Disclaimer: Information as of Sep 9, 2021. For the most recent updates, dive into our comprehensive documentation here.
The Launch of our Polygon- Arbitrum Cross-layer Transferral System: A Novel Proof of Concept
Composable intends for Mosaic to be the cross-layer liquidity solution underpinning Ethereum Union transfers. Meaning, it will solve the problem of there not being enough liquidity to facilitate transfers between any 2 EVM compatible chains. To do so, the fundamental paradigm of liquidity providing needs to be applied yet rethought.
Today, we announce a proof of concept transferral system between Polygon and Arbitrum, set to launch Tuesday, September 14th.
Our POC is intentionally simple and guarded in order to gather data on our idea that liquidity providing on L1, as a means for automated L2 transfer liquidity providing, and prove that it is a profitable model, as we previously illustrated.
The First Step in Cross-Layer Interoperability: L1 Vault Cross-Layer Transferral System
Composable Finance is pleased to announce that we are launching the very first phase of Mosaic: the Polygon-Arbitrum Cross-Layer Transferral System. This tool is designed to unite Polygon and Arbitrum, along with the Ethereum mainnet (layer 1).
As announced by our Head of Product 0xBrainJar, this Proof of Concept (PoC) of Mosaic will involve a layer 1 vault which will facilitate liquidity provisioning across different layer 2 farms (for Arbitrum and Polygon). This provides an entirely new and potentially valuable means of generating yield (i.e. cross-layer liquidity provisioning), and also provides the liquidity necessary to facilitate cross-layer transactions.
Once this L1 vault goes live, it will have a cap of $3 million in total value locked (TVL) for three days allowing users to provide liquidity for subsequent cross-L2 transactions. Users will be able to add liquidity into this vault to support the transactions of other users between Arbitrum, Polygon, and mainnet. The accepted assets are WETH and USDC.
After this period, we will pause the liquidity provisioning into this vault, and will then move part of the liquidity from the L1 pool into each of the L2 vaults (on Polygon and Arbitrum).
From there, the POC will go live, and users will be able to swap between Polygon and Arbitrum and L1. This allows for:
- Cross L2 swaps
- Fast exits to L1 from Polygon
- Fast exits to L1 from Arbitrum
When a user initiates a transfer, the relayer will catch the lock event and call the release operation on the destination layer. If this is not successful, the user can then claim what they locked on the source layer.
The fee associated with this process is a dynamic fee ranging from 0.25–5%. It has a linear curve until the trade size is greater than 30% of the available liquidity on the destination layer, and then it becomes a flat 5% fee.
These fees are then distributed to L1 liquidity providers. Users will be able to monitor in real time their earnings as L1 liquidity providers.
Additionally, users who swap from Arbitrum or L1 to Polygon via our bridge will also receive Matic tokens (the native token of Polygon). This ensures they are able to complete transactions along that L2 solution.
SDK:
It is important for Composable to unite these two frontrunners in the L2/scalability field, as it will enable smooth asset transfers between all of the protocols making use of them. As a result, we have also created an SDK that is currently in use by projects working with Composable Labs to be able to plug into our Polygon-Arbitrum transferral system, to be able to do things like rebalance liquidity, cross-layer swaps, etc. This SDK will be out shortly after the launch of the POC.
Future Additions for Cross-Layer Interoperability
This is just the beginning piece of what will become an extensive cross-layer interoperability system to come from Composable Finance, serving to resolve a major pain point in DeFi: moving assets between protocols that make use of different scaling solutions.
The Arbitrum-Polygon Cross-Layer Transferral System is just the first piece of the entirely composable cross-layer system that is Mosaic. The immediate vision is for Mosaic to provide cross-L2 liquidity services to projects in this space; we aim to ultimately build a liquidity directing system to move liquidity as necessary around the L2 space. We aim to offer these services to be leveraged by other projects in DeFi, mutually benefitting Composable, projects on L2s, other L2-L2 solutions, and DeFi users by ensuring a seamless and symbiotic space free of liquidity limitations.
Thus, the Arbitrum-Polygon Cross-Layer Transferral System is an essential foundation for future developments, in addition to providing real-world transactional data that we will feed into our Liquidity Simulation Engine (LSE), which is working to determine the requirements for providing liquidity for cross-layer transactions. If you want to learn more about the technical details of this simulation and how it provides a case for the potential significant value of cross-layer liquidity provisioning, this information is included in the previously mentioned article by 0xBrainJar.
As a recap, The Polygon-Arbitrum PoC will act as a fully experimental approach for us to gather information to augment our existing simulation results. This will be critical in providing us with more realistic data to help us determine the best approach to take in resolving the liquidity management hurdle that has arisen across L2. With this launch of our cross-layer transferral infrastructure’s PoC, we will have the real-world data needed to further refine our model and determine the optimal means of liquidity balancing across L2s.
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