Connext is an interoperability protocol that enables fast, non-storage-related asset transfers between blockchains and contract work between EVM-compliant blockchains.

Connext solves the lack or presence of small amounts of liquidity in L2 solutions and EVMs. In essence, in simple terms you could say it is a crosschain bridge. Just 5 weeks after launch, Connext NXTP has expanded to support 9 networks including Ethereum, Polygon, Arbitrum and Avalanche on the main network. Just look how many networks Connext supports today: Binance Smart Chain, Polygon, xDai, Fantom Opera, Arbitrum One, Avalanche, Optimism, Moonriver, Moonbeam. And they will also add support for Fuse, Celo, Aurora, Harmony, Evmos, Neon, Godwoken, zkSync, StarkNet.

Deals take place in three stages:

Auction: The user requests the desired route. Routers respond with bids containing commitments to complete the transaction within a certain time period and in a certain price range.

Preparation: Once the auction is completed, the transaction can be prepared. The user sends a transaction to the TransactionManager contract on the sender's network containing the signed router bid. This transaction locks the user's funds in the sending network. Upon detecting an event containing their signed request, the router sends the same transaction to the TransactionManager in the chain on the recipient side and locks the appropriate amount of liquidity. The amount blocked in the receiving network is equal to the sending amount minus the commission, so the router is rewarded for completing the transaction.

Execution: when a TransactionPrepared event is detected on the receiving network, the user signs the message and sends it to the repeater, which receives a sending fee. The repeater (which is usually another router) then sends a message to the Transaction Manager to complete the user's transaction on the destination network and claim the funds blocked by the router.

If the transaction is not completed within a fixed validity period, it is cancelled and can be revoked by the originating user. In addition, transactions can also be unilaterally cancelled by the person to whom funds are owed on that network before the transaction expires.

Benefits:

High level of trust: Users are guaranteed that routers cannot escape with assets thanks to a blocking mechanism. Connext Non-Castodial Transfer Protocol (NXTP) is the only generalized interoperability solution that relies on its own validators. Bridges that rely on external validators are fundamentally less secure because users have to trust means and data to third-party verifiers.

Scalability: Bridges that use the network's own set of validators to verify transactions have even stronger trust guarantees. However, they must be built individually for each pair of networks and cannot quickly add support for new ones like liquidity networks do. Connext can easily anboard new blockchains to its network and thus scale quickly to other ecosystems.

Capital Efficiency: Bridges require validators to post collateral to provide services for the network, which is inefficient. This collateral must scale in proportion to the economic bandwidth of the bridge. For liquidity networks such as Connext, there is no upper limit to the economic bandwidth that the network can safely provide because capital blocking is not tied to their security model and takes place not at the validators, but directly at the sender and receiver side of the network.

Superior UX: Because validation happens locally on liquidity networks, transfers between networks are fast. Connext allows users to perform direct L2-L2 transfers in real time and completely avoid huge fees.

Rebalancing liquidity with arbitrage incentives

Crosschain volume is a key growth metric for liquidity networks. However, high volumes in one direction will quickly deplete liquidity in the other direction.

To solve this problem, Connext dynamically evaluates liquidity using an AMM curve, mimicking AMMs with stable swaps such as Curve. The price of assets changes depending on the ratio of available liquidity in each network. The more unbalanced the liquidity, the greater this price difference and the impact on the price of the resulting asset.

In other words, users pay a higher price to get assets in a more liquid network and a lower price to get assets in a less liquid network.

This presents tempting arbitrage incentives for market makers who already take advantage of such features in AMMs such as Uniswap. With Connext's virtual AMMs, cross-chain arbitrage will also be possible.

Connext currently has liquidity of $11 million and provides weekly volume of $31 million.

Development using the SDK

Connext is a basic protocol, similar to TCP/IP, which allows you to do the simplest things, such as inter-network transfers and contractual interactions. Connext is aimed at developers who can use the SDK to build their own solutions. Eventually, the protocol can be upgraded to more complex communication between networks, depending on what other tools are available and what networks communicate with each other. The first product built on Connext SDK is the bridge https://xpollinate.io/.