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WORMHOLE: CROSS-CHAIN MESSAGING LAYER

Wormhole
By Boccaccio
/March 4, 2024/11 min read



KEY TAKEAWAYS

Wormhole’s core offering comprises a cross-chain message-passing protocol, which
provides the basic framework to send data securely between two blockchains.
Teams can build on top of this messaging layer to offer a variety of products,
such as token bridges (e.g., Portal, Allbridge),cross-chain DEXs (e.g., Mayan
Swap, Hashflow), and money markets (e.g. Pike, Synonym). At the core of Wormhole
Messaging is the Guardian Network, an external group of 19 professional
validators who run full nodes on all chains supported by Wormhole for message
verification and chain integration. Wormhole plans to integrate zero-knowledge
proofs (“ZKPs”) in an upcoming upgrade to improve the trust assumptions of the
protocol, offer trustless verification of messages, and adopt permissionless
integration. Interoperability protocols, such as Wormhole, are set to become
increasingly important over the next few years as rollups and appchains increase
in popularity, as well as developers and users become more dependent on
solutions that abstract away friction, reduce liquidity fragmentation, and
increase composability.


OVERVIEW

Wormhole is a suite of open-source, permissionless protocols used to move assets
and queries across blockchains.  Despite being a common misconception, Wormhole
is not just a token bridge. Nevertheless, protocols can build token bridges on
top of Wormhole by leveraging the cross-chain messaging provided.

The Wormhole protocol offers four distinct products:

 * Wormhole Messaging: Wormhole’s main offering—a decentralized cross-chain
   messaging protocol that other protocols can build on top of.
 * Wormhole Connect and SDK: toolkits that allow developers to integrate bridges
   that leverage Wormhole Messaging. 
 * Wormhole Queries: allows developers to query data on chains supported by
   Wormhole.
 * Wormhole Gateway: a purpose-built, application-specific blockchain using
   Cosmos SDK to connect Wormhole-supported chains to the Cosmos ecosystem.


WORMHOLE MESSAGING

Wormhole, at its core, is a generalizable cross-chain message-passing protocol.
Initially, Wormhole was designed as a cross-chain token wrapping and swapping
protocol between Solana and Ethereum. Since this original design and
implementation, Wormhole has expanded to become a cross-chain messaging layer,
which not only allows token wrapping and swapping between chains but also
enables external protocols to build on top of it by leveraging Wormhole’s
cross-chain state attestation model and messaging.

As a cross-chain messaging protocol, Wormhole Messaging serves as foundational
infrastructure that developers can build on top of. Messaging provides the basic
language and framework to send data securely between two systems that aren’t
compatible. At the same time, protocols on top can fulfill other use cases, such
as token bridges (e.g. Portal, Allbridge), cross-chain DEXs (e.g. Mayan Swap,
Hashflow), and money markets (e.g. Pike, Synonym). 


ARCHITECTURE

Wormhole Messaging is made up of four core pillars: the core contracts,
Verifiable Action Approvals (“VAAs”), the Guardian Network, and Relayers. The
Core Contracts are used to emit messages across chains supported by Wormhole.
They exist on each chain supported by Wormhole. Guardians are required to
observe these core contracts and pick up emitted messages as an Observation.

When a smart contract on a source chain wants to communicate with a  target
chain, it interacts with the Core Contract on the source chain by triggering a
specific function to emit a cross-chain message. The Core Contract logs these
interactions as events in a transaction log.

The cross-chain message and relevant metadata are contained in a VAA, a data
packet. The metadata includes information regarding the originating chain, the
target chain, and the sequence number. After a message is emitted, it must be
validated by the Guardian Network, an external group of nodes operated by 19
whitelisted validator companies. Each Guardian operates a full node for every
network that Wormhole supports.

The Guardian Network independently monitors transaction logs of Core Contracts
and uses supermajority consensus (13 out of 19) to agree on the state of a
message before signing it. Once Guardians reach a consensus, they collectively
sign the VAA, attesting to its authenticity, and then gossip their signed
messages over a peer-to-peer network.

