Clip Finance Decentralized Solver Network Litepaper
TLDR
Core Concept
Clip Finance is democratizing access to cross-chain transaction fulfillment through decentralized solver pools, addressing the fragmentation of liquidity across blockchain networks.
Benefits
Uniting Blockchains:
Solves liquidity fragmentation across chains
Enables seamless cross-chain transactions for users
New Yield Opportunities:
Users can stake in decentralized solver pools
Earn yield from real actions and capital utilization, not just token emissions
Enhanced User Experience:
Simplifies cross-chain interactions
Reduces the need for users to understand complex blockchain technicalities
Key Technical Elements
Decentralized Solving Architecture:
Proposer Nodes (open source): Monitor events, generate and sign transaction proposals
Central Validator Node: Validates proposals, aggregates signatures, and executes transactions
Secure Key Distribution: Utilizes threshold ECDSA for distributed key generation and management
Multi-Party Signing Process: Enables secure, decentralized transaction authorization
Usefulness for Blockchain Users
Access to Better Liquidity: Tap into a unified pool of liquidity across multiple chains
Improved Transaction Efficiency: Benefit from optimized cross-chain transactions
New Investment Strategy: Participate in solver pools for potentially higher, more sustainable yields
Reduced Complexity: Interact with multiple blockchains more easily
Benefits for Blockchains
Increased Interoperability: Facilitates easier movement of assets and data between chains
Enhanced Liquidity: Improves overall ecosystem liquidity by connecting fragmented pools
User Growth: Attracts more users by simplifying cross-chain interactions
Innovation Catalyst: Encourages development of cross-chain applications and use cases
Clip Finance's Unique Approach
Democratizes access to a previously exclusive market of cross-chain transaction fulfillment
Introduces a more sustainable yield model based on actual capital utilization
Aligns incentives between users, liquidity providers, and the broader blockchain ecosystem
Conclusion
Clip Finance is pioneering a new paradigm in cross-chain interactions, offering a solution to liquidity fragmentation while providing users with novel ways to earn yield. This approach not only benefits individual users but also contributes to the overall growth and efficiency of the blockchain ecosystem.
Litepaper
Abstract
Cross-chain transaction fulfillment is currently centralized due to the complexity of developing competitive solvers. While lucrative, this high barrier to entry creates a gatekeeping effect. This concentration hinders solving liquidity fragmentation issues and unlocking the full potential of cross-chain liquidity, ultimately impeding broader blockchain ecosystem growth.
Clip Finance is democratizing access to a previously exclusive market, empowering liquidity providers to tap into the lucrative yields generated from fulfilling cross-chain transactions while helping solve the broad liquidity fragmentation problem.
Introduction
Intent solver pools are the gateway to onboarding more liquidity into intent networks, enhancing their ability to process transactions of any size with equal speed and efficiency. Building intent solver pools presents multiple challenges, from decentralizing control of funds to maintaining competitiveness against other solvers competing for the same transactions. Unlike simpler processes such as staking ETH to secure the network through services like Lido, these pools require dynamic node updates to enhance performance. This unique landscape creates both opportunities and challenges, which we will explore in detail throughout this litepaper.
State of Relayers/Solvers today
Based on our observations, current solver networks are predominantly operated by a small group of individuals and institutions. These operators are earning substantial returns, significantly outperforming classical yield pools. Despite the lucrative nature of solving, the barrier to entry remains high due to technical complexity. It additionally requires significant liquidity to cover operational expenses and remain profitable, which further reinforces the barrier to entry. We believe that this could impede the overall intent network growth if the increase in cross-chain transaction demand outpaces the growth in solver capacity. This imbalance suggests that the current state of solver networks may be hindering the full realization of cross-chain liquidity potential and, by extension, the broader thesis of scaling blockchains through modularity.
