Hop Bridge — Send Tokens Across Multiple Roll-ups
Hop is a universal token bridge that scales from roll-up to roll-up. Users can instantly transfer tokens across roll-ups without waiting for the roll-up's challenge time.
Although roll-ups can grow the Ethereum network, they isolate the applications they support. The roll-up's ability to save users money is diminished by the expensive and time-consuming process of moving assets between roll-ups and the layer-1 network. The Hop protocol makes it possible to transfer assets straight from one roll-up to another, saving money and allowing applications to be composed across roll-ups.
Each roll-up contains a Native Token Bridge that connects tokens from the roll-up to the layer-1 base chain. These bridges are usually a part of the roll-up or directly related. Users can deposit tokens on layer-1 and receive a representation of those tokens on a roll-up using the Native Token Bridge. The layer-1 token will finally be unlocked after the roll-up's exit time if a user sends the layer-2 token they obtained back to layer-1 and burns the layer-2 token in the process.
Application-Specific Bridges are specialized bridges usually created Application-specific bridges may be beneficial to applications that use customized sidechains with layer-1 and layer-2 components or that have a more flexible trust model than a rollup.
General token Bridges, such as the Hop Bridge, are the last type. A third party offers general token bridges that uniformly connect ERC-20 tokens.
The Hop protocol uses a two-pronged strategy to build a scalable rollup-to-rollup General Token Bridge:
- Build a cross-network bridge token that can easily and affordably be transferred between roll-ups or claimed on layer-1 because of its underlying asset.
- To dynamically price liquidity and encourage the rebalancing of liquidity across the network, use AMM to swap between each bridge token and its associated canonical tokens on each roll-up.
The combined strategy allows users to use the customized bridge token as an intermediary asset to rapidly and securely switch between layer-2 Canonical Tokens.
Hop Bridge Tokens
Hop Bridge Tokens are customized layer-2 tokens that may be transferred rollup-to-rollup in batches and serve as intermediary assets in the Hop protocol, for example, "Hop ETH" and "Hop DAI" with the symbols "hETH" and "hDAI" respectively. Each Hop Bridge Token in the layer-1 Hop Bridge contract represents a deposit. For instance, 4 ETH can be generated from a layer-2 Hop Bridge contract if 4 ETH are put into a layer-1 Hop Bridge contract.
On the other hand, if a Hop Bridge token is redeemed for its underlying asset on layer 1, it will be burned on layer 2. A Hop Bridge Token is burned on the origin roll-up and minted on the destination when it is moved from one roll-up to another. These instantaneous transfers are made possible, as described below, by allowing a "Bonder" to front liquidity on the destination in return for a nominal charge. When the transfer propagates through layer 1 as a component of a larger bundle known as a "Transfer Root," the Bonder's liquidity is refunded.
The information included in a hop transfer includes:
- Chain ID of destination: Chain ID for the roll-up or layer-1 destination is the destination.
- Recipient: The address where the transfer will be received at the final location
- Amount: The number of tokens being sent.
Additional information may be included in the transfer for functionality's sake. For instance, it might consist of a relayer charge to enable a transaction relayer to withdraw the transfer on behalf of the destination users.
A Transfer Root can have thousands of transfers inside it while still being treated as a single bundle on layer 1. As a result, the layer-1 bottleneck is reduced, and many transfers can scalably transit through layer-1 to their target roll-ups.
A Transfer Root can take a while to spread through Layer 1, and the exit time of the roll-up where the Transfer Root originated is the main cause. An outside party may supply up-front liquidity on destination roll-up for a nominal cost to perform Transfers promptly.
The Bonder can confirm that the transfer was made on its origin roll-up by running a verifier node for the roll-up. After that, the Bonder can offer upfront liquidity on the destination roll-up to complete the transfer immediately. The money of the Bonder is eventually returned once the Transfer has arrived at its destination.
In exchange for securing liquidity while the Transfer propagates through the system, the Bonder may accept a nominal charge.
Hop Bridge Tokens can be traded from roll-up to roll-up swiftly and affordably, thanks to Transfer Bonds' immediate liquidity and Transfer Roots' scalability.
