Description
Summary
Currently, tokens deposited from different chains are treated as separate identities. For instance, LINK deposited from Ethereum mainnet is distinct from LINK on Polygon or LINK on BSC, resulting in separate balances and market listings for each version. This approach, while functional, adds complexity to the user experience (UX), particularly compared to centralized exchanges (CEXs), where each token has a unified identity, regardless of the originating network.
Proposal
Update Zex to provide a unified token identity experience, similar to that of CEXs. This change would mean that, regardless of the chain from which a user deposits, all instances of a specific token (e.g., LINK) would be recognized as a single asset, consolidating balances and markets across chains for a simplified UX.
Challenges and Considerations
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Security Trade-offs: Maintaining separate token identities across chains provides isolation. If a token on one chain encounters a security issue, only holders of that chain’s token version are affected, reducing risk for users holding the same token on other chains. CEXs accept this risk to enhance UX, and we also consider doing the same.
- Scope Limitation for Known Tokens: This unifying feature will initially be available only for well-known tokens that have reliable bridges and are supported by centralized exchanges. The list of addresses to be treated as a single token across different chains should be reviewed and voted on by the Zex DAO, ensuring community input and governance in maintaining security and reliability.
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Decentralized Balancing Mechanism: Centralized exchanges typically handle token balances across different chains, enabling users to withdraw from any chain of their choice. However, to keep Zellular Exchange (Zex) decentralized while managing cross-chain balance, a solution would be to involve a decentralized player, such as market makers, with limited liquidity. This player would buy tokens requiring balancing, withdraw from chains with surplus balances, bridge assets to chains with low balances, and deposit the bridged assets back to Zex to adjust balances across chains. This balancing approach has some considerations:
- The balancer may experience minor gains or losses due to market fluctuations during the short time it assigns liquidity to balance a specific token. However, these fluctuations may balance out over time.
- Initially, this balancing can be performed manually, but eventually, a bot could be implemented to automate the process, similar to how market makers operate.
- The liquidity required to balance markets is determined by the extent of imbalance. However, repetitive transactions can allow a relatively small liquidity amount (e.g., $50k) to balance larger sums (e.g., moving $1M by conducting 20 transactions).