How Ethereum Solves the Fragmentation Dilemma: Can ERC-7683 Become the Key to Inter-Chain Collaboration?

1. The Root Causes and Solutions of Ethereum Fragmentation Issues

With the vigorous development of various L2 networks and DeFi projects, the Ethereum ecosystem is facing an increasingly serious liquidity fragmentation problem. This issue is mainly reflected in the liquidity of assets within the ecosystem being divided into multiple isolated parts, dispersed across L1 and numerous L2 networks. Different L2 networks compete for the total locked value (TVL), resulting in assets and transactions being scattered across multiple decentralized platforms and protocols. However, there is a lack of effective interconnection and interoperability between these platforms, and the liquidity on each network can only operate within its own closed "small ecosystem," which further exacerbates the overall fragmentation cost problem of Ethereum.

In 2024, more than 100 new Ethereum-related chains will be launched. This situation is like walking into a shopping mall, faced with a dazzling array of products, but needing to use different currencies from various countries for settlement. To address this challenge, the Ethereum Foundation launched the Open Intents Framework on February 20, aiming to provide Ethereum with a seamless trading experience similar to "single chain." This initiative has received rapid support from over 50 protocols.

According to relevant information, the Open Intents Framework consists of three core components:

1. Open Source Solver: This framework provides an open source solver written in TypeScript that can monitor on-chain events and handle intents. This solver has protocol independence and supports features such as indexing, transaction submission, and rebalancing, allowing developers to customize and adjust it according to specific needs.

2. Composable Smart Contracts: The framework provides a set of pre-built smart contracts based on the ERC-7683 standard, which defines the logic for interpreting, executing, and settling intents. It natively supports limit order trading and Hyperlane ISM settlement.

3. User Interface Template: The framework also provides a customizable user interface template designed to make the intended products more accessible and usable for end users.

2. ERC-7683: The Core of the Open Intent Framework

ERC-7683 is a proposal that provides a unified, standardized framework for Ethereum and other blockchains to express and execute cross-chain operations, particularly between multiple L2 solutions and sidechains. This standard is co-led by a well-known cross-chain protocol and a DEX, aiming to achieve intent through the standardization of cross-chain operations.

The core content and components of ERC-7683 include:

1. Cross-chain order structure: Defines the standard format for cross-chain orders, ensuring consistency between different blockchains and platforms.

2. ISettlementContract interface: Standardizes the handling of the settlement process and defines how to process transaction settlements across different chains.

3. Fulfil mechanism: Allows participants to compete in fulfilling cross-chain intentions within a shared network, reducing costs and improving efficiency by providing services (such as executing orders).

4. Fill in the deadline: Use a timestamp to mark the expiration time of the cross-chain intent, avoiding long periods of waiting for invalid transactions.

5. Order Data Type: Use EIP-712 typed hashes to specify the structure and format of intent data.

6. Order Data: Contains the core parameters of cross-chain transactions, such as tokens, amounts, chains, recipients, etc., defining the expected results of cross-chain transactions.

The main advantage of ERC-7683 lies in achieving seamless cross-chain interactions and enhanced governance capabilities. It simplifies the cross-chain operation process, lowers the technical barriers, and enables users to conduct cross-chain transactions more conveniently. At the same time, it also simplifies the governance processes between different blockchains, providing more efficient solutions for cross-chain governance, especially for decentralized autonomous organizations (DAOs).

3. Intent and DeFAI: Abstract Future Directions

Intent and DeFAI, as derivatives of DeFi financial attributes, are both attempting to solve two core issues in the DeFi space: scalability and liquidity. Intent aims to integrate liquidity through unified standards, while DeFAI leverages artificial intelligence technology to optimize trading strategies and risk management.