Automated Market Makers
Each Hop Bridge Token may be rapidly and affordably transported from roll-up to roll-up while representing a layer-1 token. Because each Hop Bridge Token can be redeemed at any time on layer-1, each token is equivalent to exactly 1 of its L1 counterpart under typical network conditions.
However, it is unlikely that third parties every roll-up will immediately adopt Hop Bridge Tokens. The Canonical Tokens they use were likely generated via the Native Token Bridge of the roll-up or, as was previously mentioned, an Application-Specific Token Bridge. An AMM can be deployed to facilitate swaps between each Hop Bridge Token and its equivalent Canonical Token, completing the bridge between the layer-1 token and its layer-2 counterpart (e.g., Hop ETH - Canonical L2 ETH).
This market serves as a price mechanism for liquidity on a specific roll-up and a tool for rewarding arbitrageurs who rebalance liquidity in response to market fluctuations.
In the Hop protocol, arbitrageurs are an unofficial, external collection of actors. The job of the arbitrageur is to profit from price discrepancies between layer-1 tokens and their Canonical layer-2 equivalents. Arbitrageurs effectively adjust liquidity across the supported roll-ups by exploiting these price discrepancies.
Each AMM demands that Liquidity Providers add passive liquidity to the AMM's pool of available liquidity. In exchange, Liquidity Providers receive a small fee from each trade (for instance, 0.3%). Liquidity Providers typically run the danger of suffering an impermanent loss. When the prices of the assets in an AMM diverge, impermanent losses occur. Under typical network conditions, the danger of temporary loss for Hop Liquidity Providers is quite low because AMM pairs in the Hop protocol are always assets of comparable worth. Additionally, the price curve of the AMM can be adjusted for assets that trade in a constrained range.
Users can quickly switch from one roll-up's Canonical Token to the next, thanks to both the Hop Bridge Token and markets on each roll-up to exchange between the Hop Bridge Token and the Canonical Token. Since individual transfers don't require layer-1 transactions, rollup-to-rollup transfers via the Hop protocol are very scalable.
When Alice possesses Rollup 'A' Canonical ETH and desires Rollup B Canonical ETH, consider the following scenario:
- Alice uses the AMM on Rollup A to exchange her Canonical ETH from Rollup A for Hop ETH.
- Alice now sends her Hop ETH from Rollup A to Rollup B using the Hop Bridge.
- Alice gets Hop ETH on Rollup B once the Bonder provides liquidity for her transfer.
- Using the AMM on Rollup B, Alice can exchange her Hop ETH for Rollup B Canonical ETH.
Eventually, her Transfer propagates to the L1 Hop Bridge, returning Liquidity to the Bonder.
Alice also has the option to complete her cross-rollup transfer in a single transaction for convenience. She calls the Hop Bridge, which for Alice, uses the AMM to complete a swap from Rollup A Canonical ETH to Hop ETH before sending the Hop ETH to its intended location. This time, instructions are included in the Transfer to have Hop ETH immediately converted to Rollup B Canonical ETH at the destination. Other smart contracts can directly interact with the Hop protocol and do cross-rollup transfers thanks to this practical functionality.
It is significant to notice that in both instances, just layer-2 transactions were required to complete Alice's Transfer. The layer-1 Hop Bridge does not deal with individual Transfers; only batches of Transfers are. This enables the completion of thousands of rollup-to-rollup Transfers with little layer-1 interaction.
Broader Layer-2 Support
Supporting a wider range of solutions will increase the system's flexibility and effectiveness. Non-rollup layer-2 solutions could be able to work with the Hop protocol. Supporting bridging to other layer-1s might also be conceivable, although it will probably be difficult to do so without adding new trust assumptions.
A Hop bridge is only as safe as its weakest supported roll-up under the existing design, and participants in the system are in danger. While liquidity providers for the AMMs and some arbitrageurs have ongoing exposure to this risk, regular users moving tokens across the Hop bridge are only briefly exposed. The system's overall risk may be decreased by limiting the responsibility that each roll-up poses to the system.
While smart contracts and externally controlled accounts can transport tokens across the Hop Bridge, they cannot send data to the destination roll-up or perform contract calls. Implementing this capability is simple, but the process details and security issues must be carefully evaluated.
Subscribe to receive Alpha!
Join 4.3k subscribers from renowned companies worldwide and get a weekly update in your inbox. Stay updated on the latest and finest projects and product updates.