Connext, a cross-chain bridging protocol, has introduced a new token standard called “xERC-20” with the aim of reducing losses resulting from bridge hacks. The announcement, made on July 24, revealed that the new standard allows token issuers to maintain a list of official bridges and exercise control over the number of tokens each bridge can mint.
In addition to Connext, Alchemix Finance, a decentralized finance (DeFi) platform, has also decided to implement the xERC-20 tokens.
Originally proposed as Ethereum Improvement Proposal (EIP) 7281 on July 7, the new standard was co-authored by Arjun Bhuptani, the founder of Connext. Bhuptani stated that the xERC-20 standard would mitigate losses from bridge hacks by holding token issuers accountable for the repercussions of such incidents.
Unlike the traditional approach, where each bridge issues its own version of a token on different networks, the xERC-20 standard enables bridges to mint “official” or “canonical” versions of each token, subject to permission from the token issuer. Smart contracts would enforce this permission, and token issuers would have the ability to limit the number of coins a specific bridge can mint.
While bridges could still mint their own derivative versions of tokens under EIP-7281, these derivative coins would not be considered “canonical.” Over time, consumers are likely to reject unofficial versions of coins, making the ecosystem safer as the responsibility for avoiding bridge hacks lies with each token issuer, thereby preventing end users from suffering losses.
Typically, for an EIP to become an official part of the Ethereum ecosystem, it needs approval from EIP editors, which can be a lengthy process taking several months. However, the announcement mentioned that Connext and Alchemix will implement the xERC-20 standard ahead of its official approval, allowing users to rely on it immediately. Connext assured that the standard will be “forward compatible” with the official version should it be approved later by the EIP editors.
Bhuptani highlighted that this new implementation would discourage bridges with poor security or excessive centralization from being taken seriously. The approach encourages open competition and innovation as token issuers gain the flexibility to update their preferences for supported bridges over time. Instead of prioritizing monopolizing liquidity or cornering market share by locking-in token issuers or entire chains, bridges are now compelled to prioritize their security and quality of service to avoid delisting.
The issue of bridge security has been a significant concern in the cryptocurrency community, and it was amplified on July 7 when over $100 million was mysteriously withdrawn from the Multichain bridging protocol. Initially labeled as “abnormal” by the Multichain team, it was later clarified that an unknown individual gained access to the CEO’s cloud storage system and withdrew the funds without users’ consent. Such incidents highlight the importance of robust security measures in cross-chain bridging protocols.
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