With the emergence of new public chains and an endless stream of DeFi projects deployed on them, users can't help transferring assets between multiple networks to interact with various DeFi platforms. Therefore, the demand for cross-chain is increasing everyday, but the current cross-chain protocols on the market are more or less faced with various trade-offs that leave the cross-chain market rife with opportunity. The most cited “cross-chain dilemmas" in articles analyzing the problem usually include the following three aspects: the solution transmit a variety of information across chains; Universality: the solution can realize the maximum interoperability of multiple chains and assets with minimum deployment workload and cost; Scalability: ensure asset security without adding too many trust assumptions, significantly minimizing the need to trust a third party. Security: Such articles usually mention that most cross-chain protocols cannot balance these three requirements while simultaneously asserting that the most perfect cross-chain solution balances this Trilemma. Cross-Chain Limitations However, some people believe that in the latest cross-chain era, most of the assumptions of the trade-off model are based on the basic communication layer of the traditional cross-chain protocols. Even if some kind of optimal balance is reached in the so-called trilemma, there is still no way to fully resolve its systematic limitations. To combat this, some DeFi project like 1inch, Any Swa, all take a higher perspective of the application layer and adds a fourth dimension to create a diamond of dilemmas, adding liquidity to this so-called trilemma model which lacks comprehensiveness. The cross-chain diamond model proposed here has four trade-off points: Security, Universality, Liquidity, and Scalability. Liquidity includes two levels: one is a quantity requirement, that is, enough to support the demand for high trading volume; the other is the quality requirement, that is, to ensure the originality and operability of the destination assets, rather than issuing substitute tokens. Quality is the basis of quantity, and all quantities that are not based on quality lack consensus and therefore will be meaningless. “ultimate solution to the quality and quantity of liquidity is to raise the liquidity of native assets through token incentives and the balancing of the liquidity pools through arbitrage and a reward distribution mechanism. In the era of cross-chain 2.0, the ultimate solution to the quality and quantity of liquidity is to raise the liquidity of native assets through token incentives and the balancing of the liquidity pools through arbitrage and a reward distribution mechanism. NPAPs Consequently, a more advanced liquidity pool model -- NPAPs (nativeToken & peggedToken AMM pools) appeared, that is, the automatic market-making pools of native assets and cross-chain soft assets. The new liquidity pool will also inherit the natural advantages of the Curve AMM model -- this trustless mechanism fully executed by contract functions has long been legitimized by top DEXs such as Curve and Uniswap, thus its reliability and high level of decentralization are beyond doubt. For example, the AMM liquidity pools of O3 interchange will consist of trading pairs of native assets and their corresponding cross-chain soft assets, a pToken pegged through the O3 protocol. The function governing these liquidity pools is defined by n * x + m * pX (n ≈ m), which is specifically used to exchange native Tokens and their pTokens, to ensure that users receive native X on the destination chain without perceiving the existence of the pToken (pX). The cross-chain soft asset pX is only used in the middle of the cross-chain process to avoid adding too many additional security assumptions and exploit risks. These pTokens are minted by the O3 protocol based on the liquidity of the native assets deposited by liquidity providers, which means that the minting right of cross-chain soft assets is in the hands of users with strong consensus and reliability, as opposed to the O3 Labs team. At the same time, as more and more smart contract code have been packaged and open to all dApp builders, thus integrating the ultra-high passive composability into the whole Web 3.0 ecology and allowing builders to organically integrate O3 Interchange's cross-chain protocol with their solutions. Only then, can we lead the cross-chain ecosystem into the era of cross-chain 2.0.
