Swingby Will Integrate Chainlink Price Feeds and Proof of Reserve to Secure Skybridge
Swingby’s Skybridge provides trustless bridges between Bitcoin, Ethereum, Binance Smart Chain (BSC), and other blockchains. Skybridge executes fast token swaps using a secure network of Metanodes that are powered by multi-party computing and layer-2 technology. Ultimately, this enables users to move a 1-trillion dollar market cap digital asset like Bitcoin into the $40B DeFi ecosystem, as well as supports the seamless flow of liquidity between blockchains.
Currently, the most popular use case for Skybridge is swapping native assets like Bitcoin (BTC) into pegged equivalents on different chains, such as Wrapped Bitcoin (WBTC). Another popular use case is swapping pegged assets such as USD Tether on the Ethereum blockchain to USD Tether existing on a different chain like Binance Smart Chain. Although pegged assets are extremely useful and have contributed significantly to the development of the cryptocurrency ecosystem, they still carry a certain degree of risk (e.g., counterparty risk).
To further prevent such risks Swingby will integrate Chainlink as the primary oracle solution for Skybridge. As part of this integration, both Chainlink Price Feeds and Chainlink Proof-of-Reserve will feed data into the Skybridge risk-mitigation engine. This data will involve both exchange rates and current collateralization ratios, both of which help Swingby detect and mitigate various scenarios like unpegging, over-staking, and the inability to return to a proper functioning state.
We selected Chainlink because it’s oracle solutions are battle-hardened and time-tested in-production. For example, Chainlink Price Feeds already secure $10B+ in USD value for leading DeFi projects like Aave and Synthetix, while it’s Proof of Reserve data feeds are being leveraged by top wrapped asset/stablecoin projects like WBTC and TrustToken. Chainlink’s on-chain data feeds are secured by decentralized oracle networks made up of numerous independent, security reviewed node operators that source data from multiple premium data providers. These Chainlink nodes are run by professional DevOps teams with a reputation for strong uptime, even during record levels of network congestion. By incorporating reliable nodes, high-quality data, and decentralized security, Swingby users can be certain that they will always receive highly available, accurate, and tamper-resist data feeds.
As mentioned previously in our SWIP-019 (Swingby whitepaper improvement proposal) deep dive (which we recommend you read), the integration of Chainlink oracles can protect against three security threats: (1) bridged assets becoming unpegged, (2) the protocol being over-staked, and (3) the protocol not being able to return to a normal state once certain alert states are triggered.
1 — Unpegging protection: A risk mechanic is activated when two bridged assets become unpegged. The system refers to Chainlink’s Proof of Reserve data oracles to check whether all pegged assets are sufficiently backed by on-chain reserves. If undercollateralized is detected, then the following actions are taken:
- Liquidity provision is suspended (i.e., minting of LP tokens is suspended);
- Redemptions for liquidity providers can continue based on the new price logic, which will adjust for the deviation in the peg between the two assets being bridged;
- User swaps are suspended.
To learn more about these responses, don’t forget to read the full draft of SWIP-019.
2 — Over-staking protection: A risk mechanic that is activated when the total value of all Swingby tokens staked/bonded to the network falls below the total value that is locked inside the Skybridge as collateral. The system refers to Chainlink Proof of Reserve to calculate a parameter k to determine the protocol’s current staking status.
Note that n is the number of assets included in the float (e.g., BTC, WBTC) and the number of different oracle tokens held in the smart contract address.
The l parameter is defined to determine limits on quantities that can be deposited in the protocol, such as:
m is the lower boundary risk ratio required for new assets to be added on both legs of Skybridge.
k represents the protocol’s current staking status, while l is used to determine the maximum liquidity provision for the protocol.
3 — The exit of risk checks: To exit these risk statuses, the protocol needs to receive a set of prices that allow it to calculate new risk metrics that fit within their respective normal limits.
- For the peg alert, the system requires the price difference between the two bridged assets to be lower than the specified f threshold.
- For the over-staking protection, the protocol requires the system’s k parameter to return within appropriate limits (a multiplier of m).
Like the oracle logic discussed before, either validators or a third-party actor (potentially even Chainlink Keepers) can retrieve the prices/reserve data from Chainlink Oracles to assess the current risk status of the protocol. If the new risk status of the protocol properly changes, the network rewards the third-party for a price higher than the cost of retrieving and posting the set of relevant prices from the oracle provider.
As illustrated in SWIP-019, bi-lateral cross-chain swaps and liquidity provision activities are not immune to potential attack vectors, such as over-staking and the unpegging of two assets. But Swingby’s integration with the leading oracle service, Chainlink, will solve these problems and continue to pave the way for future integration of TSS technology that enables cross-chain swaps with a wide variety of assets and networks.
“We are extremely excited to start integrating leading oracle solution Chainlink, especially with our protocol experiencing significant growth over the last few months thanks to the launch of the Bitcoin-to-Ethereum bridge and the upcoming Bitcoin-to-Binance Smart Chain bridge. In order to accelerate upon this momentum, there is no better infrastructure addition to Skybridge than Chainlink, which will provide key oracles services necessary to scale Skybridge’s security, allowing it to support more blockchains and higher amounts of cross-chain asset value.” — Jacob Plaster, CEO of Swingby
“We are excited to provide Swingby with secure and reliable oracles, particularly price feeds and proof of reserve data, both of which will help further secure their Skybridge Network against various risks. This will allow users to more confidently swap assets between blockchains using Skybridge, which is becoming increasingly important as the blockchain industry moves towards the existence of numerous DeFI and multi-chain ecosystems.” — Daniel Kochis, Head of Chainlink Business Development
Swingby’s bridge protocol, Skybridge, builds trustless bridges between Bitcoin, Ethereum, Binance Chain and other blockchains secured by a network of node groups that execute fast token swaps using ‘multi-party computing’ and layer 2 technology.
Skybridge allows users to move Bitcoin tokens between the Bitcoin, Ethereum, and Binance Chain without relying on a central custodian, opening up a whole world of DeFi capabilities such as liquidity pooling and DEX trading with an easy-to-use user interface.
Chainlink is the most widely used and secure way to power universally connected smart contracts. With Chainlink, developers can connect any blockchain with high-quality data sources from other blockchains as well as real-world data. Managed by a global, decentralized community of hundreds of thousands of people, Chainlink is introducing a fairer model for contracts. Its network currently secures billions of dollars in value for smart contracts across the decentralized finance (DeFi), insurance and gaming ecosystems, among others.
Chainlink is trusted by hundreds of organizations to deliver definitive truth via secure, reliable data feeds. To learn more, visit chain.link, subscribe to the Chainlink newsletter, and follow @chainlink on Twitter.