Overview

If you haven’t read Part 1 yet, we suggest that you begin there.

In the ever-flowing DeFi landscape, a compelling opportunity has presented itself to cast a wider net and seize market share through innovative practices. We have designed Pike to expand the scope of crypto lending - no longer confined by the roadblocks traditionally faced by cross-chain compatibility.

tl;dr:

• We’re building Pike, a natively multi-chain lending market

• Pike is unifying liquidity on Base, Ethereum, Arbitrum, and Optimism at launch

• Wormhole Cross-Chain Messaging allows Pike users to lend and borrow native assets across networks without the use of bridges

• Circle’s CCTP lets users pay back loans on any chain in $USDC

• We’re launching a testnet campaign in mid-July

Introducing: Pike Finance

Pike is a Universal Liquidity Protocol - designed to remedy the limitations in addressable market size suffered by lending markets of the past and confront the risks that bridges and wrapped tokens present to users. By eliminating the compromised security associated with traditional cross-chain liquidity access, Pike aims to deliver a secure and unified cross-chain lending market for users and a straightforward lending experience.

Lending markets already exist on multiple networks, but they have major issues:

Security Issues

• Bridges are the largest attack vector in DeFi and wrapped tokens compromise capital efficiency. For reference, since 2016*, over $2.5B* has been compromised from bridge hacks.

Asset Under-Utilization

• Native assets only exist within the siloed liquidity pools located on their native chains. Wrapping tokens, effectively fragments the underlying utility to leverage their value across networks which negatively affects capital efficiency.

• AAVE on Ethereum, for example, essentially operates separately from AAVE on Arbitrum, with their respective markets being independent from one another. Despite being the same protocol, the markets are fundamentally detached.

“Live on Multiple Chains” vs “Natively Multi-chain”

The term “multi-chain” has historically been used by protocols to describe themselves as cross-chain enabled, but specifically - this meant that they are simply live on multiple chains.

As can be seen in the table below, Aave is live on Ethereum, Polygon, Optimism, Arbitrum, and Avalanche - but each iteration operates as an individual marketplace. Each version of Aave has its own separate liquidity pool, and many of these pools are only representative of the wrapped version of a native asset, not the native asset itself (like USDC.e).

Exploring the supply of three tokens ($USDC, $ETH, $AAVE) on Aave demonstrates the severely fractured state of lending markets given DeFi’s current reliance on bridging as the primary method of moving tokens from one chain to another. This notion is especially notable in the example of $ETH, where the total market size is $1.77B, but 85% of the entire supply is stuck on its native chain, Ethereum, as well as all of the ETH found on Polygon and Avalanche ($170M) being wrapped, meaning the assets are locked into smart contracts on Ethereum to unlock their wrapped counterparts on the other chains.

Unlike traditional lending protocols that have focused on facilitating lending and borrowing within a single network, we believe that there is major untapped growth to be found in the unification of native assets separated by the constraints of network interoperability (see part 1).

As a response, Pike is natively multi-chain in that it exists as a singular entity that unifies native assets across all supported networks simultaneously. For users, this means access to unified pools of liquidity across all of DeFi, regardless of which chain they operate on, maximizing the capital efficiency of their assets.

Our Architecture - How We’re Putting Security First

Hub and Spoke Implementation

In a hub-and-spoke model, there is a central chain that acts as the main hub for accounting and smart contract logic. The spoke deployments send accounting messages to the hub whenever there are token movements. The hub serves as the primary source of accurate information, and the state stored on the spokes is meant to mirror the true state stored on the hub.

Base is serving as our hub chain, with our spoke deployments being live on Ethereum, Optimism, Arbitrum, and of course Base itself for our testnet deployment - with plans to expand to more networks for our mainnet launch.

The spoke architecture empowers users to deposit and withdraw native assets across supported ecosystems without relying on token bridges, culminating in what we’ve deemed the Universal Liquidity Layer - a single application and interface that allows users to interact with multiple networks natively.

Why we chose to build on Base:

• Security - Base leverages the underlying security of Ethereum, prioritizing reliability and scalability

• Low cost - Base is focusing on user accessibility by adopting an affordable fee model, beginning in a comparable range with chains like Arbitrum and Optimism, with plans to reduce fees throughout the launch year

• Decentralization - Base is being incubated by Coinbase, with plans to develop into a permissionless model prioritizing ease of access to encourage development

• Open Source - Built on the open-source OP stack in collaboration with the Optimism Foundation

“That’s going to require us Making Base as cheap as possible, as secure as possible, and as decentralized as possible because that decentralization is a key aspect to enable the openness of the ecosystem” - Jesse Pollak (Base Lead)

Wormhole’s Cross-Chain Messaging

Wormhole facilitates cross-chain use cases by enabling dApps to transfer assets and source chain data between networks, allowing them to provide services on different destination chains - without having to use bridges.

The Cross-Chain Messaging network consists of 19 top-tier validators and utilizes a proof-of-authority model. Each supported network has a core contract responsible for emitting messages. These messages are then verified and signed by the validators, or “Guardians”. Once a message is verified and signed by at least 13 of the Guardians, it is relayed to the destination chain where the message is processed, and the cross-chain transaction is finalized. The Guardians are responsible for monitoring the state of each compatible chain independently and signing attestations confirming the accuracy of the messages. The collective signatures serve as proof that a message is authentic and agreed upon by the Wormhole network.

Unlike bridges, where sent assets are stored in a centralized depository (on the source chain), and an “identical” wrapped version is minted on the destination chain - Wormhole’s cross-chain messaging utilizes a “mint and burn” mechanism, meaning the original asset on the source chain is fundamentally destroyed and simultaneously, it’s destination chain counterpart is then minted - foregoing any need for centralized storage of assets, nor wrapping.

