GM DOers! 🚀
Arbitrum is now enjoying the perks of native USDC. 🚀
But to understand what that means and why it matters, we need to talk about bridges. 🌉
Just as your aunt’s laptop, secured with her cat’s name as a password, is prone to being hacked, so are the bridges in the world of crypto (PSA: this is very important to understand if you are playing in the web3 sandbox).
In fact, last year, out of the 10 largest crypto hacks and exploits that amounted to $2.1B in stolen assets, 6 were due to bridge hacks. 😲
Some notable instances include:
The BNB chain bridge, which lost $500M (most of it was recovered)
The Nomad token bridge exploit, with losses amounting to $190M
The Ronin bridge hack, which experienced a staggering loss of $612M.
These exploits have, understandably, created a sense of unease among web3 users, many of whom are now hesitant to bridge their assets across different chains. 😬
It’s why many didn’t get an Arbitrum airdrop → they were too afraid to bridge even though there’s a HUGE difference between how the bridges that were exploited work vs how L2 bridges work.
So there’s definitely a problem. However, we can see light at the end of the tunnel with Circle’s release of native USDC on Arbitrum. 🤩
Because they’re now changing the way we bridge our tokens, offering a much safer and quicker way.
In this article, I am going to teach you:
How bridges typically work
How Circle’s new and innovative way is supposed to work
What are the benefits of this move
So let’s get into it. Stick around until the end, especially if you have any USDC on Arbitrum. I’ll tell you what you need to know about migrating your tokens to native USDC.
By the way, bridging assets to various chains will be completely hidden to the average user in years to come (aka web3 mullet).
So understand that this won’t matter to the masses, however, currently this is interesting to us because we are early and still building the underlying infrastructure that will enable billions to use web3 seamlessly in the future.
Let’s get into it.
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How Do Bridges Work and What’s Cross-Chain Transfer Protocol? 🌉
Blockchain bridges enable the transfer of assets and data between different blockchain ecosystems, either via the wrapped asset method or the liquidity pool method.
In the wrapped asset method, a user's native asset on Blockchain A gets locked up and an equivalent amount of a wrapped asset is issued on Blockchain B.
This process is like when you go bowling. The bowling alley takes your own shoes and gives you bowling shoes (see these as bridged assets), which you can use. When you’re done, you return the bowling shoes and take back your own shoes.
The liquidity pool method works a bit differently. Instead of locking and wrapping assets, these bridges use liquidity pools - somewhat similar to currency exchanges.
When a user wants to transfer an asset from one chain to another, the bridge uses its pool to send the required funds to the user.
Regardless of the method, the central issue lies in the fact that assets must be locked up or controlled by another party during transfer, creating potential weak points for attackers.
This has made both types of bridges prone to hacks, as evidenced by several incidents in the past.
When it comes to Layer 2 bridges (bridges between Optimism and Arbitrum for example), they work slightly differently and are much safer than the Layer 1 bridges explained above.
We won’t get into the technicalities of how it works. All you need to know is that all these L2 platforms share the same underlying security from the Layer 1 Ethereum blockchain, which makes it safer than bridging between different Layer 1 blockchains.
Still, there are some risks with L2 bridges too. Risks that CCTP wants to mitigate. Let’s see how:
Meet Cross-Chain Transfer Protocol (CCTP) 🤝
To overcome these vulnerabilities, a new solution is being introduced by Circle (the company behind USDC), called Cross-Chain Transfer Protocol (CCTP).
This will be live on the 27th of June!
CCTP offers a safer and more efficient method for transferring assets across chains.
It operates by burning native USDC on the source chain and minting an equivalent amount on the destination chain.
It’s essentially teleporting assets from one blockchain to another.
This process eliminates the need to lock up assets, reducing the security risks associated with conventional bridges.
Here’s a simplified breakdown of how CCTP works:
USDC is burned on the source chain: Users initiate a transfer of USDC from one blockchain to another through an app, and the specified amount of USDC is burned on the source chain.
