Introduction

From January 1st, 2020, to January 1st, 2022, the global crypto market cap grew more than tenfold (from $196B to over $2T). This massive growth has caused a fragmentation of liquidity – as of March 2022, more than 15 different blockchains have native tokens with market caps above $5B). Furthermore, it seems unlikely that the market will have a single "blockchain to rule them all," as different chains offer trade-offs between security models, speed, cost, functionality, and environmental costs that make different blockchains appealing to other users and applications.

Allowing users to move liquidity from one chain to another securely is a challenging problem but critical for the continued growth of the blockchain space. Entrepreneurs have tried to solve the liquidity problem by creating bridges that introduce synthetic "wrapped" tokens on the destination chain. These wrapped tokens now exist on the destination chain and can benefit from the new chain's functionality, security guarantees, and other properties. However, the wrapped tokens are still not interoperable with native tokens on the destination chain. Thus wrapping has not solved the problem. It allows chains to communicate, but in doing so only makes the fragmentation of liquidity occur within chains rather than between them. Even worse, if there are multiple bridges between the same chains, each bridge produces different wrapped tokens which are not interchangeable. Thus having multiple wrappings of the same token actually contributes to liquidity fragmentation – the main problem the bridges were built to solve.

Each new bridge brings a collection of bridge-wrapped tokens, and the proliferation of bridges has brought with it a proliferation of bridge-wrapped tokens. For example, Avalanche has about 650M USDC, 1.6B Avalanche-Bridge-Wrapped USDC, and a paltry 680 Wormhole-wrapped USDC. Similarly, in addition to native USDC, Solana has 47M Sollet-wrapped USDC, 5K Wormhole-wrapped USDC, and 1.9M Allbridge wrapped USDC (from Ethereum). Further complicating things, Allbridge wraps USDC differently depending on the source chain, so Allbridge wrapped USDC from Avalanche is controlled by a different contract than Allbridge wrapped USDC from Ethereum! The situation gets worse as Allbridge also offers wrapped USDC from chains like BSC and Polygon, neither of which chains support USDC natively, so these tokens are wrappings of wrappings. Protocol developers are beginning to realize that having multiple bridges into their ecosystem is actually undesirable. For example, Osmosis recently solicited applications to be the one “canonical” bridge to their blockchain.

Besides being painful for the user experience, the proliferation of bridge-wrapped tokens is also a significant security risk. Transferring a token on one chain to anything but its wrapping on another chain requires at least two hops, each of which risks the user will initiate an incorrect transaction and thus lose their funds. Furthermore, different wrappings of tokens are not equivalent, so if a user ever sends the wrong type of wrapped token to a smart contract, they will also lose their funds. This is made worse because many of the wrappings have similar names. Wormhole even has 2 versions of wrapped UST on Ethereum! The mushrooming number of wrapped tokens and bridge contracts increases the chance that a user will misunderstand which contract address on which chain they should send which wrapping of which token. An error of any of these will also result in irreversible lossoffunds. This is true even for stablecoins like USDT and USDC, which are both natively available on Ethereum, Solana, Avalanche, Algorand, and Tron.

Kima is a new blockchain that tackles the interoperability problem without causing additional fragmentation. Kima addresses this problem by managing liquidity pools across multiple chains, thus providing a simple and secure mechanism for users to perform cross-chain atomic swaps without token wrapping.

Existing interoperability solutions

Blockchain interoperability is a method by which two different blockchains can pass information and eventually value.