Synapse is a generalized cross-chain communications protocol that seamlessly connects decentralized applications across all chains. The project started as Nerve, a simple AMM on BINANCE Chain that enabled users to move assets between Ethereum and Binance Smart Chain but in 2021, the project transitioned to Synapse with loftier interoperability goals in mind.
The Synapse Protocol comprises a messaging architecture and a robust token design for achieving consensus regarding the validity of inter-chain transactions. It presents an expandable set of smart contracts that can be implemented on any blockchain, allowing developers to create native cross-chain applications.
As a base layer protocol, Synapse consists of three main components: Generalized Cross-chain Communication, an Optimistic Security Model, and the Synapse Bridge. Currently, the Synapse Bridge is the primary product, utilizing the Synapse network and cross-chain AMM. However, the team has plans for a Synapse v2, as well as a future Synapse PoS Chain enabling developers to build truly cross-chain applications, including cross-chain DEXs, lending platforms, yield aggregators, and more. However, the primary bridge still currently runs on an MPC with a few signers.
Technology
Synapse Protocol has split its launch into three main phases:
- The Hadean Phase: Rapid growth and development and guardrails are in place to ensure the safe deployment of features. The selection of validators is based on community governance and agreement. Any individual or organization interested in running a validator can reach out to the Synapse community to join the network. This phase is the current deployment.
- The Archean Phase: Further validator decentralization is introduced, primarily via the launch of the (future) Synapse Chain, economically secured via delegated proof-of-stake (DPoS). Validators/delegators are incentivized to secure the bridge with SYN rewards and protocol fees. The Synapse Chain creates a cross-chain interoperable ecosystem, secured and underpinned by SYN. More validator decentralization is implemented, primarily via the launch of the Synapse Chain.
- The Proterozoic: Not fully designed, but the team has suggested they will look to incorporate zero-knowledge proofs.
Standard Synapse Bridge (Hadean Phase)
The Synapse Network utilizes multi-party computation (MPC) external validators to secure the bridge by running SYN nodes. As previously discussed, MPCs use threshold signature schemes (TSS), which require 2/3 of validators to come together with their secret data to reach consensus and approve messages.
Multi-party computation (MPC) is a method for securing data among multiple participants without revealing private information. It uses a private key that is divided among participants and a subset must independently sign transactions to verify the final computation. An MPC wallet is indistinguishable from a typical private key wallet but with added security through the sharing of the key among a group of random relayer nodes. The threshold of the MPC group determines the level of security and makes it less likely for the relayers to collude. MPC also ensures that any malicious actors within the group cannot coerce the honest parties into revealing confidential information or producing inaccurate results.
Threshold Signature Schemes (TSS) involve a subset of trusted nodes participating in key generation (and signature) events. MPC requires that more than one entity/node/validator is necessary to control the wallet's contents. TSS is a subset of MPC. TSS enables multiple entities to collaboratively generate a key and signature rather than just one party. After the key is generated, no single entity ever has access to the full key. Because of this, they cannot sign without the cooperation of others. TSS is comprised of two values: n/t, where n is the number of nodes required to generate a signature, and t is the total number of entities involved.?
Two Options for the Bridge
Liquidity-based Bridging
Synapse offers two bridging solutions:
- Liquidity-based bridging (
- Canonical token bridging (
Liquidity-based bridging allows Synapse to bridge native assets across ~15 supported chains. The term ‘native assets’ refers to assets deployed on the underlying blockchain instead of being “wrapped.” In the liquidity-based bridging model, AMM liquidity pools (a stableswap fork) comprised of either ETH or stablecoins are managed across all chains, and an algorithm dynamically adjusts the bridging prices based on liquidity and demand. This creates cross-chain dynamic pricing of the crypto assets based on demand, directing capital to the most attractive ecosystems. Imbalanced pools within a single destination chain are corrected by arbitragers. This also generates fees for the protocol's revenue. It aims to provide the most efficient route for cross-chain liquidity.
Synapse nETH volume peaked in Q1 2022, averaging ~$15M per day. It has since declined over the course of the 2022 bear market to ~$400,000 per day in volume.
Essential to the liquidity-based bridging are “nexus” assets, nUSD and nETH. nUSD is a cross-chain stablecoin fully backed by the corresponding AMM pools on Ethereum consisting of , USDC, and . nUSD is then pooled with native assets on each chain, thus enabling low slippage and fast settlement.
An example using DAI on Ethereum being bridged to native DAI on Arbitrum:
- DAI on Ethereum is deposited into the stablecoin nexus pool, creating new nDAI
- nDAI is locked in the bridging contract on Ethereum
- nDAI is minted on Arbitrum and swapped for DAI in the Arbitrum stableswap pool
- Native DAI on Arbitrum now exists
Synapse xAssets
Canonical token bridging, the technology behind Synapse xAssets, is typically used for assets that can’t be deployed in stableswap pools. For xAssets, the AMM uses a more conventional lock-and-mint mechanism where tokens are sent to a Synapse bridge contract, assets are held there, and a wrapped asset on the receiving chain is minted.
A user constructs a pegged token by creating a new ERC-20 token contract on all of the chosen destination chains. Synapse's bridge smart contract locks the original token when a user bridges their token from the source chain to any destination chain.
The protocol then broadcasts a cross-chain message instructing the destination chain to generate a new token.
When you want to transmit the pegged token back to the source chain and get your original token, the pegged token is destroyed as soon as it's received in the bridge contract, and, provided the transaction is genuine, your original token is unlocked and returned.
The Synapse protocol imposes six types of fees:
Swap Fee: Charged for swapping assets between different blockchains connected to Synapse.
Bridge Fee: Imposed for transferring assets from a non-connected blockchain to a connected blockchain on Synapse.
Admin Fee: Incurred by the network to cover the costs of maintaining and developing the protocol.
Deposit Fee: Levied for depositing assets into the network for swapping.
Withdrawal Fee: Charged for withdrawing assets from the network. The fees collected by the protocol are used to pay for network maintenance and development, as well as to reward validators.
Validator Fee: The validators charge a fee for their services in verifying and validating network transactions.
