Introduction

A core issue in bridging is that users don’t want to wait for source chain finality before receiving funds on their destination chain. Preeminent solutions to this issue implement intents-based architectures, where 3rd party solvers front users their capital to provide a fill on the destination chain and wait for source chain finality to receive payment from the user’s deposits, accompanied with a fee. While intents-based frameworks can offer the fastest fills for users, and have gained notable market share in aggregate bridge volumes, these frameworks embed their own issues with fragmenting solvers’ available liquidity across all supported destination chains. 

In order for a solver to provide fast, competitive fills on a myriad of destinations, they must hold an available balance of funds across all of the supported destinations. To quote the available routes, solvers must incrementally subdivide their balance sheets accordingly. As solvers must rebalance their capital across chains to hold inventory on in-demand routes, they incur transaction costs. Additionally, solvers may end up holding idle inventory on routes that lack demand. 

In a world of dozens or hundreds of chains, operating across multiple virtual machines, runtimes, and finality assumptions, this framework is not scalable. Every additional route must be supported by incrementally subdividing a solver’s balance sheet, ultimately leading to less available liquidity and higher transaction costs for solvers. These inefficiencies require solvers to quote higher fees to cover the associated costs, ultimately reducing the welfare of the end user. As such, this framework is not scalable into a multichain future. Wormhole Settlement presents a solution to scale solver liquidity into this multichain future.

The Settlement Engine

This engine uses a hub and spoke model, where Solana is the hub for liquidity. Solvers can aggregate their stablecoin liquidity on this one hub without needing to fragment their balance sheet across supported destinations. By concentrating solver’s balance sheets on Solana, the frictions and transaction costs associated with rebalancing across destinations are eliminated. Additionally, by concentrating liquidity on one venue, there is no idle inventory held on routes or destinations that lack demand. As such, this model presents solvers with a more capital efficient venue for filling intents-based order flow. By eliminating these associated fees and inefficiencies, solvers should be able to offer cheaper quotes, ultimately benefiting the end user.

The contract architecture on Solana functions as a Matching Engine, matching intents expressed by users across source chains with solvers willing to provide fills. A user who wishes to bridge signs a message on the source chain, subsequently locking up their funds as a deposit. This message containing the user’s intent is passed through the Wormhole Messaging protocol. These messages are received by the Wormhole Core contract on the source chain, and are monitored by the Wormhole Guardian Network. The Wormhole Guardian Network, a distributed set of 19 institutionally-run nodes that monitor the states of all supported blockchains, listens to these messages received by Core contracts. 

The Guardians independently observe these messages and produce a signature for the corresponding data payloads. Signatures for these payloads are aggregated as a multi-signature to reach the 13/19 supermajority consensus on the payloads. Once consensus has been reached on a particular payload, the messages and Guardian attestations are packaged into a data structure called a Verified Action Approval (VAA). The VAA functions as a proof of a message upon which the Guardians have reached consensus.

These VAAs that contain Guardian-verified instructions of the user’s intent are passed to the Matching Engine on Solana and observed by solvers. Anyone can permissionlessly compete as a solver. Subsequently, solvers compete in an English auction, where they bid competitively higher amounts of USDC they are willing to provide the user on their fill. 

Source: Wormhole.com

At the conclusion of the auction duration, which is set to 3 seconds, whichever solver has offered to provide the user with the highest quantity of USDC will win the auction and provide the user their fill.

Subsequently, the solver routes the user their requested funds on the destination chain through Circle’s CCTP or Wormhole’s Native Token Transfers (NTT), completing the user’s fill. Once source chain finality has been reached, the user’s original deposit is routed to the winning solver on Solana over CCTP or NTT, accompanied by the accepted fee. 

