Despite continuously growing demand to transfer assets between blockchains, there still does not exist an adequate solution for bridging native assets between chains. Existing cross-chain bridges have three key problems: (1) they rely on intermediate or wrapped tokens, (2) they can only support a small, limited network of chains, and (3) they cannot be composed with smart contracts on the destination chain. The use of intermediate tokens necessitates an additional swap on the destination chain to exchange those intermediate tokens for native tokens, and the limited scale causes inconvenience to users who must often bridge assets multiple times across different bridges to reach their final destination chain.
To make matters worse, the additional swap on the destination chain cannot be composed with the original transfer, creating unnecessary work for users who must initiate the final swap manually. Among the most ambitious projects is Stargate Finance, a native asset bridge created by LayerZero Labs. The following is an in-depth and detailed guide on Stargate Finance and its many advantages.
I. What Is Stargate Finance?
Stargate Finance was started by LayerZero Labs in March 2022. LayerZero exists as an omnichain interoperability protocol. On March 15, Stargate Finance was launched on the mainnet as the first cross-chain bridge app. 0xMaki, a popular crypto developer, joined the team at LayerZero the same day.
Stargate’s objective is to make sure that cross-chain liquidity transfers can be done in a one-time transaction without any hassle. The platform facilitates one-click swaps from practically any asset that's available on any chain. The swaps can occur with all assets found on other chains.
Stargate Finance focuses mainly on stablecoins, which reduce the risk of losing a substantial sum of money since their price is pegged to a stable asset. Users also can earn high returns with unified liquidity pools as well as extensive farming features.
II. Market Problems: Bridging Trilemma
Transferring liquidity between chains is a common and important task in today’s blockchain ecosystem, with users constantly moving liquidity to take advantage of opportunities on different chains. This movement of liquidity is made possible by bridges, services that facilitate cross-chain token swaps.
Unfortunately, prior work in cross-chain bridging must make a compromise in functionality due to the bridging trilemma, giving up one of the following:
- Instant guaranteed finality: users and programs can be sure that a transaction they successfully commit on the source chain will appear on the destination chain.
- Unified liquidity: instead of wrapped assets, which demand additional swaps and incur additional costs to acquire the necessary object, users and applications swap in native assets.
- Native asset transactions: by allowing multiple chains to share access to a single pool of liquidity, users and applications that depend on the bridge's dependability can access more liquidity.
In practice, currently available bridges choose to forego native asset transactions, instead relying on lock + mint and burn + redeem semantics where they lock assets on the source chain and mint a synthetic asset on the destination chain. This ultimately results in a poor user experience, as users are forced to manually swap the intermediate tokens for native assets in a separate transaction on the destination chain.
However, the advent of omnichain communication protocols such as LayerZero offers the opportunity to solve the bridging trilemma. Omnichain communication protocols enable reliable bidirectional interchain communication in densely connected networks of chains, making it possible to directly bridge native assets without sacrificing instant guaranteed finality.
To solve the bridging trilemma, the Stargate platform uses an advanced cross-chain bridge mechanism, as well as a balancing algorithm called the Delta algorithm. When these two mechanisms are combined, cross-chain liquidity and native token transfers are possible. Cross-chain bridges let users send fully native assets to separate blockchains without requiring intermediate tokens to be created. These transactions can also occur without depreciation of composability or interoperability. Keep in mind that cross-chain bridges are operational because of the unified liquidity pool shared between multiple chains, meaning that every bridge will have instant guaranteed finality, no option for transaction reversion, and enough liquidity to make sure all transactions are successfully completed.
III. Features of Stargate Finance
As the first native asset bridge that aims to solve the bridging trilemma, users no longer need to lock down and mint synthetic assets or have fragmented liquidity. Instead, they can simultaneously have deep pools of native assets linked to all chains, creating orders of magnitude greater capital efficiency of its source chain. Stargate Finance is equipped with many features that distinguish it from similar crypto projects, including Stargate transfer, liquidity pools, yield farming, staking, rebalancing fees and omnichain composability.
Stargate is able to swap native assets 1:1 across different blockchains by accessing unified liquidity pools. The transfer that's sent from the source blockchain is guaranteed once it reaches the destination blockchain.
