Eliminating the Need for Wrapped Assets

Swim Protocol

Dec 9, 2021 • 3 min read

Here’s why Swim is better than wrapped assets

Swim offers a way to efficiently relocate asset value between multiple networks.

The blockchain space is as diverse as ever. While this fosters incredible innovation, it also makes the processes of transferring value cumbersome and unfriendly to users. We at Swim are building a great option to easily move your assets across blockchains — one that builds upon existing mechanisms to create value transfer pathways that are more effective than wrapped assets. The goal is to make the movement easy, efficient, and comprehensive.

Let’s dive in to explain how this all works.

First things first, what are wrapped assets?

Let’s say you hold Bitcoin, the cryptocurrency that started it all, and your friend holds Ethereum, the second most popular token after Bitcoin. Unfortunately, you two are unable to directly transact with each other because the protocols behind these assets cannot communicate with each other. In particular, Bitcoin does not mesh with more advanced developments in crypto, like the smart contracts that have made Ethereum essential to the broader ecosystem.

The solution is to create wrapped Bitcoin, or wBTC, which functions as a bridge between Bitcoin and Ethereum-based applications, especially dApps developed for DeFi contexts. wBTC is an ERC-20 token, meaning it operates on the Ethereum network. Each wBTC is backed by 1 BTC, and always holds an equivalent value.

With wBTC in your wallet, you will be able to transfer value to your friend, who can then burn those wBTC tokens to extract BTC for themselves. This is one example of a wrapped asset — there are many more, and they were all created as bridges between protocols. Also, wrapped assets can elevate liquidity; in the example of wBTC, we can see that the deep liquidity of BTC can be carried over to the Ethereum network.

That’s all to say that wrapped assets are all about developing compatibility between protocols, in turn opening up new applications and opportunities.

What are the drawbacks of using wrapped assets?

To create wrapped assets, a custodian needs to be involved. In the example of wBTC, the custodian holds onto BTC that are being used to back wBTC.

This raises questions about trust. What prerequisites must a custodian have so that they can hold the many tokens — possibly billions of dollars worth or cryptocurrency — that are used to generate wrapped assets? Also, does this concentration of power run counter to the ethos of decentralization that stakeholders in the blockchain space hold as tenet?

From a retail user perspective, dealing with wrapped assets is also unintuitive and could be a barrier to entry for amateur DeFi users looking to bridge across chains. How does a new crypto enthusiast truly learn the methods of bridging with wrapped assets when there are many different chains?

These are questions posed by skeptics of wrapped assets. Swim has the answer — and a fresh solution.

How does Swim eliminate the need for wrapped assets?

We at Swim recognize that we live in a multi-chain world. Besides Ethereum, Binance Smart Chain and Solana have emerged as important ecosystems for decentralized finance, or DeFi. Our team set out to produce pathways between these networks so that assets can flow freely and swim across channels.

We are doing this by combining automated market maker (AMM) mechanisms with Solana Wormhole’s bridging functionality. This encapsulates Wormhole’s status as a proof-of-authority token bridge, meaning we will utilize a trusted set of validators (authorities) to ensure that tokens locked on the origin chain match the bridged assets minted on the destination chain. We expect Wormhole to be the speediest token bridge in the Solana ecosystem while upholding security.

One great thing about Wormhole is that it will likely grow beyond bridging the networks of Ethereum and Solana to connect with other blockchains, including Binance Smart Chain and Terra. Swim will in turn grow with each new iteration of Wormhole, increasing our functionality. Additionally, Swim is not constrained to Wormhole’s network; our protocol can be built on top of other EVM cross-chain communication technology as well.

Moreover, Swim will establish Solana and Ethereum liquidity pools, giving users a way to swap between SPL and ERC-20 stablecoins efficiently. There is strong potential to take this a step further to facilitate even more swaps between tokens on these chains, such as SOL/ETH and other trading pairs that typically aren’t offered on DeFi platforms.

The starting point of Swim is already more diverse than existing options for cross-chain asset transfers, including wrapped assets. Our trajectory points to a rapid expansion to important areas within the blockchain space, providing you with a highly versatile tool to move your assets to your desired destination with ease.

About Swim

Swim is a multi-chain AMM for native assets, designed to make bridging as easy as possible. Our protocol eliminates the need for wrapped assets by allowing users to swap from a native asset on one chain to a native asset on any other supported chain. Swim’s solution reduces the barriers faced by users when performing cross-chain transactions, enabling true interoperability between various blockchain networks.

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