Think of cross-chain messaging like the postal service. The relayer (core contract) acts as the courier, transmitting messages from one chain to another, the guardians serve as the tracking database - processing information and confirming the shipping details of the messages, and the oracle is the recipient - receiving and interpreting the messages at its destination.

What does this mean for borrowers?

Through our Cross-Chain Messaging integration, we are enabling users to leverage the ability to deposit on any one of our integrated chains and borrow on another. Because we’re only dealing with native assets, this opens the door for free-flowing native cross-chain liquidity.

Before cross-chain messaging, a borrowers user journey might look like this:

1. Let’s say you hold a bunch of $UNI on Ethereum, and noticed a tempting yield opportunity on Optimism

2. In order to transfer the value of your assets from Ethereum to Optimism, your only choice is to swap your $UNI for $ETH (forgoing your $UNI exposure) and then use a bridge to move $ETH across-chain

3. You would then borrow $OP on Aave against your deposited $ETH so that you could finally be exposed to the $OP yield opportunity

This presents users with several sacrifices: not being able to hold their asset of choice ($UNI), exposing themselves to risky bridges, and earning less yield from their $ETH deposit on Optimism than would have been earned by keeping it on Ethereum.

Luckily, Cross-Chain Messaging facilitates a safer, simpler process, without compromises:

1. Keep your $UNI on Ethereum

2. Supply as collateral on Pike

3. Borrow native $OP on Optimism

4. Utilize $OP within the Optimism ecosystem, whilst your $UNI is safely deposited on Ethereum, earning yield and maintaining your exposure

Wormhole’s Cross-Chain Messaging keeps users secure, preserves capital efficiency, and drastically simplifies the cross-chain lending experience.

Circle’s Cross Chain Transfer Protocol (CCTP)

Circle’s Cross-Chain Transfer Protocol (CCTP) is a permissionless on-chain utility that can burn native USDC on a source chain and mint native $USDC of the same amount on a destination chain. This creates an environment where $USDC is native to several chains.

What does this mean for borrowers?

By integrating CCTP into our protocol, we enable users to pay back their loans on any supported chain. Thus, Pike operates in a native, multi-chain fashion during both the borrowing and repaying phases of the user journey.

An example:

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. In the past, your only option to repay your loan 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.

This is only possible due to the cross-chain nativity of $USDC.

Considering that a majority of borrowing already happens in $USDC, this application of CCTP provides new utility for a significant portion of the current lending market user base. This is observable in Compound (above), where $USDC is the most borrowed asset, accounting for over 41% market share, as well as representing over 22% of the total value locked (TVL) in the protocol.

$USDC also has a dominant market share on AAVE v2 (above), where there is currently $584M supplied and $501M borrowed, an 86% utilization rate. On the contrary, ETH represents a significant supply of almost $1B, but only around half of that is being borrowed, demonstrating the high demand and utilization of $USDC and the significance of the new utility it will attain via Pike’s CCTP integration.

We’re changing DeFi

There have been several times in the history of the crypto industry when technological innovations disrupted traditional standards, revolutionizing the way that users participated in DeFi.

Once upon a time in 2017, the ICO boom generated the need for decentralized exchanges (DEXs) as a go-to solution for trading tokens that weren’t supported by major exchanges. These protocols, like IDEX and EtherDelta, were cumbersome and mainly utilized by tech-savvy individuals - as well as being fraught with scaling problems and being vulnerable to manipulation.

In retrospect, it’s easy to look back at the early generation of order book DEXs and think that their flaws are blatant and incomprehensible, but there was a need to trade obscure tokens and users employed the technology that was available to them at the time.

A major paradigm shift occurred with the development of Uniswap. By introducing the concept of the automated market maker (AMM), liquidity pools, and price curves, Uniswap eliminated the need for intermediaries, like traditional exchanges or brokers - and rendered the centralized, liquidity-starved models of the past obsolete.

Uniswap's user-friendly interface and efficient AMM model transformed the DeFi landscape, paving the way for the rapid growth of decentralized finance by solving the liquidity problems faced by its predecessors, architecting a stable pricing model, and simplifying the process of trading in a decentralized manner. The AMM model put forward by Uniswap has since become a fundamental piece of DeFi infrastructure, setting the gold standard for DEXs and empowering users to exercise greater autonomy over their funds.

Early protocols like IDEX played a crucial role in the development of decentralized trading, but over time they became obsolete and their methodology seems archaic by today’s standards. Much like IDEX’s fall from relevance when a superior alternative arose, we believe the introduction of cross-chain messaging signals the diminishing value of bridges and wrapped tokens. Cross-chain messaging is soon to be the primary method of moving assets from one chain to another, and the prospect of using bridges to move tokens will soon feel like an antiquated process.

As we evolve, Pike plans to implement integrations with the full spectrum of native assets:

• Network Tokens

$ETH on Ethereum, $ARB on Arbitrum, $OP on Optimism

• Stablecoins

USDC and USDT

• DeFi blue-chips

UNI, RPL, GMX, MKR

• LSTs

rETH, stETH, cbETH

Pike's vision extends beyond facilitating native cross-chain lending - we see a future where liquidity flows effortlessly across networks, enabling assets to be utilized, without the need for bridges or wrapping - completely securely.

By creating a Universal Liquidity Layer, Pike is providing builders and users access, to build a new era of applications that leverage liquidity from all networks, harnessing the combined power of assets across multiple chains.

What’s next - Pike Testnet Launch Campaign

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 mid-July.

Sign up for our testnet waitlist for access to news, announcements, and updates.

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