Further confirming these observations, our deeper look into solver networks of Across protocol reveals intriguing dynamics. We've noticed strong competition among community-run solvers, who tend to focus on transactions below $10,000. Surprisingly, these transactions are often solved at a loss or breakeven, with unclear motivations driving this behavior. The competition is so intense that solvers operate on razor-thin profit margins. In fact, we've observed scenarios where a solver needs to successfully complete three profitable transactions just to cover the cost of a single failed transaction. This hyper-competitive environment raises questions about long-term sustainability and the evolving incentive structures within solver networks. Revealing that operating solvers purely for solving intents as a standalone business model is putting you at a disadvantage. Algorithmically it is not a difficult task compared to looking for optimal swap routes for example.
The additional risk consideration is dependability on the order flow of the intent network the solver is solving for. If one day the decision is to channel all orders to a specific network, it will cut the solver off from the earning opportunities.
In conclusion, solving for intent networks delegates capital risk to the solvers themselves. This risk stems primarily from potential transaction failures due to competition with other solvers and the possibility of chain reorganizations. Solvers face a critical trade-off: waiting for more chain confirmations enhances security but reduces speed competitiveness while prioritizing speed by acting on fewer confirmations exposes solvers to higher security risks and potentially unprofitable transactions. This balance between speed and security is crucial to the solver's operational strategy and overall viability in the network.
Sustainable participation in solving and relaying.
To achieve sustainable participation in solving and relaying, a paradigm shift is necessary. Our analysis reveals several key strategies:
User Ownership and Exclusive Relaying:
Owning the user relationship is essential for long-term sustainability in the solving and relaying ecosystem. As Clip Finance, we are able to enable users to move capital while acting as their exclusive relayer. Building relationships with other cross-chain protocols through revenue-sharing concepts, either via direct solver network integration (like Router or Across) or by creating our own SDK for them to integrate. This approach not only ensures a steady stream of transactions but also allows for better risk management and customized user experiences.
Universal Liquidity Coordination Protocol:
Clip Finance's user-facing interface will act as a universal liquidity coordination protocol that aggregates various yield strategies and offers one-click intents. This protocol will enhance the user experience by providing a unified interface with three primary actions:
Allocation: Enabling one transaction cross-chain allocation into & between yield strategies
Swap: Facilitating seamless asset exchanges within and across chains.
Bridge: Enabling efficient cross-chain transfers of assets.
By consolidating these functions into a single, intuitive interface, we aim to simplify complex DeFi operations for users while maintaining control over the relaying process.
Leveraging Deep Liquidity for Competitive Advantage:
Operating with deep liquidity allows solvers to sidestep the highly competitive landscape of small-margin transactions. Instead of engaging in cutthroat competition for high-volume, low-profit transactions, deep liquidity enables solvers to focus on transactions that others cannot solve due to a lack of capital. This strategy emphasizes quality over quantity, targeting complex, high-value transactions that require substantial liquidity and sophisticated execution.
By concentrating on these more challenging transactions, solvers can:
Maintain higher profit margins
Reduce the risk associated with failed transactions
Establish a niche in the market for handling complex, high-value intents
Build a reputation for reliability and efficiency in executing difficult transactions
Risk Mitigation Through Protocol Design:
The proposed protocol will incorporate risk mitigation strategies at its core. By controlling the entire process from user intent to execution, we can implement sophisticated risk assessment models and liquidity management techniques. This approach will help balance the need for quick execution with the requirement for transaction security, reducing the exposure to chain reorganizations and other blockchain-specific risks.
Scalability and Network Effects:
As the protocol attracts more users who build habits and perform their DeFi activities in a single place as well as liquidity, it will benefit from strong network effects. Increased liquidity will enable the handling of larger and more complex transactions, attracting more users and creating a virtuous cycle of growth. This scalability will be key to long-term sustainability in the evolving DeFi landscape.
By implementing these strategies, we aim to create a sustainable model for participation in solving and relaying that benefits all stakeholders - from individual users to large-scale liquidity providers. This approach not only addresses the current challenges in the solver network ecosystem but also paves the way for building a sustainable DeFi protocol, aligned with the broader thesis of scaling blockchains through modularity.
