Moonbeam Routed Liquidity (MRL) enables the easy flow of crypto liquidity into and across the Polkadot ecosystem from other ecosystems like Ethereum, Solana, Polygon, or Avalanche. With MRL, users can move their liquidity to and from Polkadot with a clean and simple UX.
Part of what powers MRL is a new feature in which any ERC-20 created in the Moonbeam EVM can be moved around the Polkadot Ecosystem via XCM, thanks to a new implementation of XC-20s. Therefore, with bridging solutions and Polkadot’s XCM, MRL can route liquidity from any chain in any ecosystem connected to Moonbeam through a bridge to any parachain on Polkadot with an XCM channel with Moonbeam.
Due to their Substrate base and lack of EVM, some parachains are not equipped to easily bring outside crypto liquidity into the ecosystem. Moonbeam Routed Liquidity is a way for those parachains to tap into bridged liquidity by using the native interoperability components within Polkadot.
XCM and XC-20s Across Parachains
The cross-chain capabilities afforded by Polkadot’s structure are a key part of Moonbeam Routed Liquidity. XCM is a format for cross-consensus communication between parachains, smart contracts, pallets, and more for use across blockchains. XCM defines how messages are sent, allowing parachains to exchange data securely, but the capability extends to new use cases, including the use of functionalities offered on connected chains.
Moonbeam has pioneered a special asset type that makes moving assets through an EVM to a Substrate chain without issue, using XCM. XC-20s, fungible tokens that are natively cross-chain ready with XCM and also act as regular ERC-20s, are one way that XCM supports interoperability in the Polkadot and Kusama ecosystems. Because Moonbeam has an ERC-20 interface, EVM-based projects can use it. In this case, to provide access to assets and provide liquidity to decentralized exchanges and other DeFi use cases. With MRL, ERC-20s are now XCM-enabled by default.
MRL allows the user to transfer supported assets to a destination within Polkadot specified by multilocation. To do this, Moonbeam has developed specific-purpose relayers and GMP precompiles to complete the process of bridging liquidity more efficiently. Using Moonbeam Routed Liquidity requires a specific MultiLocation of the XCM-enabled ERC-20s on Moonbeam and that the target parachain register the ERC-20 in their asset management structure. This means that Moonbeam is a port of entry — a parachain well-connected to other parachains in Polkadot and to EVM chains outside the ecosystem able to bring assets from EVM to Substrate chains!
Bridging Liquidity Between Connected Blockchains to Polkadot
When an ERC-20 is XCM-enabled, it becomes an XC-20 (an XCM-enabled ERC-20), and it can be sent via XCM to other parachains inside the Polkadot ecosystem without a wrapping mechanism.
When sending tokens to the Polkadot ecosystem, part of the XCM is executed in Moonbeam and part in the destination parachain. On Moonbeam, this execution transfers the XCM-enabled ERC-20 token to the sovereign account of the destination parachain on Moonbeam. This parachain will receive an XCM message with instructions to mint a representative token of the locked asset.
To enable Moonbeam Routed Liquidity pathways, a Wormhole token transfer from another ecosystem (let’s say Ethereum) can use the Moonbeam GMP precompile to craft the XCM message that will, ultimately, route the token to a Polkadot parachain. Consequently, MRL is a combination of XCM on the Polkadot side and Wormhole’s messaging protocol on Moonbeam to the destination chain. Moreover, MRL is not tied to any specific cross-chain GMP protocol, as Moonbeam’s Ethereum compatibility features allow it to be connected to external ecosystems through many GMP protocols. Consequently, MRL can help route crypto assets into the Polkadot ecosystem as long as the GMP protocol supports creating pathways to Polkadot parachains.
How Moonbeam Routed Liquidity Works
Currently, the GMP precompile is specific to Wormhole, but it can be upgraded to accommodate other bridges in the future. Moreover, cross-chain bridges can implement their own solution and skip the GMP precompile implementation altogether.
- Users on Ethereum bridge digital assets to HydraDX via Wormhole
- Wormhole approves the execution of the asset transfer on Moonbeam.
- When it is being executed, it will use the GMP precompile to mint the Wormhole ERC-20 asset on Moonbeam and
- At the same time, ship it to Hydra via XCM (deposit to sovereign and send XCM message)
- On the way out, the XCM message takes the digital asset out of the sovereign account and routes it back through Wormhole.
When Remote EVM calls through XCM are enabled, the user in the origin parachain can sign two messages in one click: the first message will transfer the XC-20s (Wormhole’s XCM-enabled ERC-20s) to the user’s MultiLocation derivative account on Moonbeam, unlocking them from the parachain’s Sovereign Account, and the second message will execute a remote EVM call to bridge back the ERC-20s through Wormhole.
The assets available via Moonbeam Routed Liquidity will increase as more bridges are accommodated by the GMP precompile or do their own implementations, giving teams options to customize their crypto liquidity solutions. While currently, digital assets from outside EVM-connected chains can move through Moonbeam to other parachains, MRL also moves assets from other chains to Moonbeam and back out to their original chains, like Ethereum as it is developed. Moonbeam Routed Liquidity means that ERC-20s are now XCM enabled, and they can reach any Polkadot parachain from any ecosystem to which Moonbeam is connected.