DeFi enabled Ethereum bridge for Cosmos – Althea

By April 6, 2020Ethereum
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In this post we outline a vision of the Ethereum ↔ Cosmos bridge (Peggy) that allows token holders to make arbitrary DeFi investments with liquid bridge capital.

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Like other transaction processing platforms, similar to VISA or Stripe, it’s fiscally advantageous for the token holders of a Cosmos zone operating Peggy to leverage the liquidity locked in the bridge to collect interest. With the rise of decentralized finance (DeFi) and, in particular, the Dai Savings Rate (DSR) this sort of high liquidity, low risk investment required is now available to everyone in the Ethereum ecosystem. Through the Peggy bridge, this functionality could soon be used by anyone with a Cosmos zone as well.

Peggy, the Cosmos Ethereum bridge, is a way to bridge arbitrary Ethereum ERC20 assets, like Dai, to Cosmos zones, or to bridge Cosmos assets like ATOM to Ethereum.

Technical overview

Peggy is a bridge made up of an Ethereum contract, which stores the full validator state and a Cosmos module run by the validators to produce updates and send transactions to and from Ethereum.

In the most basic sense, the Peggy Ethereum contract is simply a multi-sig wallet controlled by the current Cosmos validator set plus some automation. There’s nothing stopping the validators of the Cosmos hub from getting together right now, deploying a boring old multisig, and simply running a bridge by hand. Of course, voting on each deposit and withdraw manually, while possible in theory, is impossible in practice. It is the automation provided by the Cosmos module which makes a bridge a viable tool.

In that sense, DeFi investment is just another set of rules and automation for the bridge. Not a giant leap in technology, but instead, of perspective.

We propose that the Peggy Cosmos module provide its own machine-readable and automatically actionable governance proposal format for the investment of bridge capital into arbitrary D...

Photo by NASA […]

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