Given that refunds to solvers are administered as a transfer of the user’s initial deposit over CCTP or NTT rails, refunds of solvers’ inventory can be administered at a much higher velocity when compared to an intents framework like Across. Refunds on Across are administered through an optimistic oracle, which incorporates a 60-90 minute dispute window before initiating a refund. Solvers must be compensated for the duration they are without their funds, which is effectively a short term loan, resulting in higher marginal fees for users. With Wormhole Settlement, the duration in which solvers are awaiting the refund is at least 4x shorter than Across, resulting in a lower opportunity cost of capital.

Additionally, with accelerated refunds, solvers can turn over their inventory on Wormhole Settlement at a dramatically higher velocity. With this, $1M in solver inventory can settle at least $96M in daily volume, 4x higher than Across. With the ability to settle multiples higher in daily transfer volume per dollar of solver inventory, while eliminating the need to hold idle inventory and rebalance across destinations, Wormhole Settlement demonstrates its capital efficient design. 

At genesis, the Matching Engine on Solana only provides quotes and fills in USDC. The advantage of only quoting in stablecoins is that solvers have no variance in their balance sheet to provide fills on this market. Eventually, other stablecoins that are supported through NTT, such as MUSD, AUSD, and SUSD, will be integrated. While USDC is currently the only supported asset on the Matching Engine, Wormhole Settlement supports fills for any-to-any crosschain swaps. In this workflow, the user’s original asset is first swapped to USDC on the source chain, or the solver’s USDC is swapped to the target asset on the destination chain. 

When solvers make their bids in the auction, they are escrowing the necessary capital to fill the order. After the conclusion of the auction window, the solver has a grace period of 20 slots (about 8 seconds) to initiate the transfer of their funds to fill the user. Should the winning solver have not initiated the transfer of their funds and filled the user at the conclusion of the grace period, any other solver can call a function to initiate a transfer of the winning solver’s escrowed funds. In turn, these backup solvers can earn the winning solver’s fee. This backup mechanism incentivizes reliable performance on fills for all solvers and ensures redundancy. 

The Unique Advantages of Wormhole Settlement

Wormhole’s implementation of an intents market offers unique architectural advantages to benefit both solvers and users:

• Concentrated Inventory: All available liquidity is concentrated on Solana, rather than subdividing this liquidity across multiple routes, eliminating the transaction costs required to rebalance and idle inventory.
• Stablecoin-First: Solvers hold inventory in USDC, eliminating the portfolio variance of needing to hold inventory to quote arbitrary, higher-volatility assets.
• Competitive Auction: The auction mechanism drives competition amongst solvers to deliver the user with the best fill.
• Accelerated Refunds: Solvers receive refunds at a higher frequency, allowing for a lower opportunity cost of capital and multiples higher in daily transfer volume per dollar of inventory.
• Highly Scalable: Wormhole Settlement can scale horizontally to new chains through extending software, without needing additional inventory to service new routes.

Wormhole Messaging is integrated on 30 different chains, with runtimes including the EVM, SVM, and Move. Settlement launched with support for 10 of these chains; Ethereum, Base, Optimism, Arbitrum, Avalanche, Polygon, Solana, Sui, Unichain, and BNB Chain. With this infrastructure, the Settlement engine can scale to new and existing chains by simply extending contract integrations without the need to continuously fragment solver liquidity. Software extensions are highly scalable, whereas extending liquidity is not. As such, this framework is highly-scalable into a multi-chain, fragmented future, and eliminates the costs and capital inefficiencies associated with other competitive intents-based frameworks. This architecture ultimately benefits solvers by offering a more capital efficient intents market to compete in, and benefits users as solvers can provide them with cheaper quotes.

Settlement’s Solver market launched with RockawayX and Flow Traders as anchor solvers quoting on the market, with $5M in inventory pledged with the capacity to facilitate >$400M in daily transfer volume. 

In a subsequent upgrade, individuals will be able to delegate funds to a solver contract. The user can provide liquidity to a solver to earn a pro-rated share of the fees earned on the solver’s fills. Solvers hosting liquidity delegation can compete on fee-share parameters to attract more delegated capital. With solver delegation, anyone can have an opportunity to earn a share of the fees and surplus generated by Wormhole’s intents market, without requiring the complexity of building one’s own solver implementation. 