In conclusion in order to maintain competitive advantage you need to secure as many touch points closest to the user where user intent is allocated exclusively to our Relayer. Who controls the order flow controls who is earning profits. In addition, you need to maintain deep liquidity which will enable solving large transactions. This liquidity can be built with solver pools.
A Path to Decentralized Solver Pools
Security Considerations and Decentralization Challenges
To decentralize solver pools, we face several critical security considerations and operational challenges. Our observations and analysis have led us to identify key areas that require innovative solutions to maintain security, efficiency, and decentralization.
Solvers designated for bridging transactions for Across and Router protocol are predominantly operated as Externally Owned Accounts (EOAs). Moving it into a smart contract style multi-signature “Wallet” will decrease gas efficiency as it will introduce another external contract call. Therefore we have chosen to decentralize our EOA through multi-signature key generation which involves multi party participation.
Decentralized Solving Architecture
Our decentralized solving system is designed with two primary components: Proposer Nodes and a Central Validator Node. This structure enhances efficiency and maintains security while allowing for third-party auditability.
Proposer Nodes (Open Source)
Monitor intent events on the origin chain
Upon detecting a relevant event, generate a transaction proposal
Sign their part of the multi-signature
Send the proposal with a partial signature to the Central Validator Node
Central Validator Node (Closed Source)
Receives and validates transaction proposals from Proposer Nodes
Verifies that the proposed transaction matches the original intent event
Aggregates signatures from Proposer Nodes
Makes final decisions on transaction parameters (gas price, execution speed)
Executes the validated and fully signed transaction
Flow of Decentralized Solving
Proposer Nodes continuously monitor the blockchain for intent events.
When an event is detected, a Proposer Node creates a transaction proposal and partially signs it.
The proposal is sent to the Central Validator Node.
The Central Validator Node verifies the proposal against the original event.
If valid, the Central Validator aggregates signatures from multiple proposal nodes and finalizes transaction parameters.
The fully signed transaction is then submitted to the destination chain.
This maintains decentralization through multiple Proposer Nodes while centralizing final validation and execution for efficiency.
The open-source nature of Proposer Nodes allows for community verification and auditing, while the closed-source Central Validator protects proprietary strategies and execution logic.
Secure Key Distribution and Management Process
Enabling this process requires an element of secure key distribution and management. Distributing private key shares securely to multiple participants while ensuring no single entity can reconstruct the full key. One of the considerations is the implementation of advanced secret-sharing techniques, possibly leveraging Shamir's secret-sharing. Regular key rotation and participant verification will be part of a routine process to onboard more validator nodes and increase security.
Our current consideration is to implement a threshold signature scheme to ensure secure and decentralized key management. Here's how it would work:
Distributed Key Generation: Instead of generating a single private key, we use a threshold ECDSA (Elliptic Curve Digital Signature Algorithm) scheme. This process creates key shares for all participants without ever constructing the full private key on any single device.
Threshold Signature: The system is set up so that only a subset of signers is required to create a valid signature. This provides both security and flexibility, as not all signers need to be available for every transaction.
Partial Signing: When a transaction needs to be signed, each participating signer creates a partial signature using their key share. These partial signatures are then encrypted using homomorphic encryption.
Homomorphic Combination: The encrypted partial signatures are combined using homomorphic addition. This crucial step allows the signatures to be aggregated while remaining encrypted, ensuring that individual partial signatures are never exposed.
Final Decryption: Only after the combination is complete is the final signature decrypted, revealing the complete signature that can be used to execute the transaction.
This process ensures that the full private key is never reconstructed in any single location, significantly enhancing security. It also allows for flexible and efficient signing, as only a subset of signers is needed for each transaction. The use of homomorphic encryption serves a dual purpose: it adds an additional layer of security by protecting the partial signatures throughout the combination process, and crucially, it enables precise detection of any signers who abort or fail to participate correctly in the transaction signing.
By implementing this advanced cryptographic technique, we create a system that is both highly secure and operationally efficient. It balances the need for decentralization with the requirements for speed and reliability in transaction processing, while also providing a robust mechanism for accountability and fault tolerance. This approach allows us to swiftly identify and respond to potential signing failures, maintaining the integrity and performance of the decentralized signing process even in the face of individual signer issues.
