Exploring New Solutions to the Fragmentation Problem in the Ethereum Ecosystem

1. Challenges of Fragmentation Facing Ethereum

With the vigorous development of multiple L2 solutions and DeFi protocols, the Ethereum ecosystem is facing an increasingly severe liquidity fragmentation problem. This issue is mainly reflected in the fact that the liquidity of assets in the ecosystem is divided into multiple isolated parts by L1 and numerous L2s. Different L2 platforms compete for the Total Value Locked (TVL), resulting in assets and transactions being dispersed across various decentralized platforms and protocols. However, there is a lack of effective connections and interoperability between these platforms, causing liquidity on each chain to operate only within its own independent small range, exacerbating the overall fragmentation cost issue of Ethereum.

It is expected that over 100 new Ethereum-related chains will be launched in 2024, resembling entering a shopping mall filled with a variety of products, yet requiring different currencies for settlement. To address this challenge, the Ethereum Foundation launched the Open Intents Framework on February 20 of this year, aimed at providing a seamless trading experience for Ether similar to a "single chain". Within just a few days of its launch, the framework gained support from over 50 protocols.

According to the official explanation, the Open Intents Framework consists of three core components:

1. Open-source solver: Written in TypeScript, capable of monitoring on-chain events and processing intents. It has protocol independence and supports features such as indexing, transaction submission, and rebalancing, allowing developers to customize according to their needs.

2. Composable Smart Contracts: Based on the ERC-7683 standard, it defines the logic for interpreting, executing, and settling intentions. It natively supports limit order trading and Hyperlane ISM settlement.

3. UI Templates: Provide pre-built, customizable user interface templates designed to enhance the accessibility of intent products.

2. ERC-7683: Core of the Open Intents Framework

ERC-7683 is a universal standard for cross-chain intentions on Ethereum, co-led by Across and Uniswap Labs. It aims to provide a unified, standardized framework for expressing and executing cross-chain operations, especially between multiple L2 solutions and sidechains.

The core content and components of ERC-7683 include:

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

2. ISettlementContract interface: Standardizes the handling of the settlement process, allowing cross-chain transactions to be flexibly settled between different platforms.

3. Fulfil mechanism: Allows participants to compete to fulfill cross-chain intentions in a shared network, improving efficiency and optimizing user experience.

4. Fill in the deadline: Mark the expiration time of the cross-chain intention to avoid prolonged waiting for invalid transactions.

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

6. Order data: Contains the core parameters of cross-chain transactions, defining the expected outcome of cross-chain transactions.

The main advantage of ERC-7683 lies in achieving seamless cross-chain interaction and enhanced governance capabilities. It simplifies the cross-chain operation process, lowers the technical threshold, and optimizes the governance efficiency of decentralized autonomous organizations (DAOs) across multiple chains.

3. The Development Direction of Intent and DeFAI

Intent and DeFAI both originate from the financial attributes of DeFi, but the core issues that DeFi truly needs to address are scalability and liquidity. Intent seems to make more practical sense by integrating liquidity through UNI and ERC-7683, while DeFAI becomes more prominent by leveraging the wave of AI narrative and automated AI trading.

The core goal of Intent is to simplify user interaction through the "intent-driven transaction" mechanism, enhance the usability of DeFi, and optimize strategy execution. Additionally, Intent may also address liquidity bottlenecks in DeFi through cross-chain technology, breaking down barriers between different chains.

DeFAI, as an AI-based decentralized finance protocol, focuses on addressing compliance and risk management issues in DeFi. It utilizes AI technology to analyze and predict market trends, helping to identify potential risks while providing users with more accurate decision support.

Although increasing the level of abstraction can alleviate the problem of liquidity fragmentation to some extent, what is more important is how to achieve ecosystem integration by optimizing existing protocols.

4. The Key Role of Uniswap in Promoting the Development of ERC-7683

Although "intention" is a grand concept, the core support for ERC-7683 may primarily rely on Uniswap to drive its implementation. This is because both Intent and DeFAI essentially aim to better serve DeFi, and the key element for maintaining the healthy development of DeFi is market liquidity. This dependence needs to be built on two conditions: "efficient liquidity supply" and "deeply integrated liquidity".

1. The liquidity advantages of Uniswap V4: The V4 version makes liquidity pool management more flexible and efficient, especially for providing concentrated liquidity across different price ranges. It optimizes capital efficiency, making cross-chain trading smoother. V4 replaces the practice in V3 of deploying a separate smart contract for each new pool with a single PoolManager contract, significantly reducing deployment and exchange costs.

2. The Potential of Uniswap X: Uniswap X 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.

3. The implementation of cross-chain protocols depends on: As ERC-7683 relies on standardized cross-chain transaction structures and settlement mechanisms, and Uniswap holds an important position among decentralized exchanges, the protocol is likely to depend on the liquidity pools, automated market making, and cross-chain trading capabilities provided by Uniswap.

V. The Practical Significance of Intent

Setting aside abstract definitions, "intention" can actually be understood as a clear trading goal or driving force. This concept can be traced back to an article published by Paradigm in June 2023. Although it has remained in the conceptual stage, the launch of ERC-7683 seems to provide a better solution to the problem of fragmented liquidity.

The intention and ultimate goal of ERC-7683 is to inject new vitality into Uniswap, hoping to trigger a new wave of DeFi enthusiasm. This is not just about continuing L2 scaling, but rather achieving more efficient trading through Uniswap, creating richer functionalities and stronger cross-chain interoperability, and even introducing new incentive mechanisms or trading models to attract more users and liquidity.

If Uniswap V4 or Uniswap X introduces new smart contract logic or trading models at the protocol level, Uniswap can further enhance cross-chain liquidity, reduce transaction costs, and add more trading pairs and liquidity pools based on the existing AMM model through ERC-7683. This will make Uniswap no longer just a liquidity-dispersed AMM, and these improvements will also become an important component of "intent."