A startup with a novel method for moving value between layer 2s and other blockchains has raised $12 million in a round led by 1kx and ConsenSys Mesh.
Connext uses an approach to moving funds between different blockchains, sidechains and layer 2s that looks a lot like how automated market makers (AMMs) operate.
“Our thesis as a company has really been that user experience is what’s needed in the space,” Arjun Bhuptani, the project lead, said in a phone interview.
With Ethereum periodically getting bogged down (and expensive to use) when something like non-fungible tokens or a new decentralized finance project cause a stir, there’s been more and more of a push to move activity to chains connected to but not dependent on Ethereum. That creates a new problem of value stranded on the wrong network when a hot opportunity comes up.
Connext operates by enabling liquidity providers to put funds into pools on two different chains, which makes it easy for users to swiftly move between chains.
So, for example, one user can put 1,000 DAI on both Polygon and Binance Smart Chain (BSC). Then another user can come along and deposit 100 DAI on BSC with instructions to send 100 DAI to an address on Polygon.
An oracle will then verify the deposit on BSC and communicate that to the Polygon pool, and the withdrawal can happen.
Liquidity providers (LPs) will earn 5 basis points right now for every transaction. That number could go up a bit but Bhuptani expects the product should be profitable for LPs at levels so low that users are likely to never really notice.
The new investment funds will be used to build out the team and to run the route auctions program, a method to help make sure funds stay balanced across chains.
Other investors include: eGirl Capital, Ethereal Ventures, Coinbase Ventures, MetaCartel Ventures, Scalar Capital and others. The team says that more than 80 entities participated in the round.
Bridges
The traditional approach up to this point has been the bridging approach, where one entity controls a pool that serves as an on- and off-ramp. This requires a high degree of trust in one entity and can also often makes for very slow withdrawals off chain back to Ethereum.
For some users, the chief advantage may be moving around different parts of the value stack without needing to pass through Ethereum, where gas fees can often make even routine transactions prohibitively expensive.
“We have a lot of users who call it the ETH-Floor Lava Game, trying to hop between all these systems without touching Ethereum,” Bhuptani said.
That said, Bhuptani said that Connext is fundamentally about building out the Ethereum ecosystem and making it more useful. His team will be prioritizing building out connections to Ethereum and rollups and sidechains built to complement Ethereum.
“We think that’s where the majority of usage is going to be at least for the next couple of years,” Bhuptani said, though he added that others could also connect on their own. “It’s not very difficult for people to plug in support for Polkadot, Cosmos, Solana. We expect it will happen,” he added.
Lasse Clausen, a partner at 1kx, said in a statement.
"The adoption of various L1 and L2 technologies is leading to an increasingly fragmented landscape of applications, liquidity, and user experiences. Connext has been quietly building the glue for this ecosystem and is now ready to support the massive demand for cross-chain applications."