Challenges and Risks of Cross Chain Liquidty Management (Alessandro Buser)

yes um so hey everyone I'll give a brief talk about um cross chain liquidity and the challenges the different teams are facing when they try to get their stable coins or all assets into a variety of other chains so um brief intro and dialectic we are major onchain liquidity providers uh we provide liquidity to uh stable coins eth and Bitcoin um and it's all onchain lping into taxes Landing markets Bridges or anything else that's on chain and needs liquidity and um the way that we allocate uh the liquidity that we have and the way that we generate yield for our investors is that we follow a risk adjusted portfolio construction approach so the first thing for us to look at is always what's the risk exposure that we have what are the underlying risk exposures that we have and from there we can understand whether not an opportunity is appealing and and it all starts with due diligence like the first thing that we need to do when there's a new opportunity is that we need to do due diligence on the opportunity to understand all of the risk exposures so the way that we look at risk is that we have a graft based view of defi so like what we can do is that for any opportunity in defi uh we can do a segregation of all the underlying dependencies of the opportunity so as you can see here there's a say uh aerodrone position on base and the Assets in the pool as usdc and USD by Reserve um and as you can see if you do the full breakdown of all of the dependencies of this position it becomes quite complex there's a lot of underlying exposures to different smart contracts there's an exposure to an oracle um there's exposure to um like upgradable proxies and all these things so this is for us like the first thing that is the the input and this is what we need to understand um the main categories of risk that we look at is the risk inherent in the chain that the position is on the risk that comes from the bridge if we need to bridge the liquidity to another chain and we look at the Smart contracts we look at the oracles that are involved also the economic mechanism of the protocol so in case of lending markets there is risk on the collateral and bad debt and all of these things um and more specifically um an example of this is like if we have two opportunities that we are looking at both opportunities require liquidity um and we do the due diligence and the risk assessment um what we basically need to do is to do a multi-dimensional optimization so we need to understand what are all of the risk exposures how much is the APR and then we need to compare all positions on a relative basis to understand which position is more efficient to deploy in um so in the case of of this example the positions are very similar um the one on that's marked is opportunity one has a bit lower APR but it doesn't have any chain risk and any Bridge risk so this would be an opportunity on Main net whereas the opportunity 2 um is an example opportunity that's deployed on another chain and so it also has Bridge exposure and so what we basically need to do is understand how much is the risk premium for the extra exposure that we would take on by Bridging the liquidity to the other chain um and by taking on the exposure to the Bridge um and when it comes to like the the bridge exposure there's some drawbacks um that I think are important to mention if you're a stable coin or if you're another protocol and you're looking to bootstrap your liquidity another chains from a liquidity provider perspective um there's a few inefficiencies that we need to take into consideration and that we need to price into the APR that we expect for that position so for example um if we do deploy liquidity on an L2 we take the exposure of the L2 the infrastructure the sequencer everything that's running we also have exposure to the bridging infrastructure so in case it's like uh Stargate or if it's Wormhole or if it's chain like all of these Bridges have their own mechanisms and they all have some risk vectors that we need to to consider and price into the expected APR um there's also additional inefficiencies like if it's a native bridge then there's an opportunity cost them bridging back um there may be lower liquidity on the other chain um so the point being here is that if you want liquidity on other chains that are not main net um there needs to be an understanding that um the extra risks and the extra complexities that the liquidity provider has by deploying those positions comes with an additional cost um because we could just deploy a position on Main net not have to deal with all of this and if we get the same or a very similar yield then it doesn't really make sense for us to deploy the positions on other chains um so as a project um what you can consider or like what things to to like think about if you're thinking to bridge your assets to another chain and bootstrap liquidity there um it's on the one side just like the infrastructure um that you're deploying on if it's like a super chain if it's like op stack or it's some like orbit from orbit chain those are all things that are battle tested those are all like um technologies that have been out for a while so that's like lower risk than if it's some evm if it's some new like mechanism that hasn't been battle tested so that's one consideration um the other consideration is around the security and the settlement guarantees um so for example on unlike a lot of the optimistic rollups there's a 7-Day withdraw que um so that also add some complexity because uh the liquidity providers are not getting any yield while they're bridging back whereas something like a ZK rollup has much faster time to to bridge back um so so that's a benefit um and then also on um on like the compatibility like some of the ZK uh chains have like some different op codes and that changes the behavior of smart contracts so that's also things to consider um when like choosing these infrastructures um and the same thing on on the bridges um there's like a lot of different ways um in which you can Bridge your assets there are some chains that have um there's some bridges that have their own security uh models or Bridges you have to run your own validator and all of those also compromises um that kind of affect how the risk is perceived of the opportunity and then if the risk is perceived to be higher then the liquidity providers expect higher APR um which makes the position more costly for the protocol who's deploying that um yes that's that was most of it if you want to ask some questions around like how we think about deploying liquidity on other chains feel free to speak to me or to some of the people on my team um yep thanks so much