Bridge Function

Explaining of Nether's bridge function.

There are 4 types of options to support multi-chain or multi-layer tokens;

• Balance float

• Mint/Burn

• Liquidity swap (combination of balance float and mint/burn)

• Wrapped + Mint/Burn

Nether uses liquidity swap as its bridge function to take advantage of its deep liquidity across L2s. This requires both liquidity and an intermediary transfer token NETHER. For example, you would transfer 1 ETH from Ethereum to 1 NETHER on Boba Network, on Nether protocol, you would have a stable swap variant pool that provides NETHER-ETH. It does not require custody, simply liquidity.

The protocol is responsible for responding to on-chain events to submit transactions to any particular destination layer, directing liquidity within the network to its desired location. The Nether’s bridge function AMM is how the assets that compose that liquidity are transformed into tokens native to the chosen destination layer.

By doing so, an AMM pair is composed of three parts, token A, token B, and a quoted (pegged) price based on the relationship of token A to token B pairs. So for an AMM to be valid, it needs to know the quantity of token A and the quantity of token B. This however means, that token A and token B don’t necessarily have to live on the same layer.

So an LP could provide liquidity in the form of ETH on Ethereum and correlatively NETHER on requested L2. The pair on Ethereum holds ETH, but no NETHER, but is aware of how much NETH is being held on the requested L2 liquidity pool. The pair on L2 holds NETHER, and no ETH, but is aware of how much ETH is being held on Ethereum continuously.

Stable algorithm to price and re-balance assets within its cross-chain liquidity pools to enable frictionless movement of assets between ecosystems with low slippage.

To solve both the absence of gas cost problem through initial L2 onboarding and upcoming scarcity of ETH across L2s, Nether Team deploy a new cross-layer and cross-pegged asset AMM for ETH on native chain and NETHER on deployed L2 to mimic ETH price and used as medium of transaction, for the purposes of illustration, let's assume ETH on Ethereum and NETHER on Boba Network. The pool is deployed with 100 ETH and 100 NETHER. Anyone can add liquidity and anyone that added liquidity can redeem liquidity for the purpose of deeper liquidity.