After a long silence, can the recent major updates of the interoperability protocol Wormhole help it regain its glory?

Will Wormhole's recent major updates bring back its glory after a long silence?

Author: Jiang Haibo, LianGuaiNews

Wormhole is one of the most well-known cross-chain interoperability protocols. It was acquired by Jump Trading in 2021 and later compensated with 120,000 ETH (approximately $326 million) by Jump Crypto after being hacked in 2022. It has also surpassed competitors like LayerZero in the competition for the official governance bridge of Uniswap.

After the collapse of Terra, the development of Wormhole has been lukewarm. In fact, the Wormhole team has been continuously updating the project. Recently, there have been some progress, such as the announcement of the establishment of the Wormhole Foundation, the first-time support for new public chains Aptos, Sui, and Sei, and the development of automated relayers to help developers build dApps. Wormhole hopes that these measures will break the deadlock.

Support for 23 chains, TVL stable around $324 million

According to the data on the Wormhole official website, as of August 31st, Wormhole has supported 23 chains.

Since Wormhole uses a lock & mint method for cross-chain transactions, it is meaningful to calculate the Total Value Locked (TVL) on the source chain. As of August 31st, the sum of TVL on various chains is $324 million, with a historical peak of $3.8 billion on May 12th, 2022. The TVL has been relatively stable recently.

Breaking it down to each chain, the chains with the highest value of locked assets are Ethereum with $259 million, Solana with $23 million, Binance Smart Chain with $16 million, Terra Classic with $8 million, and Near with $8 million. The assets with the highest value locked on Ethereum are USDC with $62 million, HXRO with $49 million, WETH with $45 million, USDT with $20 million, and WBTC with $17 million. Most of them are mainstream coins, relatively more reliable.

Looking back at the historical data of Terra Classic, during the peak period on May 12th, 2022, out of the total TVL of $3.8 billion on Wormhole, $3.25 billion came from Terra Classic. The collapse of LUNA/UST began on May 8th, so the surge in TVL on May 12th may be due to the delayed update of UST’s price by the oracle, resulting in inflated data. Before May 8th, the TVL on Terra Classic increased significantly. On May 6th, the TVL was $1.13 billion, and it remained stable before that. On May 7th, the TVL rose to $1.71 billion, and on May 8th, it rose again to $2.18 billion. After that, possibly due to the decline in LUNA’s price, the TVL on May 9th decreased to $1.84 billion, and on May 11th, it decreased to $988 million.

Is it possible that the cross-chain funds coming from Terra Classic that experienced an abnormal surge on Wormhole two days before the collapse of LUNA/UST are the cause of the collapse? This is quite possible.

Recent Progress of Wormhole

The development of interoperability protocols is not achieved overnight. With the continuous launch of new public chains, it is necessary to support these chains as quickly as possible to seize the market. In terms of functional iterations, in addition to the initial asset cross-chain, it is also necessary to have cross-chain message delivery and cross-chain apps, and to simplify these functions as much as possible. According to recent updates from the official Wormhole team, the following progress has been made.

Establishment of Wormhole Foundation

On August 15th, the Wormhole Foundation was officially announced. The foundation is jointly led by Robinson Burkey and Dan Reecer from the Wormhole team. The plans of the Wormhole Foundation include three directions:

  • xGrants: Provide resources for open-source software development and research, with a special focus on cross-chain protocols and applications.
  • Cross-chain Ecological Fund: Initiate a $50 million fund to support the integration of Wormhole into Web3 applications.
  • Wormhole Association: Establish a global active Wormhole community to contribute to technology, create educational content, translate, and organize online and offline activities.

In addition, although the official announcement did not mention it, it is common for such foundations to launch governance tokens and reserve a portion of the tokens to promote ecological development. This also means that Wormhole may issue governance tokens. Currently, Wormhole lacks income and provides free services to users. When evaluating the cross-chain bridge on Uniswap, the Uniswap Cross-Chain Bridge Evaluation Committee also suggested that Wormhole implement “protocol-level mechanisms” to solve the issue of “passive validators”. Incentivizing validators (or Guardians in Wormhole) through governance tokens is a common practice.

Launch of Automatic Relayers

Current cross-chain protocols are no longer limited to asset cross-chain, but also include cross-chain message delivery and cross-chain apps built on top of cross-chain protocols. Wormhole has also started to apply them in cross-chain apps, such as Wombat using Wormhole’s relayers for cross-chain message delivery and building cross-chain liquidity pools. This feature is expected to be launched on September 6th.