The core goal of the intent is to simplify the user interaction process through the "intent-driven trading" mechanism, allowing users to set trading strategies that the system executes automatically without the need for manual intervention at every step. This not only enhances the usability of DeFi but also optimizes strategy execution and improves trading efficiency. In addition, intent may also address liquidity bottlenecks in DeFi through cross-chain technology, breaking down barriers between different chains, optimizing liquidity pools, and enhancing the market depth and trading efficiency of decentralized exchanges.

DeFAI, as a decentralized finance protocol based on artificial intelligence, primarily addresses compliance and risk control issues in DeFi. It utilizes AI technology to analyze and predict market trends, helping the protocol identify potential risks while ensuring the stability of the protocol and reducing operational risks. AI can process large amounts of market data to provide users with more accurate decision support, optimizing market operations and risk management.

Although the increase in abstraction levels can bring certain optimizations, addressing the issue of liquidity fragmentation is more like an "ecosystem integration problem" that requires optimization of existing protocols. Therefore, while promoting abstraction, it is also important to maintain moderation and avoid excessive complexity.

4. The Key Role of a Certain DEX in Promoting the Development of ERC-7683

Although "intention" is a grand narrative concept, the core support for ERC-7683 is likely to rely mainly on a well-known DEX to drive its realization. This is because both intention and DeFAI fundamentally aim to better serve DeFi, and the key element for maintaining the healthy development of DeFi is market liquidity. This dependency is built upon the two conditions of "efficient liquidity supply" and "deeply integrated liquidity."

1. The liquidity advantages of a new version of a certain DEX

The latest version of a certain DEX introduces a more flexible and efficient liquidity pool management mechanism, particularly for concentrated liquidity provision across different price ranges. This mechanism optimizes capital efficiency, making cross-chain transactions smoother. The new version replaces the previous practice of deploying separate smart contracts for each new pool with a single PoolManager contract, reducing deployment costs by 99%, while also lowering swap costs. Additionally, the newly introduced Hooks feature allows developers to customize AMM pools, enabling the ERC-7683 protocol to adjust according to different market demands, better matching various trading pairs and asset liquidity.

2. The potential of a new product from a certain DEX

The new product of this DEX is expected to further enhance cross-chain interoperability, potentially introducing new cross-chain bridging mechanisms or deep integration with ERC-7683, providing more efficient channels for cross-chain asset exchange. If the new product can offer cross-chain liquidity solutions, it will become an important platform for executing cross-chain intentions with ERC-7683.

3. The implementation of cross-chain protocols relies on

Due to the reliance of ERC-7683 on standardized cross-chain trading structures and settlement mechanisms, and the significant position of this DEX in decentralized exchanges, the protocol is likely to depend on the liquidity pools, automated market-making, and cross-chain trading capabilities provided by this DEX. In particular, the support of its new versions and new products not only enables the efficient execution of ERC-7683 but, more importantly, ensures the stability and security of its cross-chain and multi-asset transactions.

V. The Practical Significance of Intent

When we set aside the abstract definition of "intention", it can actually be understood as a clear trading goal or driving force. The concept of intention can be traced back to an article published by an organization on June 1, 2023, which elaborated on the interpretation of the concept of intention. However, this concept has long remained in the theoretical stage, and issues regarding fragmented liquidity and the solving paths of solvers have not been addressed. The introduction of ERC-7683 seems to bring new hope for solving the fragmented liquidity dilemma.

The intent and ultimate goal of ERC-7683 is to inject new vitality into a certain DEX, hoping to trigger a new wave of DeFi enthusiasm. This is not just a continuation of L2 scaling, but rather aims to achieve more efficient trading through the DEX, create richer functionalities, and enhance cross-chain interoperability, even introducing new incentive mechanisms or trading models to attract more users and liquidity.

If the new version or new product of the DEX introduces some new smart contract logic or trading models at the protocol level, through ERC-7683, it can further enhance cross-chain liquidity, reduce transaction costs, and add more trading pairs and liquidity pools based on the existing AMM model. This will make the DEX no longer just a liquidity-dispersed AMM, and these improvements will also become an important component of "intention".