Why Circle?

Stablecoins have always been a burgeoning niche within crypto, both since their inception, and even recently with the advent of LSD-backed stablecoin protocols. However, one has remained the dominant choice when it comes to DeFi, and that is of course - $USDC.

However, not one to be content with the status quo - the Circle team has been working relentlessly on their Cross-Chain Transfer Protocol, or CCTP. This has become a fundamental pillar of Pike as a lending market and enables cross-chain functionality in both the borrowing, and the repayment flow.

On Pike, users can for example, take a USDC loan out on Arbitrum, but use USDC on Optimism to pay back that very same loan, should they want their assets to remain deployed, but also desire to eliminate their debt.

What is CCTP?

CCTP stands for Cross-Chain Transfer Protocols, and effectively allows $USDC to be native to any and every chain (so long as CCTP supports it) - which removes the need for countless bridged and wrapped versions of it (all needing their own integrations and liquidity pools).

In the past, when bridging USDC - users would have to use a third-party bridge which would then “lock” the USDC on the source chain, which would introduce a security risk as these funds could be compromised and exploited. The bridge would then “mint” USDC on the destination chain, however it would be a synthetic or bridged version, which would then fragment $USDC liquidity, as each bridge would adopt their own standard - resulting in countless “versions” of USDC.

With CCTP however, it removes the need for third-party bridges, and all of the securities risks that come along with them. Instead, a user simply initiates a transfer from the source chain, with the USDC being “burnt”, and then USDC is “minted” on the destination chain. This not only reduces the gas fees and time required, but also removes a great deal of security concerns associated with bridging.

How does it work?

• 1. USDC is burned on the source chain: A user initiates a transfer of USDC from one blockchain to another, and specifies the recipient wallet address on the destination chain. The protocol then facilitates a burn of the specified amount of USDC on the source chain.

• 2. A signed attestation is fetched from Circle: Circle observes and attests (or approves) to the burn event on the source chain. The app requests the attestation from Circle, which provides authorization or permission, to mint the specified amount of USDC on the destination chain.

• 3. USDC is minted on the destination chain: The protocol then uses the attestation to trigger the minting of USDC. The specified amount of USDC is minted on the destination chain and sent to the recipient wallet address or smart contract.

How and why does Pike use CCTP?

$USDC, while not the largest stablecoin by marketcap, is by far the most utilized within DeFi, and lending markets are no exception, with it often being both, the most supplied and most borrowed asset.

Aave’s Ethereum market has $ETH as the most supplied asset, but is heavily underutilized (hence the “low” APY) while $USDC is usually above 80-90% utilization which showcases how in-demand it is.

As a result, being able to pay back a loan in $USDC on any chain, regardless of where the borrowing took place, opens up a whole new avenue of functionality for Pike users:

1. Let’s say you want to purchase an NFT on Ethereum, but keep most of your assets on Arbitrum. Using Pike, you can deposit your Arbitrum assets as collateral and borrow native-$ETH on the Ethereum network.

2. You then use your $ETH to purchase the NFT, and you determine that holding the NFT long-term is the best investment.

3. Due to market conditions, you may want to then close your debt position and repay your loan. In the past, your only option was either to sell the NFT to acquire liquidity, or bridge assets into Ethereum, as this is the chain on which you took the loan.

4. However, rather than sell your assets, you can use your USDC from another network (say, on Optimism) to pay back your loan, even though you originally took it out on Ethereum.

   This maximizes the capital efficiency of your assets, and allows you to leverage them cross-chain without using bridges, resulting in a far more convenient user experience.

You can actually watch this flow within Pike below:

What’s next?

We’re building Pike because we think true interoperability benefits everyone in DeFi and we’d love for you to play a role in our development. We will be launching a testnet campaign to enlist the DeFi community’s help in stress-testing Pike and giving users the ability to experience native cross-chain lending firsthand as hosted on Base.

Stay tuned for an announcement outlining the campaign details in the coming weeks.

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