A signed attestation is fetched from Circle: Circle witnesses the burn event on the source chain and provides an attestation or authorization to mint the equivalent amount of USDC on the destination chain.
USDC is minted on the destination chain: Using Circle's attestation, the app triggers the minting of USDC on the destination chain, sending the new USDC to the recipient's wallet.
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What Are The Benefits Of CCTP?
Bringing native USDC to Arbitrum is more than just a headline; it's a game-changer. Here's why:
The best part is perhaps that your money isn’t stuck in a smart contract or with a custodian anymore when bridging.
It’s literally teleported from one blockchain to another, which makes everything much safer.
In theory. We have no idea how this will actually play out.
Your USDC is Safe and Sound
Right now, (most of) the USDC on Arbitrum is bridged USDC, meaning that it’s not the real thing necessarily.
Having a native USDC token on Arbitrum allows Circle to ensure that there’s a 1:1 $USD to $USDC ratio.
Big Players, Big Moves
With native USDC on Arbitrum, big institutions can jump in and out of crypto easily, thanks to Circle’s infrastructure.
They offer this service for institutions already on Ethereum but cannot do the same on Arbitrum at the moment because institutions would have to bridge, a risk they’re not willing to (nor should they) take.
Speedy Transfers on the Horizon
With the current bridging infrastructure, it happens that there’s unlock delays occurring. But with CCTP, you’d be able to whip your USDC across different chains (which support CCTP) without the typical wait times.
That’s way better UX and we’re all for it.
🤝 Thanks to our trusted exchange partner, BYDFi.
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And if you’re buying it’s important to do so with a licensed and reputable exchange. That’s why we recommend using BYDFi. 🚀
Wrapping Up: What To Know About Migrating Your Assets
First, the Ethereum-bridged version of USDC, currently available on Arbitrum, is renamed "USDC.e" on block explorers.
Similar changes are reflected in the user interface and documentation of ecosystem apps.
For clarity, the Bridged USDC, or USDC.e, can be identified by the token address 0xff970a61a04b1ca14834a43f5de4533ebddb5cc8.
The newly introduced native USDC issued by Circle will bear the token symbol "USDC" and can be recognized by the token address 0xaf88d065e77c8cC2239327C5EDb3A432268e5831.
Now, even though Circle implemented native USDC on Arbitrum last week, there aren’t any immediate changes.
Arbitrum will be collaborating with ecosystem apps to facilitate a smooth transition of liquidity from bridged USDC to native USDC over a period of time.
What should you do now?
The first thing to always be aware of is attacks! With any migration or change, comes impersonators looking to scam you of your crypto!
I know this is a pain in the butt. But for now, until things are fully transitioned, please make sure to be aware of the token addresses I mentioned above.
The second thing is to understand how this will play out for the future of layer 2s.
We just had a PRO Eyes On Chain event in Discord Yesterday and we were talking about how everything that’s happening onchain will move over to L2s, because these offer the scalability and cheap fees that aren’t possible on the Ethereum layer 1.
We’ll send the recording of our PRO Eyes On Chain event tomorrow, along with a report breaking down the most important charts in web3 right now!
To get the report to your inbox, make sure you’re a PRO!
Right now, migrating your assets from Ethereum layer 1 to a layer 2 comes with some uncertainty and risks.
CCTP and native USDC will essentially enable smoother and safer operations for both institutions and retail investors to interact with web3.
The third thing… How can you capitalize?
Watch what’s being built in web3 and invest your time building on top of the protocols that are shipping. Arbitrum is certainly one of those protocols and most likely a future web3 leader.
Furthermore, if you’re going to invest any money outside of ETH and BTC, invest it in the protocols and teams that are building stuff that will facilitate mass adoption to occur by building deep into the tech stack.
Thanks for reading. And remember, you're strong, you’re powerful, you’re alpha! ❤
See you soon. ✌
Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.
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