XCLAIM: Polkadot’s trustless and interoperable Cryptocurrency-Backed Assets

Despite the growing crypto ecosystem blockchains continue to operate in complete isolation from each other, as the trading protocols do not offer the possibility for interactive cross-chain communication or data exchange. For this reason, users prefer centralized exchanges to transfer assets across different blockchains. The purpose of a blockchain is undermined with centralized services based on trust. To be able to transfer assets trustless, decentralized exchanges/protocols have emerged. The only known standard so far is the Atomic Cross-Chain Swap (ACCS). This method has been implemented at a few DEX’s since 2012. ACCS however, suffer from significant limitations in speed, cost and are thus inefficient. These limitations will be negligible in the future with the revolutionary XCLAIM protocol.

The following article will introduce properties of Atomic Swaps “ACCS”. In addition, the architecture and protocols of XCLAIM are discussed. Furthermore, the comparison between Atomic Swap and XCLAIM is described.

Atomic Swap “ACCS”

The Atomic Swap method is based on time locks, so-called “Hashed Timelock Contracts” (HTLCs). These enable a secure exchange of assets between different blockchains. Currently, this is the only trustless method. To ensure security, it requires some preconditions whereby the practicality is limited. Furthermore, ACCSs face various challenges, which are listed below:

  • Long waiting periods: Each swap requires two transactions per participating blockchain. This will increase the execution time.
  • High costs: Each transaction increases the costs.
  • Continuously connected: All parties have to actively monitor the blockchain throughout the transaction to ensure security during a swap. In the worst case, a failed swap may even result in the loss of the asset.
  • Out-of-Band Channel: For secure operation, additional security-critical data must be exchanged over a separate channel outside the blockchain “revocation commitments”.
  • Synchronization of clocks: ACCS uses time locks to ensure security during the transaction. The time is synchronized on the respective blockchain which, however, represents a challenge and a corresponding risk “race conditions”.

For each transaction, the specified challenges have to be processed all over again. Therefore, the ACCS process is inefficient.

Cryptocurrency-backed Assets (CBAs)

Regarding XCLAIM, it is important to know what cryptocurrency-backed assets (CBAs) are. CBA is an asset b, locked on blockchain B to issue cryptocurrency-backed asset i(b) on the blockchain I at a 1:1 ratio (Fig. 1).

To get a better understanding of the scientific placeholders (B,b,I,i(b)), the following definitions are fundamental for the whole article (Fig. 1):

blockchain B = Bitcoin blockchain

b = $BTC

blockchain I = ChainX blockchain (upcomming Polkadot parachain)

i = $PCX

i(b) = X-BTC 2.0 (CBA of ChainX)

Fig. 1: Blockchain and CBA overview (Source: ChainX D|A|CH)

The system architecture of XCLAIM

XCLAIM overcomes the limitations of centralization with the help of secure system architecture and uses traceable smart contracts, eliminating the need for 3rd party trustees. Chain relays are used for cross-chain verification (Fig. 2). The following section provides an overview regarding the XCLAIM concept:

  • Off-chain reporting: XCLAIM improves the performance of blockchain protocols by not publishing all transactions on the blockchain. Instead, transactions take place among participants off-chain where only the result is published on both blockchains (e.g. X-BTC 3.0).
  • Secure logging: Log data are created to track all user actions between blockchains.
  • Transaction Proof-of-Inclusion: Chain Relays are used to prove the correct behavior of block headers from blockchain B to I (Fig. 2).
  • N-Way Swaps: By extending the swap protocol in XCLAIM, users can swap multiple different assets within a single swap.
  • Multi-party Atomic Swaps: XCLAIM enables multi-party atomic swaps via smart contracts, allowing multiple ownership changes of CBAs x/y/z to be handled in a single transaction.
  • Temporary CBA Offloading: Bitcoin can be temporarily switched to CBAs on other blockchains during periods of high network utilization to avoid long transaction processing times.
  • Proof or Punishment: XCLAIM creates a publicly verifiable audit log of user actions on both blockchains and applies collateral and penalties to enforce correct participant behavior. It requires proactive proof of correct system behavior from all users (Fig. 2).
  • Over-Collateralization: Collateral deposit ensures there is no incentive for a Vault to behave incorrectly. If the Vault cannot prove the correct execution of a protocol, the deposited collateral is automatically used by the Smart Contract to compensate the user. Furthermore, a penalty fee is charged (Fig. 2).
Fig. 2: XCLAIM Smart Contract architecture (Source: https://eprint.iacr.org/2018/643.pdf edited by ChainX D|A|CH)

Security properties of XCLAIM in relation to CBAs

  • Auditability: Any user with reading access to blockchain B and blockchain I can audit the operation of XCLAIM and detect protocol errors.
  • Consistency: CBA i(b) will not be issued without the corresponding value of asset b being locked in 1:1 ratio |b| = |i(b)|.
  • Redeemability: Any user can redeem CBA i(b) into asset b on blockchain B or have asset i issued on the blockchain I.
  • Liveness: Any user can issue, transfer, and redeem CBAs without requiring a third party. The validity of an asset relies only on the secure operation of Blockchain B AND I.
  • Atomic Swaps: Users can swap CBAs for other assets i(b) on the blockchain I or into the native asset b.

