methods, fulfillment constraints, and settlement procedures, with the proposal currently under review by the CAKE Working Group.
Intent-based systems have emerged as a preferred solution for user-friendly cross-chain interactions, streamlining the complexities and time constraints associated with traditional bridges. Yet, these systems encounter hurdles in accessing adequate liquidity and maintaining active filler networks across chains, challenges that may escalate with the proliferation of distinct chains.
The issue of liquidity fragmentation is particularly pronounced in Ethereum’s layer 2 blockchains, which address scalability concerns but introduce a new obstacle of funds dispersing into various smaller ecosystems. Each layer 2 blockchain manages transactions in a centralized manner, leading to separate ledgers and smart contracts, resulting in a fragmented transaction state that hampers liquidity efficiency.
Max Shannon, an analyst at CoinShares, elaborated on this technical challenge, emphasizing that addressing fragmentation could unlock shared liquidity, enhanced gas efficiency, bridge-less bridging, seamless app upgrades, and simplified L2 bootstrapping and development. The drive towards a standardized approach like ERC-7683 signals a significant step towards addressing liquidity fragmentation and enhancing cross-chain interoperability within the Ethereum ecosystem.