Relayers pick up signed VAAs, transmit them from the originating chain to the
target chain, and submit them to the core contract on the target chain. The
relayer is a web service that listens for messages that Guardians have signed
and emits them onto target chains. Relayers are mostly application-specific,
meaning that applications built on top of Wormhole usually run their own relayer
for the messages of the application. When users create a transaction on the
source chain, they pay a fee, of which a relayer uses a portion to pay for gas
fees on the target chain and keeps the remainder as a tip. Relayers are not able
to alter the content of VAAs, with the core contract on the target chain
processing the VAA.

 




ZK PROOFS

Today, Wormhole Messaging heavily relies on the Guardian Network. The Guardian
Network's purpose is to distribute control amongst a network of trusted,
professional parties to avoid centralized and concentrated decision-making. The
Guardian consensus mechanism is based on a multisig approach, potentially
leading to issues if a supermajority of the 19 validators is compromised, as
invalid messages could be sent to the target chain. Additionally, if more than
1/3rd of Guardians are offline, cannot sign a message, or choose to censor a
message, consensus will not be achieved, affecting the liveness of the protocol.
Although such issues are rare when it comes to professional validators,
Dymension recently failed to reach consensus as Chorus One—also a Wormhole
Guardian—ran into node issues that disrupted its ability to participate in
consensus.

Wormhole plans to integrate ZKPs in an upcoming upgrade to improve the trust
assumptions of the protocol. The goal is to offer trustless and permissionless
verification of messages and achieve permissionless integration capabilities. As
of now, the Guardian Network is relied on for verification and integration since
Guardians need to run full nodes on each supported network. 

ZKPs will allow for the attestation of the source chain onto the target chain
using block headers. Guardians can validate these ZKPs to ensure that no invalid
proofs are submitted and test state from different chains.

Recently, the Wormhole Foundation has begun to onboard engineering teams, such
as Lurk Labs and Zpoken, to research and develop ZKPs and cryptography to be
integrated into the protocol. In addition, the Foundation announced that it will
be partnering with AMD to source hardware and hardware accelerators, as well as
introduce light clients for users and developers to self-verify state.

Wormhole Messaging Use Cases

As mentioned previously, Wormhole Messaging is the foundational, generalizable
message-passing layer upon which other protocols can build on top of. The most
popular type of protocol to build on top of Wormhole is related to token
bridging. Two prominent examples are Portal and the USDC Bridge.



Portal is a token bridge built by the xLabs team and uses Wormhole’s messaging
protocol to implement a lock-and-mint process to transfer assets between chains.
Unlike a burn-and-mint process, where assets on the source chain are burned, a
lock-and-mint process boils down to assets being locked in a smart contract. A
wrapped version of the token (an IOU) is then minted on the destination chain.
Portal allows users to bridge any token between chains supported by Wormhole. As
of February 18th, Wormhole supports 42 blockchains (including testnets).

The USDC bridge, built by Circle, enables bridging USDC without gas fees between
CCTP supported chains. CCTP uses a burn-and-mint process and supports Arbitrum,
Avalanche, Base, Ethereum, Noble, OP Mainnet, and Polygon PoS, with support for
Solana expected to be added soon.

Apart from token bridges, Wormhole’s messaging layer can also be used for NFT
bridging. The most popular example of this is the migration of DeGods and y00ts,
which initially relocated from Solana to Ethereum and Polygon, respectively.
This migration was through Wormhole using a burn-and-mint process. NFT holders
on Solana burned their original NFT via a smart contract and redeemed their
newly minted ERC-721 on Ethereum and Polygon directly within their wallets. 

Although the most popular use case for Wormhole currently is asset bridging, the
protocol also enables other, more mature use cases, such as cross-chain
governance and oracles.

For example, Uniswap leverages Wormhole for cross-chain governance. Uniswap
Governance is on Ethereum Mainnet, meaning that decisions are made on Ethereum
through token votes. However, Uniswap exists across many chains, including L2s
and alt-EVMs. Within these deployments, holders must able to participate and
inherit governance decisions made on Ethereum Mainnet. This can be done in a
decentralized manner through Wormhole’s messaging layer, which enables Uniswap
governance to send data from Ethereum Mainnet to target chains.