Wormhole’s Settlement engine is designed to be core base layer infrastructure for crosschain intents settlement, and it is broadly extensible and composable with additional arbitrary transactions like swapping, interacting, or Native Token Transfers. With this base layer infrastructure, other applications can leverage Settlement for broader crosschain functionality. One such integration is Mayan Finance, which uses Wormhole Messaging for native-to-native crosschain asset swaps on the Mayan Swift product. Application developers can integrate Wormhole’s base layer infrastructure to append arbitrary transactions and interactions with their own protocol, allowing the application to inbound liquidity, deposits, and users from any supported blockchain within a single transaction. Applications that integrate Wormhole’s Settlement engine can give users a one-click workflow to access and use applications across a myriad of blockchains, with highly-scalable liquidity, low latency, and low fees.

While DeFi applications can stand to benefit with a Wormhole Settlement integration, the framework can also offer highly efficient infrastructure for payments use cases. Many businesses, such as fintechs and neobanks, don’t need a use case for any-to-any crosschain swaps, as much as they need the ability to settle stablecoins transfers crosschain, quickly and at scale. 

Risks

While Wormhole’s Settlement architecture presents many benefits for both solvers and users, it may also come with some risks. Firstly, while supporting multiple chains and virtual machines gives the protocol broad coverage for bridging, extending contracts to support new destinations introduces uncertainty. Each new chain or VM can require its own unique build, requiring thorough auditing to reduce the risk of exploits. While contract risk is ever present in the cryptoeconomy, Wormhole builds entirely open-sourced, is thoroughly audited, and offers a generous bug bounty program of up to $5m depending on the threat level of the bug.

Additionally, while concentrating solvers’ balance sheets on Solana can reduce capital inefficiencies and lower fees for end users, solvers participating in Wormhole’s intents market concurrently hold concentrated risk with this chain. While dividing a solver’s balance sheet across multiple destinations effectively diversifies chain risk on their inventory, solvers are now largely exposed to Solana and its uptime. Network downtime, which Solana has experienced multiple times, presents a risk to solvers that their concentrated balance sheet may be temporarily illiquid. While participating solvers concentrate their funds on Solana with respect to this specific intents market, it is likely only ever a small fraction of that entity’s overall balance sheet, which likely remains diversified across chains and hedged. Solvers also hold finality risk with respect to user deposits on source chains, where the user deposit that initiated the intent transfer gets reorganized or disappears, and the solver has already provided a fill on the destination chain prior to the source chain reaching finality. 

Finally, this intents-based architecture can introduce some latency for users when compared to competitive intents markets. The architecture requires an inbound VAA passed from the source chain to Solana and either an outbound CCTP or NTT transfer to be passed from Solana to the destination chain. Additionally, the auction duration on Solana and the grace period embed a degree of latency. These processes in the transfer workflow can present some latency for users, expected to be within 15 to 30 seconds depending on the route, which may be longer than a user would like to wait when compared to competitive frameworks for bridging. 

Conclusion

Wormhole Settlement allows for a highly scalable liquidity venue to fill user intents into a multichain, multi-VM future. By concentrating solvers’ balance sheets on Solana, transaction costs associated with rebalancing inventory across destinations are eliminated, ultimately benefiting the end user with lower fees. Solvers need not hold inventory on routes that lack demand, ultimately allowing for greater capital efficiency for competing on Wormhole’s intents market. As the quantity of chains and virtual machines grows, this architecture scales simply through extending additional contract integrations, without the need to continuously fragment and subdivide solvers’ available liquidity. 

With the ability to settle bridging, swapping, and arbitrary interactions across multiple chains and virtual machines, without the costs and frictions of fragmenting solver liquidity, Wormhole Settlement has the opportunity to settle a large share of volumes in the crosschain interoperability market with a beneficial framework for both users and solvers.

 

This research report has been funded by the 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.