Perfect Fungibility
xERC-20 creates a unified token standard that any whitelisted bridge can issue.
Everything you need to understand the xERC-20 standard.
xERC-20 (EIP-7281) is an open token standard that solves the security and liquidity problems associated with bridged tokens.
Ethereum’s fungible token standard (ERC-20) was designed for a single chain world. A modular world relies on bridges to move assets between smart contract platforms.
In our current multi-domain environment, each bridge mints assets according to its own token standard. This creates incompatibility between bridged tokens which leads to:
The solution to the fragmentation problem is for the industry to align on a single bridged token standard.
Aligning on a standard is not easy. Bridge providers are incentivized to promote their own proprietary token standard as the solution so that they can create network effects built around proprietary lock in. However, relying on a single bridge provider sacrifices an asset’s sovereignty. There are two components to this:
If the industry consolidates around a single bridge, we introduce a single point of failure and potential censorship risk to our decentralized systems.
Asset fragmentation is an existential threat that we must solve without forcing asset issuers to sacrifice on sovereignty. This is the idea behind the xERC-20 token standard.
Originally proposed by the Connext team, xERC-20 (EIP-7281) is an extension to the ERC-20 token standard that adds bridge whitelisting and rate limiting features. Bridge whitelisting allows assets to minimize their bridge risk while bridge rate limiting allows assets to limit the risk tied to any specific bridge. Each of these can be configured dynamically by the asset issuer.
xERC-20 can work with both canonical rollup bridges and third party bridge providers. Bridges that are authorized to mint through an xERC-20 contract all mint the same version of the token, creating compatibility and eliminating fragmentation.
This inverts the power dynamic between bridges and asset issuers — it ensures that the asset issuer always maintain ultimate control of their asset and removes dependencies on any specific bridge. Bridges are now forced to compete on security rather than liquidity.
Asset issuers can choose to deploy a new token natively as an xERC-20 token, just as they would deploy an ERC-20 token. Alternatively, existing ERC-20 tokens can be converted to the xERC-20 standard using a “Lockbox” contract. The Lockbox wraps tokens into the xERC-20 standard and returns them 1:1.
When deploying an xERC-20 or a Lockbox contract, asset issuers authorize bridge contracts to be added to a whitelist. To mitigate the negative impacts of bridge hacks, rate limits can be used to control the amount of tokens that may be minted by each bridge every day. The whitelisting and rate limiting settings can both be configured by the contract owner over time. Alternatively, the upgrade keys may be burned, thereby permanently freezing the list of authorized bridges and their respective rate limits.
xERC-20 creates a unified token standard that any whitelisted bridge can issue.
Canonical bridges and any third-party bridge can all be whitelisted.
Asset issuers maintain control across any smart contract platform and can minimize bridge risk according to their own desires.
Asset issuers can control risk at a granular level using bridge whitelists and rate limits. Each setting can be configured over time. Alternatively, upgrade ability can be removed.
Multiple standards will become too difficult to maintain as the modular world expands. A single standard is the best way to scale across many smart contract networks.
Just like ERC-20, xERC-20 is an open standard created by the Ethereum community and is not value extractive.
| xERC-20 | Proprietary Token Standards (OFTs, ISTs, etc.) | |
|---|---|---|
| Fungibility Between Bridges | Yes — all whitelisted bridges mint fungible tokens | No — tokens issued by separate bridges are not fungible |
| Bridge Support | All bridge providers (including canonical) | Single bridge provider |
| Sovereignty | Asset issuers retain sovereignty from bridges | Bridges have power over asset issuers |
| Security Control | High — bridge whitelisting and rate limiting | Low — set by bridge provider |
| Burn-and-Mint Model | Yes | Yes |
| Lock-and-Mint Model | Yes | Yes |
| Zero Slippage | Yes | Yes |