Another relevant use case for Wormhole is its utilization by Pyth. Pyth is a
low-latency, pull-based oracle network that provides price feeds across multiple
chains. Pyth uses Wormhole’s messaging layer to send price feeds and data
cross-chain. Pyth receives data from market makers, financial institutions,
etc., who broadcast price feeds to Pythnet—a fork of the Solana SVM—with the
sole purpose of aggregating price feeds from different publishers. Wormhole
enables Pyth to deliver these price feeds cross-chain to dApps on all
Wormhole-supported chains by collecting the aggregated data and bridging it
across chains.


WORMHOLE CONNECT AND SDK

Wormhole Connect is a frontend-embeddable widget that allows developers to
easily integrate bridges that leverage Wormhole Messaging. 

Wormhole Connect enables in-app bridging, gasless and gas-dropoff (only pay gas
on the source chain) transfers, and the ability to bridge assets between
different blockchains without leaving the application.

The Wormhole SDK is a separate product from Wormhole Connect, while allowing for
the same functionality, with more effort and implementation. Similarly to
Connect, the Wormhole SDK allows developers to interact with chains supported by
Wormhole and build protocols on top of Wormhole Messaging through provided
TypeScript modules.

Wormhole Queries

Prior to the introduction of Wormhole Queries, accessing state data from another
blockchain required deploying smart contracts onto that chain to periodically
"push" (publish) data. Wormhole Queries is an alternative method for querying
cross-chain data by providing a “pull” mechanism for users to request
information and receive attestations from Wormhole Guardians.  This process is
comparatively quicker and cheaper, with pull queries reducing gas costs by
~84%.  

Instead of relying on Guardians to publish data, developers can submit queries
to the Guardian Network and retrieve state data from supported blockchains. When
a query request is submitted to the Guardian network, guardians listen for
requests, submit them to the desired chain by executing against RPC nodes,
receive the results, and then validate and return the requested data. The result
is an attested response.


WORMHOLE GATEWAY

Gateway is an application-specific blockchain built using the Cosmos SDK, with
the primary purpose of expanding access to and bringing liquidity within the
Cosmos ecosystem by making it easy for non-IBC assets to be bridged to Cosmos.
Gateway allows for Wormhole to connect to all Cosmos L1s without the need for
each Guardian to run a full node on each Cosmos chain, which is more
resource-efficient. It’s important to note that Gateway is not a competitor to
the Inter-Blockchain Communication Protocol (“IBC”) but instead utilizes IBC by
acting as a router for IBC transfers of Wormhole xAssets between Cosmos chains.

Through Gateway, users and entities can bridge any token from Wormhole-supported
chains to Cosmos chains through the Gateway blockchain. When a token is bridged
to Gateway, it is locked in a smart contract, and a new ICS-20 token is minted
using a VAA message transmitted to Gateway via a relayer. The minted ICS-20
token is fungible across all Cosmos chains through IBC through Strangelove’s
packet-forward-middleware. This IBC middleware module routes IBC packets from a
source chain to a destination chain. 

The newly minted ICS-20 token is then sent to the destination chain using the
IBC Protocol. Wormhole uses the IBC Translator contract to transform Wormhole
Token Bridge messages into ICS-20 messages. 

With Gateway, Wormhole also introduced a new module called Global Accountant,
which works to improve Wormhole’s core architecture and enhance its security.
The Global Accountant is a CosmWasm-based accounting contract built directly
into Gateway. It enables Guardians to store a record of all bridge transactions
on Gateway’s public ledger and runs checks against this ledger to ensure that
assets bridged out of one chain never exceed the number of assets bridged in.
This effectively mitigates the risk of an exploit resulting in an infinite mint
from draining the Wormhole protocol via cross-chain contagion and works to
protect all of Wormhole’s connected chains.


W TOKEN

Wormhole recently announced that they will be launching their native token W. W
will be used to influence the protocol's direction, including decisions like
adding/removing blockchain connections, upgrading smart contracts, adjusting
fees, and more.

W has a total supply of 10B and an initial circulating supply of 1.8B (18%). The
token will launch as both a native ERC-20 (Ethereum) and SPL (Solana), using
Wormhole’s Native Token Transfer standard.

