Cross-Chain Transfer Flow

Using Private Liquidity Pools and HTLCs

Approach: Private Liquidity Providers with HTLCs

Instead of relying on a DEX or shared liquidity pool, use a decentralized network of liquidity providers. These liquidity providers lock their own funds in HTLCs and facilitate cross-chain transfers by providing the equivalent value on the destination chain.

Steps for Cross-Chain Token Transfer Using HTLCs and Liquidity Providers

1. Locking Tokens on Chain A:

   • User A transfers 100 Token 1, and they are locked in an HTLC-based private pool contract on Chain A. This HTLC includes a hash lock and a time lock.

2. Generating and Sharing the Hash Preimage:

   • User A's private pool contract generates a secret (preimage) and hashes it. The hash is included in the HTLC on Chain A.

   • User A's private pool contract shares the hash (but not the preimage) with User B's private pool contract on Chain B via the Bridge contract and a cross-chain communication mechanism such as a decentralized oracle or relay network.

3. Private Liquidity Pool on Chain B:

   • A liquidity provider on Chain B has Token 2 and agrees to facilitate the transfer.

   • The liquidity provider locks the equivalent value of 100 Token 2 in an HTLC on Chain B using the same hash.

4. Revealing the Preimage:

   • User A reveals the preimage to unlock the HTLC on Chain A, triggering the process.

   • The preimage is then used by User B and the liquidity provider on Chain B to unlock the HTLC for Token 2.

5. Finalizing the Transfer:

   • User B uses the preimage to unlock and receive the 100 Token 2 from the HTLC on Chain B.

   • The liquidity provider can use the preimage to claim the 100 Token 1 from the HTLC on Chain A, thus completing the transaction.