An Ethereum Improvement Proposal (EIP) made on July 7 seeks to standardize how tokens are bridged between networks. The “Sovereign Bridged Token” standard, or EIP-7281, allows token issuers to create canonical bridges across multiple networks.
The proposal was co-authored by Arjun Bhuptani, founder of the Connext bridging protocol. In a July 7 social media post, Bhuptani claimed the protocol would help prevent issues like the July 6 Multichain incident, which some experts have described as a “hack.”
Today’s @MultichainOrg hack is a sad reminder of the systemic risks tokens face from bridges.
We believe these risks stem from a single underlying problem:
✨Token Sovereignty✨
We’re proposing ERC-7281 (aka xERC20) – an open standard to fix this.https://t.co/k9Vyd55Eb5
1/x
— Arjun | ERC-7281 arc (@arjunbhuptani) July 7, 2023
According to the proposal’s discussion page, it allows token issuers to designate a list of canonical bridges. Only bridges added to this list could mint an official version of the issuer’s token. Issuers can also limit the number of tokens a bridge is allowed to mint. These parameters can be changed at virtually any time by the issuer.
In Bhuptani’s view, this proposal will ensure that “ownership of tokens is shifted away from bridges (canonical or 3rd party) into the hands of token issuers themselves” and will limit losses if a bridge’s security comes into question:
“In the event of a hack or vulnerability for a given bridge (e.g. today’s Multichain hack), issuer risk is capped to the rate limit of that bridge and issuers can seamlessly delist a bridge without needing to go through a painful and time-intensive migration process with users.”
Related: $30B stolen from crypto ecosystem since 2012: Report
Bhuptani said the proposal would also help prevent user experience problems in decentralized finance, as all bridges will issue the same official token. Over time, this will eliminate the need for multiple versions of the same token, he claimed.
Stablecoin issuer Circle has already created the Cross-Chain Transfer Protocol (CCTP) to list official bridges for its token, US Dollar Coin (USDC). EIP-7281 intends to implement the basic concept behind CCTP but also tries to make this solution apply “more broadly to all tokens,” according to the proposal’s notes.
Both Circle and Tether have blacklisted some of the addresses used in the Multichain incident, preventing $65 million worth of USDC and Tether (USDT) from being moved out of these addresses.