039 – The new protocol burns the coins in the sending chain and mints new ones in the receiving chain.
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Circle, creator of US Dollar Coin, has launched a mainnet protocol that allows users to transfer USDC between Ethereum and Avalanche, according to an announcement last April. Previously, Avalanche users who held USDC on Ethereum had to deposit their coins with a Circle partner or use a third-party bridge to transfer their USDCs from one network to the other. The new Cross-Chain Transfer Protocol (CCTP) appears to eliminate the need to use USDC bridges.
The team released a video last month showing how the new protocol works. Unlike a traditional bridge, it does not block tokens sent to its contract. Instead, it destroys them completely and issues new tokens on the receiving network. Users can redeem these new tokens for bank deposits directly by depositing the tokens with Circle or its partners.
In the announcement, the team states that it expects CCTP to solve the problem of “fragmentation” in the Web3 ecosystem. Currently, there are multiple unofficial versions of USDC circulating on various networks, most of which are the result of transferring tokens from one network to another. Now that there is an official way to transfer coins from one network to another, the team expects the use of these unofficial copies to slowly decrease, making token usage less confusing.
The team said that many of the major cross-chain protocols have already committed to using CCTP in the future, including Celer, Hyperlane, LayerZero, LI.FI, MetaMask and Wormhole, among others.
The new protocol
Joao Reginatto, Circle’s vice president of product, believes the new protocol will help improve liquidity and capital efficiency in decentralized finance:
“With CCTP, developers can simplify the user experience and their users can be confident that they are always transacting with a highly liquid, secure and fungible asset in native USDC.”
USDC is a fiat-backed stablecoin issued by Circle. The company claims that each USDC token is backed dollar-for-dollar in its reserves. Users can mint USDC by opening an account and depositing cash with Circle itself or one of its partners, such as Coinbase. Once that is done, they can receive the coin on a number of networks, including Ethereum, Avalanche, Stellar and Polkadot.
Users have lost billions of dollars in USDC and other cryptocurrencies to bridge hacks in recent years, as attackers have repeatedly figured out how to remove blocked coins from bridge contracts and leave their copies on the receiving network without backup. This has left developers wondering how to secure bridges for future use as digital assets become more widespread.