Multi-Party Signing and Validation Process
What Participants Are Signing
When we have byte data that needs to be signed by multiple nodes before execution, the participants typically sign a hash of the transaction data, not the raw byte data itself. Here's the process:
Transaction Data Preparation: The original byte data (which could include transaction details like recipient address, amount, nonce, etc.) is prepared.
Hashing: This byte data is hashed using a cryptographic hash function. This produces a fixed-size hash that uniquely represents the transaction data.
Signing the Hash: Each participant node signs this hash using their part of the distributed private key (their key share in the threshold signature scheme).
Validation Process
To ensure that the signed byte data is indeed correct, we implement several validation steps:
Hash Verification:
The executor (and each signing node) independently hashes the original byte data.
They compare this hash with the hash that was signed. If they match, it confirms that the signed data hasn't been tampered with.
Signature Aggregation and Verification:
The executor collects the partial signatures from the signing nodes.
Using the threshold signature scheme, these partial signatures are combined to create the full signature.
The executor then verifies this full signature against the public key of the multi-sig wallet.
Quorum Check:
The system ensures that the required number of signers have provided their signatures.
Joining as a Validator: Ensuring Network Security and Reliability
For entities looking to become validator nodes in our intent solver network, we've established a straightforward process that maintains network security and incentivizes reliable operation:
Application Submission: Prospective validators submit applications to join the network. These applications include basic information about the entity and its capacity to operate a validator node.
DAO Review and Voting: DAO reviews the applications and conducts a vote to determine whether a specific validator will be accepted to join the network. This process ensures decentralized decision-making in validator selection.
Staking Mechanism: Accepted validators must stake a predetermined amount of Clip Tokens. This stake serves two primary purposes:
Economic Security: By requiring validators to lock up valuable assets, we create a financial disincentive for malicious behavior in the intent-solving process.
Performance Incentive: The stake also serves as collateral against poor performance, encouraging validators to maintain high uptime and accuracy in processing intents.
Slashing Mechanism: We implement a slashing mechanism to penalize misbehavior:
Slashing involves the confiscation of a portion of a validator's staked tokens.
In our intent solver network, slashable offenses include fraudulently aborting transactions or consistently failing to validate intents accurately.
The slashing amount is calculated based on the amount of lost profit.
This system of staking and slashing creates a self-regulating network where validators are economically incentivized to act in the best interests of the Clip Finance ecosystem, ensuring reliable and secure cross-chain transactions.
Secure Capital Allocation For Decentralized Solving
Our system implements a secure method for managing capital flow between users and decentralized solver nodes:
Smart contracts serve as the initial point of interaction for users, accepting deposits and issuing staked ETH rebase assets which are redeemable 1:1 for the original asset. This creates a secure entry point for user funds into the solving ecosystem.
Since solving requires holding funds in Externally Owned Accounts (EOAs) operated by decentralized nodes, we've developed an automated process to securely move capital between smart contracts and these nodes. This automation is crucial for maintaining both security and operational efficiency.
Proposer nodes continuously monitor the blockchain for withdrawal events. This event monitoring is similar to how bridge nodes operate in cross-chain systems, ensuring real-time awareness of capital movements.
When a user makes a deposit, the funds are automatically channeled to the node address for use in solving operations. For withdrawals, the process is more complex:
Proposer nodes listen for withdrawal requests.
They create batch withdrawal proposals based on the time sequence of requests.
These proposals are sent to the validator node.
Validator nodes, having independently observed the same withdrawal requests, validate the proposal and execute it.
To ensure transparency and foster trust, all event-tracking components of our system are open-sourced. We consider this functionality fundamental and not a competitive differentiator. This approach allows for community verification of the capital movement process and encourages collaborative improvement of the system.
This comprehensive approach to capital allocation ensures that funds are securely managed throughout the solving process, from user deposit to withdrawal, while maintaining the decentralized nature of the network.
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