Functional properties of XCLAIM

  • Scaling: The total amount of CBAs available in circulation increases with the number of assets locked in blockchain B. Each user can contribute to scaling by taking on the role of a Vault (Fig. 2).
  • Compatibility: XCLAIM does not rely on the implementation of cryptocurrencies with specific functionality. Instead, it allows asset i(b) to be issued on the blockchain I that supports smart contracts, backed by blockchain B that supports only basic Asset transfer between parties. Thus, XCLAIM can maintain significant backward compatibility with those existing blockchains that do not provide smart contract support such as Bitcoin.

XCLAIM protocol: Issue, transfer, swap, redeem

XCLAIM is the first generic framework that performs trustless cross-chain transactions using CBA’s. Four protocols are introduced to support decentralized, transparent, consistent, and atomic cross-chain transactions.

The following diagrams are based on the definition of Fig. 1 to evoke a better understanding.

  • Issue: The issue protocol enables Bitcoin-backed assets to be issued on the parachain (e.g. X-BTC 2.0). The basis for this is the locking of BTC in a 1:1 ratio into a Vault (Fig. 3).
Fig. 3: Issue protocol (source: ChainX D|A|CH)
  • Transfer: The transfer protocol allows users to transfer CBAs (e.g. X-BTC 2.0) across different parachains within the Polkadot ecosystem.
Fig. 4: Transfer protocol (source: ChainX D|A|CH)
  • Swap: The swap protocol allows CBAs (e.g. X-BTC 2.0) to be exchanged between users via different parachains.
Fig. 5: Swap protocol (source: ChainX D|A|CH)
  • Redeem: Via the redeem protocol, the CBA’s (e.g. X-BTC 2.0) on the Parachain are burned to get back the corresponding amount of Asset b out of the Vault.
Fig. 6: Redeem protocol (source: ChainX D|A|CH)

Through the protocols issue, transfer, swap, and redeem, users can perform trustless cross-chain actions.

Comparison of the XCLAIM framework with Atomic Swap “ACCS”

The comparison presented in this section out of the scientific article (XCLAIM p.12) refers to real XCLAIM trades between Bitcoin and Ethereum.

Identical conditions are present for the performance comparison of XCLAIM with HTLC Atomic Swap “ACCS”. The following results consist of an average of 1000 trades.

Each interactive Atomic Swap “ACCS” requires two transactions per blockchain, including negligible delay to prevent race conditions. For one trade, the process via ACCS takes about 146 minutes on average.

The execution of the complete XCLAIM protocols (issue ->swap -> redeem) requires two BTC and six ETH transactions. This process is performed once for a blockchain pair (e.g. BTC /ETH). This complete process takes about 158 minutes in total. After setting up the XCLAIM framework once with unmodified BTC/ETH relays, a trade for the user takes only about 6 minutes.

XCLAIM is 95% faster and 65% cheaper than ACCS for 1000 swaps (Fig. 7).

Fig. 7: Comparison of BTC/ETH via XCLAIM and HTLC ACCS for 1000 individual swaps (source: https://eprint.iacr.org/2018/643.pdf)

Note: A significant cost factor in XCLAIM (BTC,ETH) are the non-optimized BTC Relay maintainance fees (Fig. 7, “chainRelay only”), which e.g. account for 49% of the incurred cost for 1000 swaps.

In summary, this article introduced the XCLAIM framework and focused primarily on the system architecture as well as the security and functional properties. XCLAIM is a protocol for issuing, transferring, swapping, and redeeming cryptocurrencies between different blockchains using smart contracts.

The performance comparison of XCLAIM versus cross-chain swaps ACCS generally indicates a significant advantage.

This article was written by the ChainX D|A|CH group. The basic information is taken from the scientific article on XCLAIM: https://eprint.iacr.org/2018/643.pdf.

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ChainX is the largest Layer-2 network of Bitcoin, based on Substrate, and will evolve into the Polkadot Secondary Relay Chain.