The initial token distribution is shown below:



The W airdrop, categorized under "Community and Launch," will comprise of a
majority of the initial circulating supply and 17% of the total supply, with 11%
of this allocation unlocked at TGE. The exact criteria for the airdrop have not
yet been announced. However, a significant portion will likely be allocated to
those who have used applications powered by Wormhole’s Messaging, such as Mayan
Finance, Portal, Hashflow, and more.

The remaining 82% of the locked supply will be gradually released over 4 years.


RISKS

Typically, interoperability and cross-chain messaging protocols come with
significant risks, particularly when it comes to exploits. Token bridges, one of
the most popular use cases of cross-chain messaging protocols, have a large
surface area for attacks, and hold large amounts of tokens across multiple
chains, which make them attractive targets for exploiters.

However, as outlined by Uniswap DAO's third-party bridge assessment, Wormhole
has strong security measures and a mature codebase. Although the set of 19
validators may seem small at first, it is an improvement in terms of
decentralization compared to some other interoperability alternatives.
Additionally, the Guardians are not only putting their capital at stake, but
also their reputation. Despite the relative inefficiencies of the Guardian
Network, which arise from the requirement of supermajority votes to implement
changes and having to run full nodes on every Wormhole-supported chain, the
network has been designated as relatively safer compared to alternatives by the
Uniswap DAO.

Apart from smart contract and exploit risks, Wormhole also faces competition
risk. Although many protocols are built on top of Wormhole, and they have
integrated more than 40 EVM and non-EVM chains,  the interoperability sector is
competitive, especially as teams like Axelar and LayerZero both have comparable
tech stacks and integrations. However, Wormhole has established itself as the
most popular interoperability solution on non-EVM chains such as Solana and Sui,
and is deeply ingrained in the Solana ecosystem, which gives it a competitive
advantage on these chains. Additionally, Uniswap choosing Wormhole for
cross-chain governance should highlight that developers are actively choosing to
integrate Wormhole over competitors. 

One important note is that Wormhole needs to become more active in the RWA
space. Both Axelar and LayerZero boast RWA integrations, Axelar with Ondo
Finance specifically, and both Axelar and LayerZero took part in a
proof-of-concept private-public chain interoperability demonstration with JP
Morgan. 


FINAL THOUGHTS

Interoperability protocols, such as Wormhole, will likely become increasingly
important over the next few years. Since Ethereum has chosen to scale its
execution layer through rollups, it's likely that in the next few years there
will be a plethora of L2s and appchains launching, as developers and protocols
seek to increase the utility of their native tokens. Wormhole will likely
benefit from this, as users and developers rely on composability and
interoperability and need to reduce the inefficiencies that come with fragmented
liquidity. As modularity adds friction, protocols like Wormhole, which focuses
on abstracting away bridging and other UX issues, will become increasingly
important.

In addition to the need for interoperability between permissionless platforms,
Wormhole could become a major beneficiary of interoperable tokenized assets
gaining more popularity between private (permissioned blockchains run by
institutions) and public chains (such as Ethereum, Solana, etc.). We will likely
see Wormhole increasingly move into the RWA space, given that the potential
volume and value secured for tokenized assets is extremely large.

This research report has been funded by Wormhole Foundation. By providing this
disclosure, we aim to ensure that the research reported in this document is
conducted with objectivity and transparency.  Blockworks Research makes the
following disclosures: 1) Research Funding: The research reported in this
document has been funded by Wormhole Foundation. The sponsor may have input on
the content of the report, but Blockworks Research maintains editorial control
over the final report to retain data accuracy and objectivity. All published
reports by Blockworks Research are reviewed by internal independent parties to
prevent bias. 2) Researchers submit financial conflict of interest (FCOI)
disclosures on a monthly basis that are reviewed by appropriate internal
parties. Readers are advised to conduct their own independent research and seek
the advice of a qualified financial advisor before making any investment
decisions.

 

 

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Boccaccio

Jr. Research Analyst

Index
 1. Overview
 2. Wormhole Messaging
    1. Architecture
    2. ZK Proofs
 3. Wormhole Connect and SDK
 4. Wormhole Gateway
 5. W Token
 6. Risks
 7. Final Thoughts

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