Introduction

"We should put resources toward a proper (trustless, serverless, maximally Uniswap-like UX) ETH <> BTC decentralized exchange. It's embarrassing that we still can't easily move trustlessly between the two largest crypto ecosystems." - Vitalik Buterin March 25th, 2020

Until now, the primary avenue for trading in the crypto landscape — but also a significant source of risk —has been centralized exchanges (CEXs). Nevertheless, decentralized exchanges (DEXs) – designed to mitigate CEX risk – present new hazards when cross-chain bridges with varying degrees of security and/or wrapped tokens are involved. These suffer from high centralization, overcomplication, lack of transparency, risky and costly synthetic replication (and re-replication) of finite assets. The amount of money lost in bridge hacks in 2022 alone was ~$2.6B[2], with prominent hacks of bridges such as Wormhole, HECO/HTX, Nomad, Harmony, Multichain, and BNB Chain. These bridges are insecure and cause liquidity fragmentation across many blockchains and single-chain DEXs.

The purpose of Portal Network is to offer a decentralized and trust-minimized infrastructure that is easy to use and integrate into existing blockchains, DEXs, and wallets. It allows peer-to-peer native swaps of digital assets across a range of blockchains without wrappers, bridges, centralized exchanges, and custodial DEXs (most cross-chain DEXs are not decentralized and/or require custodial elements for cross-chain coordination). In addition, we aim to provide a simple and intuitive end-user experience, with minimal slippage, and a very high level of security and transparent network operation.

To ensure robustness, we have engineered our system to withstand privacy threats, network partitions, discontinuation of Portal (the company’s) operations, DDoS attacks, order spamming, users going offline for extended periods, fee bidding wars, lockup griefing and option freeloading problems related to atomic swaps.

Why Portal?

Portal is designed to succeed where other solutions have failed. The main innovations Portal has fostered are the following:

• Built on Bitcoin: A core of Portal’s innovations is built on many layers of Bitcoin, thus inheriting security from Bitcoin.

• Atomic Swaps: Reliance on atomic swaps is the cornerstone of the Portal Network. Despite being an older idea, no product has successfully implemented atomic swaps with ease of use, speed, and low transaction fees while maintaining atomicity. The issue with HTLC swaps can be distilled to a coordination problem. After Alice and Bob agree on a price, things happen in subsequent chains that are isolated, and Alice and Bob need to be online to process the sequence of events. To solve this, Portal built a coordination protocol that decentralizes the event flow between chains, thus allowing for the trustless execution of HTLC-based swaps with greater usability.

• Embracing Layer-2 Architecture: In the swaps protocol paper, we described in detail how atomic swaps are executed on L2s of various chains, including Bitcoin; this gives us the speed of execution that competes with a centralized exchange without compromising atomicity.

• ADMM (Automated Dynamic Market Maker): We spent a lot of time and resources on innovating on the automated market maker concept. This new protocol is a significant breakthrough and a step up from industry conventions, primarily due to the intricate nature of cross-chain transfers. It introduces a range of distinctive characteristics that fundamentally redefine the ideal liquidity provider strategy. These exceptional features bring substantial benefits regarding capital efficiency and pricing precision for our users. This pioneering AMM methodology is called Automated Dynamic Market Maker (ADMM).

• Channel Factory Implementation: Not satisfied with some liquidity management on the Lightning network, Portal has implemented a simplified version of Channel Factory (L3) on top of the Lightning network. This allows for rapid and seamless trading transactions on Lightning.

How does Portal's solution compare to other cross-chain protocols?

Many “cross-chain” marketplace solutions have emerged on the scene recently. While it is clear that there is huge market demand within the sector, none have achieved widespread adoption to the extent of Uniswap, even though the addressable market seems much bigger than ERC-20 tokens alone. Some reasons for this are summarized below:

• Obscuring technical and centralization/custodial risks under the veneer of complexity has exposed LPs (Liquidity Providers) and users to severe risks of permanent capital loss. Pseudo Decentralization is a real problem.

• None of the solutions below compare to CEXs regarding usability or liquidity.

• Most cross-chain solutions are incentivized to lock up liquidity on their chain and issue synthetic assets, working against the ecosystem effect.

• Cross-chain messaging solutions are by themselves wholly inadequate to enable true cross-chain interoperability.

We explored all relevant protocols that conduct cross-chain trading or cross-chain communication. There are 2 types of issues in the ecosystem: A) code attacks, which take advantage of vulnerabilities in code and B) attacks on the design of the network, which take advantage of game theory. A common theme among all the protocols is not just that event relays could be manipulated, but because oracles or validators control the funds locked in external chain contracts, only a high level of decentralization can provide security of the network, which is highly improbable. At Portal, we designed it with this in mind. Even in the worst case scenario, validators cannot steal funds locked in Pools. The worst they could do is censor the swap transactions, without any loss of user or LP funds.

We summarize some critical network design related issues in other protocols in the table below:

Wormhole	Wormhole is not a blockchain by itself but a network for cross-chain bridging of assets. It achieves this by locking funds on one chain and uses a “decentralized” oracle network (guardians) to record events from the chain to initiate fund movement on the other chain. Although wormhole calls the guardians decentralized, it is a Proof-of-Authority in the hands of 19 validators (as of now), 2/3rds of whom could potentially collude to steal the funds locked up in bridge contracts. Wormhole also experiences many hacks due to poor bridge design. Other known design issues include not supporting Bitcoin.
LayerZero	LayerZero provides a messaging protocol using oracles and relayers across chains. A critical vulnerability of the design is for Oracle/Relayer collusion or potentially LayerZero multisig to forge cross-chain messages bypassing oracles.
Chainflip	Assets are stored in underlying chains in a vault and transacted with the FROST threshold signature system. This puts the assets in direct control of validators, a security vulnerability that can potentially cause funds to be lost if the majority of the validator set is compromised.
THORchain	Reliance on bifrost bridges and vaults has been a constant issue since vaults take custody of funds and have been exploited many times in the past few years.
Axelar	Similar to other protocol designs above, Axelar uses bridge contracts on native chains called Gateways that initiate event flow in and out of the native chain. The events are transmitted by relayers to a network of validators that vote on the truthfulness of external chain events on a proof-of-stake blockchain. This model still needs wrapped tokens like Wormhole and also relies on validators who could potentially collude to steal the funds locked up in bridges.