Circle has launched a new Cross-Chain Transfer Protocol (CCTP) that allows users to transfer USDC between Ethereum and Avalanche.
The protocol destroys tokens on the sending chain and mints new ones on the receiving chain, rather than locking them up in a contract like traditional bridges.
CCTP is expected to solve the problem of “fragmentation” in the Web3 ecosystem and improve liquidity and capital efficiency in decentralized finance.
Circle enables users to transfer USDC
Circle has launched a new protocol that enables users to transfer USDC between Ethereum and Avalanche. The Cross-Chain Transfer Protocol (CCTP) burns coins on the sending chain and mints new ones on the receiving chain, which allows users to redeem these new tokens for bank deposits directly by depositing the tokens with Circle or its partners. The team expects CCTP to help improve liquidity and capital efficiency in decentralized finance by simplifying the user experience and increasing trust in transacting with a highly liquid, safe and fungible asset.
Circle’s new Cross-Chain Transfer Protocol (CCTP) appears to solve the problem of fragmentation in the Web3 ecosystem by eliminating the need for USDC bridges between Ethereum and Avalanche. Unlike traditional bridges, CCTP destroys the tokens sent to its contract and issues new tokens on the receiving network. The team expects that CCTP will make the token less confusing to use, as there will be an official way to transfer coins from one network to another. Many of the largest cross-chain protocols have already pledged to use CCTP, including Celer, Hyperlane, LayerZero, LI.FI, MetaMask, Wormhole, and others.
USDC is a fiat-backed stablecoin issued by Circle that claims to have each USDC token backed dollar-for-dollar in its reserves. Users can mint USDC by opening an account and depositing cash with Circle or one of its partners, such as Coinbase, and can receive the coin on several networks, including Ethereum, Avalanche, Stellar, and Polkadot. Bridge hacks in the past few years have caused users to lose billions of dollars worth of USDC and other cryptocurrencies.
Explaining the protocol
The new CCTP protocol from Circle appears to be a significant development in the evolution of cross-chain asset transfers. Previously, users had to rely on third-party bridges or deposit their assets with a Circle partner to move USDC between Ethereum and Avalanche. The new protocol promises to make this process more straightforward and secure, and the team has already secured commitments from several major cross-chain protocols to use CCTP going forward.
The protocol also addresses the issue of “fragmentation” in the Web3 ecosystem, where various unofficial versions of USDC exist on different networks. The Circle team expects these unofficial copies to decline in use as more users adopt CCTP and transfer their USDC assets through official channels. This should make the token less confusing to use and enhance its liquidity and capital efficiency in decentralized finance.
The fact that the protocol destroys tokens on the sending chain and mints new ones on the receiving chain is also noteworthy. This approach eliminates the need for traditional token locks used by most bridges, which can be vulnerable to attack by malicious actors. Instead, it provides users with more secure and direct access to USDC on multiple networks, potentially opening up new possibilities for cross-chain asset utilization and value transfer.
Circle’s new Cross-Chain Transfer Protocol is an exciting development for the Web3 ecosystem, offering users a more secure and streamlined way to move USDC between Ethereum and Avalanche. As more cross-chain protocols pledge to adopt CCTP going forward, we can expect to see greater standardization and interoperability across the Web3 landscape, creating new opportunities for decentralized finance and digital asset utilization.
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