Wormhole has also introduced Automatic Relayers. To build cross-chain apps, developers usually need to build on-chain components and off-chain relayers to pass messages from one chain to another. Building, managing, and maintaining off-chain relayers can be challenging, so Wormhole has separated this part of the work and developed automatic relayers. Developers can use a pre-configured network of relayers without the need to set up, run, or maintain relayers, simplifying the development of cross-chain apps.

Support for Cosmos, Polkadot, Base, etc.

For application chains in the ecosystems of Cosmos and Polkadot, although XCMP and IBC facilitate cross-chain operations internally, there are still security issues when crossing from other chains such as Ethereum to Cosmos and Polkadot. Multiple projects in the Polkadot ecosystem have been affected by the transfer of Multichain funds.

For the Cosmos ecosystem, Wormhole recently launched the Wormhole Gateway, which connects the liquidity on supported blockchains to Cosmos through IBC. For Polkadot, Wormhole uses the Moonbeam routing liquidity introduced by Moonbeam to transfer Wormhole assets to the Polkadot ecosystem with a single click.

Current Issue: Daily Cross-Chain Fund Limitation and Inconsistent Cross-Chain Liquidity

Wormhole was acquired by Jump Trading, and with the investment and market value management of Jump, Wormhole can be deeply integrated with certain emerging public chains or projects on public chains. However, it is still lukewarm in recent developments.

With the launch of Sei Network and the formulation of airdrop rules, the problems of Sei and Wormhole have been exposed. According to Sei’s airdrop rules, the more assets cross-chained to Sei, the higher the probability of obtaining rare treasure chests and more SEI airdrops. Therefore, many users choose to cross-chain more than $100,000 at a time from Wormhole to Sei. However, when withdrawing funds, Wormhole has imposed a daily fund limit on each chain, which has caused many users’ operations to be stuck when crossing funds from Sei through Wormhole, requiring a wait of more than 24 hours.

According to Wormhole’s year-end review in 2022, the security feature called Governor was launched in August 2022 after being stolen, allowing Wormhole Guardians to limit the cross-chain value of each chain. Currently, the daily limit for extracting underlying assets from Ethereum is $50 million, and for Solana, it is $25 million, with even lower limits for other chains.

In the Wormhole community, reminders about reaching the cross-chain amount limit occur from time to time, as shown in the following figure. The speed of fund arrival is also an important evaluation indicator for cross-chain protocols. Generally, the daily limit set by Wormhole can already meet the demand, and the arrival speed is fast. However, due to the surge in cross-chain demand caused by Sei’s airdrop rules, the experience of waiting for 24 hours for withdrawal is poor.

In addition, the cross-chain assets on Wormhole are too complicated. For example, although USDC on various chains can be cross-chained to Aptos, only the USDC cross-chained from Ethereum to Aptos is supported on LianGuaincakeswap and Thala on Aptos. Does this mean that Ethereum mainnet must be used to meet the conditions? Actually, it is not so. There is also a cross-chain asset called USDCet minted by Wormhole from Ethereum mainnet on Solana, and there is sufficient liquidity for the USDC/USDCet trading pair on the DEX. For ordinary users, withdrawing USDC to Solana and then exchanging it for USDCet through an aggregator can achieve the same effect with lower fees. It is also worth noting that although Aptos supports USDC cross-chained from Ethereum or USDCet minted on Solana, when calculating the Solana airdrop for Sei, it needs to be cross-chained with the native USDC on Solana, and different assets can easily be confused. The competitor LayerZero handles this aspect better, where only supported assets can be seen on the front end.

In March of this year, Wormhole integrated Circle’s Cross-Chain Transfer Protocol (CCTP). Theoretically, different assets such as USDC on Ethereum and Solana can be cross-chained to the underlying assets on Aptos, which are issued by Circle. If Wormhole can unify the liquidity, the user experience will be improved.

With the collapse of Terra, the glory of Wormhole also disappeared, and Swim Protocol, an ecological project that provides cross-chain liquidity, announced a suspension after a series of subsequent events. However, the Wormhole team has recently been updating the product functionality frequently. Although the project still has many issues, they also hope that Wormhole can create glory again.