Core Innovations in the Portal Network
Omnichain Liquidity and Multi Chain Layer-2 AMM (MC-LAMM)
Portal introduces a novel approach in Automated Market Makers (AMMs) – to create Omnichain Liquidity: individual AMMs on Bitcoin, Ethereum and other chains coordinating to form a Multi Chain Layer-2 AMM (MC-LAMM). This innovation is a significant shift from traditional AMMs, tailored to overcome the limitations of cross-chain transfers.
Layer 2 AMM: A New Approach to Liquidity Pools
Portal's MC-LAMM operates on virtual balances, in contrast to conventional AMMs like UniswapV2, which uses current balances. This approach significantly reduces the impermanent loss risk for Liquidity Providers (LPs). By constructing liquidity pools using HTLCs and payment channels, Portal ensures atomicity of exchanges while addressing the limitations of traditional HTLC models. Portal’s development includes multi-party HTLC contracts on UTXO chains like Bitcoin and smart contract-driven agents on EVM chains like Ethereum.
Bitcoin Layer 3: Extending the Lightning Network
Recognizing the potential and infrastructure of the Lightning Network, Portal extends its functionality to enable Bitcoin-based cross-chain DEX operations. Our innovations, such as implementation of Channel Factories and others, overcome current significant limitations of the Lightning Network in relevant real world applications such as cross-chain trading.
Channel Factories: Reducing User Friction by Reducing the Cost of User Deposits and Withdrawls.
Channel Factories, a concept proposed by Christain Decker, introduce a novel intermediary layer that links the Bitcoin L1 blockchain with the payment network, forming a three-layered structure. The first layer secures funds within the Bitcoin L1 blockchain through shared ownership among a cluster of nodes. The second layer, our innovative addition, consists of multi-party micropayment channels – the "channel factories." These facilitate the rapid financing of standard two-party channels. The third layer supports routine currency transfers, with each layer employing either timelocks or penalties to ensure security and trust.
Example of channel factories
Three users pool funds into a shared on-chain 3-of-3 multisig address to establish a channel factory. Using off-chain spending from this address, they create payment channels among themselves (e.g., Alice↔Bob, Alice↔Charlie, Bob↔Charlie), ensuring on-chain security while minimizing data on the blockchain by avoiding broadcast unless necessary through cooperative actions.
The multi-party channel is a duplex channel, relying on timelocks for updates of the allocation transaction. A multi-party channel generally uses an invalidation tree to extend its lifetime.
Non-Custodial Delegation: A Solution for Cross-Chain ADMM
Addressing the challenge of custodianship in cross-chain ADMM, particularly on networks like Bitcoin, Portal introduces a non-custodial delegation model. This model uses custom lightning channels between LPs and validator hubs, implemented using a variation of Discreet Log Contracts (DLCs) on Lightning. This approach ensures that validators never assume custodianship of funds, eliminating the risk of collusion and fund theft inherent in systems like Chainflip's FROST mechanism or the Validator control of User funds and attacks seen in THORChain.
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