A few weeks ago, you would have found it quite challenging to transfer your USDC stablecoin from one network to another.

Avalanche users who owned USDC on the Ethereum network would have had to deposit their stablecoins with a Circle partner or use a third-party bridge to transfer their USDC from one network to another.

Fortunately, that is all left in the past now.

Circle, the company behind stablecoin USDC, has launched a mainnet protocol that enables users to transfer USDC tokens across multiple blockchains. This project, called the Cross-Chain Transfer Protocol (CCTP), helps to eliminate the need for conventional third-party or “lock or mint” bridges.

CCTP solves the problems of liquidity fragmentation and impossible user experiences, especially when it comes to the flow of assets across chains. This protocol was designed for third-party developers as a permissionless extension they can integrate into their existing dApps (apps), wallets, and bridges.

In this article, we’ll take a closer look at the all-new Cross-Chain Transfer Protocol, highlighting its features, and what it offers to the USDC ecosystem.  

Also Read: UNICEF’s Crypto Experiment: How DAOs Will Revolutionize Humanitarian Aid

What Is The Cross-Chain Transfer Protocol (CCTP)?

Cross-chain transfer protocol is a permissionless on-chain utility that enables the transfer of USDC tokens across multiple chains via native burning and minting.

As mentioned above, CCTP removes the need to use a “lock or mint” bridge – a protocol that facilitates USDC transfer by locking native USDC on the source blockchain and then minting a synthetic version of USDC on the destination blockchain.

Instead, the process used involves burning the native stablecoin on a source chain and minting the same amount on a destination chain. Developers can integrate CCTP into their apps to allow users to move their USDC across chains in the most capital-efficient way.

It is important to mention that the “burn and mint” mechanism is made possible by two primary contracts, namely MessageTransmitter and TokenMessenger

MessageTransmitter, as the name suggests, is responsible for sending all generic messages on the source chain and receiving all generic messages on the destination chain. Meanwhile, TokenMessenger transmits specific messages to burn USDC on the source chain and mint USDC on the destination chain.

How Does CCTP’s “Burn & Mint” Work?

The Cross-Chain Transfer Protocol is a low-level primitive that most developers can leverage to achieve full functionality within their app, wallet, or bridge. Here, we’ll be looking at the operating mechanisms of CCTP and how it allows USDC to flow natively across multiple networks.

  1. USDC Burning On Source Chain

This is also known as the initiation stage, where a user initiates a USDC transfer from one blockchain to a specific address on another blockchain – usually via an app. This app would facilitate a burn of the specific amount of USDC on the source chain.

  1. Attestation Fetching From Circle

Circle is the issuer of the USDC stablecoin. The company observes and attests to the USDC burn that occurs on the source blockchain. The app requests a signed attestation from Circle, which provides the permission to mint the specified amount of USDC on the destination blockchain.

  1. USDC Minting On Destination Chain

The app uses the signed attestation to initiate the minting of USDC. The exact amount of USDC – burned on the source chain – is minted on the destination chain and transferred to the recipient wallet address.

What Does CCTP Offer To Users?

With Circle’s Cross-Chain Transfer Protocol, users are able to transfer their USDC stablecoins from one blockchain to another. Meanwhile, developers can leverage the multi-functionality of CCTP to improve user experience and users’ trust in their services. Below are the possibilities of the Cross-Chain Transfer Protocol.

Cross-Chain Swaps

CCTP is designed in such a way that allows users to perform cross-chain swaps with digital assets native to distinct chains (for example, ETH on Ethereum for AVAX on Avalanche). This involves swapping ETH for USDC on Ethereum, transferring by CCTP to Avalanche, and exchanging for AVAX – in a completely automated manner.

Cross-Chain Deposits

With CCTP, users can utilize USDC on Ethereum to open a position on a decentralized exchange native to Avalanche. Since CCTP is capable of moving USDC tokens across multiple chains, users won’t have to switch wallets or worry about the network on which their USDC is being held. 

Cross-Chain Purchases

CCTP enables users to utilize USDC on Avalanche to purchase Ethereum-based NFTs on Uniswap and list it for sale on OpenSea.

Upon initiating the transaction, CCTP transfers USDC from Avalanche to Ethereum to buy the NFT from Uniswap, and then opens the listing on OpenSea.

CCTP And Its Community Of Partners

Cross-Chain Transfer Protocol launched on the 26th of April, with a host of partners already integrating the protocol into their products. Some of the bridges and protocols that already have CCTP include Celer, Multichain, Hyperlane, LayerZero, Metamask, and Rocket

It is worth noting that the Cross-Chain Transfer Protocol is only available on mainnet for Ethereum and Avalanche, as of this writing. That said, the protocol is set to expand to additional blockchains, like Solana, throughout 2023.

Is Circle’s Multi-Chain Stablecoin Protocol a Masterstroke?

USDC, the second-largest stablecoin by market cap, is set for a meteoric rise, with the introduction of the Cross-Chain Transfer Protocol.

Now, users won’t have to deal with the loss of their USD coins to bridge hacks, as the “burn and mint” mechanism is definitely an improvement on the “lock and mint” mechanism of most third-party bridges.

With CCTP, Circle is gradually establishing USDC as a universal liquidity layer for Web3 users.

Moreover, it strengthens the company’s vision and mission to introduce USDC natively to additional blockchain networks, while enhancing its reputation as the cheapest and lowest slippage token to be moved across chains.

Overall, the Cross-Chain Transfer Protocol is a stroke of genius, as it helps Circle monopolize the USDC bridging market. However, this also means that third-party bridges will likely struggle to compete with the pricing power.

Also Read: Why I Think Vitalik Buterin Is Wrong: We Need a Cross-Chain Future

[Editor’s Note: This article does not represent financial advice. Please do your research before investing.]

Featured Image Credit: ChainDebrief

This article was written by Opeyemi Sule and edited by Yusoff Kim