Thread by @jdshutt

This thread will explain how to use @UMAprotocol to power secure, non-custodial, and superfast cross-chain transactions, including token transfers and swaps. 👇🧵

2/ @UMAprotocol has launched on @0xPolygon and plans to launch on every EVM-compatible chain.

This means that you can optimistically settle data requests on any chain, with the ability to call back to the DVM on Ethereum to securely resolve any disputes. medium.com/uma-project/um…

3/ Interestingly, having an Optimistic Oracle on every chain opens up a method to quickly and securely send cross-chain transactions.

Let's demonstrate this with the simple case of transferring tokens from @0xPolygon to Ethereum.

4/ Alice has 5 wBTC on @0xPolygon that she needs to send to Ethereum.

She could use the PoS Bridge, but would need to wait ~34 minutes.

Meanwhile, crypto prices are crashing hard, and her @MakerDAO position may be liquidated if she has to wait. blog.matic.network/deposits-and-w…

5/ Bob provides wBTC liquidity in smart contracts on both chains to enable non-custodial cross-chain transfer using @UMAprotocol.

Right now, Bob's liquidity on Ethereum is 20 wBTC, more than enough to handle Alice's transfer.

6/ Alice deposits 5 wBTC (plus a service fee) in Bob's smart contract on Polygon, and can pull the money back out if 5 wBTC are not sent to her Ethereum address within a few minutes.

7/ Bob sees that Alice deposited 5 wBTC and a service fee on Polygon, transfers 5 wBTC from his Ethereum smart contract to Alice's Ethereum address, and tries to claim Alice's deposit and service fee on Polygon.

8/ Here's where @UMAprotocol comes in. Bob's claim on Polygon is not settled immediately.

If Bob didn't complete the transfer on time, Alice can dispute Bob's claim with the Optimistic Oracle, escalating the issue to the DVM and preventing Bob from claiming her funds.

9/ Bob has to post a bond to make a claim, which is slashed if he loses a dispute.

Since he knows he will lose any dispute if he tries to cheat, he has no incentive to make false claims. medium.com/uma-project/in…

10/ You could write the smart contracts in such a way that Bob doesn't have to personally manage the withdrawal on Ethereum.

Alice could deposit 5 wBTC on Polygon, then make a claim for 5 wBTC on Ethereum, receiving a claim token.

11/ The claim token can be exchanged for 5 wBTC from Bob's smart contract later on, if no one disputes Alice's claim with the Ethereum Optimistic Oracle.

Notice that this is the inverse of the claim Bob will make later to the Polygon Optimistic Oracle.

12/ Since Alice needs the wBTC immediately, she can sell her claim token to Eve for 4.99 wBTC.

Eve can withdraw 5 wBTC from Bob's contract after the liveness window ends without a dispute.

13/ If you aren't familiar with @UMAprotocol, it's important to understand that disputes are extremely rare in practice.

The correct result of any data request is deterministic based on the price identifier, as is the outcome of any dispute. docs.umaproject.org/uma-tokenholde…

14/ In the example above, Alice pays Bob and Eve a fee to facilitate a token transfer that settles faster than the Polygon bridge.

This is even more useful for roll-up chains like @optimismPBC and @arbitrum, where native cross-chain settlement is much slower than @0xPolygon.

15/ This technique enables fast and secure token transfers between any two chains, provided both chains have an Optimistic Oracle.

It's not just about Ethereum.

16/ Once you have fast cross-chain token transfers, you can fairly easily implement cross-chain swaps, lending, and yield farming.

You can also have advanced cross-chain investment strategies enforced by multi-chain Optimistic Oracles.

https://twitter.com/jdshutt/status/1405247180919635968?s=20

17/ I would love to help anybody who is interested in applying these cross-chain ideas in the real world, especially as part of the @ETHGlobal #HackMoney hackathon!