Because of the Stargate transfer feature’s design, users no longer need to contend with transactions failing because of a lack of liquidity or issues with a wrapped token. You'll also receive a fully native asset, as opposed to a synthetic wrapped asset that would need to be swapped for the correct one after the transaction is completed.
Stargate Finance also provides access to liquidity pools from different networks, which means users are able to place liquidity in any pool as long as they have the correct assets. Since Stargate accommodates only liquidity pools of stable assets, users who place their assets in these pools can expand their investment portfolios with the rewards they receive.
You can yield farm only when you provide liquidity to Stargate's pools. Once you've provided liquidity, you can farm liquidity pool tokens to earn STG. After you receive STG, you can choose to either hold onto the token to obtain additional benefits, or swap the token for other assets that you can eventually withdraw into your wallet. Yield farming is certainly a great option when you want to obtain an income stream and regular rewards for the investments you make.
If you're an STG holder, you can stake your tokens in order to earn veSTG, which is Stargate's governance token. Once you have veSTG tokens, you're able to vote for all initiatives and proposals that are brought up for discussion.
Since the instant guaranteed finality feature with native assets is a core aspect of Stargate, the exchange’s performance requires any destination chain to have enough reserve balance available to ensure that swap transactions are properly handled. The protocol starts with balances at the optimal target balance.
However, additional swap transactions will reduce these balances on destination chains, while at the same time increasing others on source chains. Stargate implements rebalancing fees to incentivize users to perform swaps that “refill” low native asset balances and dissuade them from performing additional transactions that could deplete reserves. These rebalancing fees typically depend on the current balance and transaction size of any potential transaction.
The rebalancing fees that are accrued are all sent to a reward pool, which will later be distributed to any user who performs a “refilling” transaction. The amount they receive will be proportional to how close the post-transaction balance returns to the optimal target balance.
$STG is Stargate’s native token. The total token supply and maximum token supply of STG is 1,000,000,000. STG tokens are used for liquidity provision, staking, and making governance decisions that pertain to the Stargate protocol. As a token holder, you can stake your STG to receive veSTG, after which you can take part in governance votes.
In fact, the Stargate protocol uses a type of time-weighted system that increases the amount of veSTG stakers obtained based on how long the tokens are locked. Users can add liquidity directly to the Stargate protocol, after which they receive stablecoin rewards. These rewards are provided for every transfer. The fee for a non-STG transfer on Stargate is 0.06%. It’s also possible for liquidity pools to farm liquidity pool tokens to obtain STG rewards.
The protocol was separated into two different launch phases: $0.25 at Launch Auction and $0.5 - $1.5 at Bonding. Tokens allocated for the initial launch auction, investors, and the team at Stargate are set to be locked for a total of 12 to 24 months, which ensures that supply remains low while the protocol grows. And that’s not good for the token price during a bearish market at the moment.
V. Team & Partners
Stargate is developed by the LayerZero Labs team. The team has three co-founders, Bryan Pellegrino as CEO, Ryan Zarick as CTO, and Caleb Banister. All three graduated with the CS major from the University of New Hampshire, and there are many career intersections after graduation. In 2010, the three co-founded the software development company Coder Den. Ryan Zarick and Caleb Banister also co-founded 80Trill and Minimal AI; CEO Bryan Pellegrino founded OpenToken in 2017. Until 2021, the three have reunited again to co-found LayerZero Labs.
The flexibility afforded by the Delta algorithm creates the opportunity to improve many existing applications, such as decentralized exchanges, by taking advantage of single transaction cross-chain swapping of native assets across vast networks of chains. Envisioning bridges as the infrastructure that enables densely connected networks of blockchains and ushers in a new class of cross-chain applications that take advantage of fast guaranteed cross-chain native asset transfers.
In just the first week after launch, Stargate's TVL reached $2.5B, an impressive number. That also means the real strength of the project. Stargate automates cross-chain inventory management and provides on-demand access to liquid inventory, eliminating the need for dApps to finance or maintain emissions to encourage LPs across numerous chains.
However, there is a problem for investors, in the author's opinion, STG's tokenomics is currently not suitable for participating in any form of token investment. There are about 5 months left until March 2023 for the token unlocks for the team, investor and auction round. Currently circulating supply is only 13%, so if we want to ape into the project for the long-term, it’s better to wait until its circulating supply gets larger.