Solving Ethereum Fragmentation Issues: The Prospects of Open Intents Framework and ERC-7683

1. The Liquidity Fragmentation Challenges Faced by Ethereum

With the rise of Layer 2 solutions and various DeFi projects, the Ethereum ecosystem is facing an increasingly severe liquidity fragmentation issue. This problem is primarily reflected in the dispersion of asset liquidity across multiple Layer 1 and Layer 2 networks within the ecosystem, forming relatively independent "small circles." Different Layer 2 networks compete for the Total Value Locked (TVL), leading to assets and transactions being scattered across numerous decentralized platforms and protocols. However, there is a lack of effective connections and interoperability between these platforms, causing the liquidity on each chain to operate only within its own closed system, further exacerbating the overall fragmentation cost problem of Ethereum.

It is expected that more than 100 new Ethereum-compatible chains will be launched in 2024. This situation is like entering a mall, facing a dazzling array of products, but needing to use different currencies for settlement. To address this challenge, the Ethereum Foundation announced the launch of the Open Intents Framework on February 20, aimed at providing Ethereum with a "single-chain-like" seamless trading experience. The framework has already gained support from over 50 protocols in a short period, demonstrating its enormous potential.

According to relevant information, the Open Intents Framework is mainly composed of three core components:

1. Open-source Solver: This is an open-source tool written in TypeScript that can monitor on-chain events and process intents. Unlike solvers that rely on specific infrastructure, it has protocol independence and supports features such as indexing, transaction submission, and rebalancing, allowing developers to customize and adjust it according to their needs.

2. Composable Smart Contracts: The framework provides a series of pre-built smart contracts that are based on the ERC-7683 standard, defining the logic for interpreting, executing, and settling intents. Limit order trading and cross-chain settlement are supported by default.

3. User Interface Template: To enhance accessibility for end users, the framework also provides a pre-built, customizable user interface template.

2. ERC-7683: A Unified Standard for Cross-Chain Intent

ERC-7683 is a universal standard for cross-chain intentions on Ethereum, developed collaboratively by several well-known projects, aimed at providing a unified and standardized framework for expressing and executing cross-chain operations, particularly between multiple Layer 2 solutions and sidechains.

The core content and components of ERC-7683 include:

1. Cross-chain order structure: Defines the format of cross-chain orders to ensure 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 in a shared network to complete cross-chain intentions, improving transaction efficiency.

4. Fill in the deadline: Mark the expiration time of the cross-chain intent to avoid prolonged invalid transaction waiting.

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

6. Order data: includes core parameters of cross-chain transactions, such as tokens, amounts, chains, recipients, etc.

One of the biggest advantages of ERC-7683 is achieving seamless cross-chain interaction. By standardizing the expression of cross-chain intentions, users can perform operations across different blockchains without complex setups. This simplifies the operational process and significantly lowers the technical barriers to cross-chain operations.

In addition, ERC-7683 enhances governance capabilities and simplifies the governance processes between different blockchains, making it easier, especially for decentralized autonomous organizations (DAOs), to manage proposals and decisions across multiple chains.

3. Intent and DeFAI: Where is the end of abstraction?

Whether it is Intent or DeFAI, they are essentially derivatives of DeFi financial attributes. The core problems that DeFi really needs to solve are only two: scalability and liquidity. Intent seems to have more practical significance by integrating liquidity through new standards, while DeFAI leverages the development of AI technology to achieve automated AI trading, making DeFi smarter and more interesting.

The solutions proposed by Intent and DeFAI mainly focus on enhancing the user experience of DeFi, optimizing transaction execution, and improving the stability and security of the protocols, but there are also differences between the two:

The core goal of Intent is to simplify the user interaction process through an "intention-driven trading" mechanism. Users can set their trading intentions and strategies, and the system will automatically execute them without the need for manual intervention at each step. This not only enhances the usability of DeFi but also optimizes strategy execution and improves trading efficiency. In addition, Intent may also address liquidity bottlenecks in DeFi through cross-chain technology, helping to break down barriers between different chains and optimize liquidity pools, thereby increasing the market depth and trading efficiency of decentralized exchanges.

DeFAI, as an AI-based decentralized finance protocol, focuses on addressing compliance and risk control issues in DeFi. DeFAI utilizes AI technology to analyze and predict market trends, helping the protocol identify potential risks, thereby reducing operational risks while ensuring the stability of the protocol. AI can process large amounts of market data, providing users with more accurate decision-making support, optimizing market operations and risk management.

To solve the problem of liquidity fragmentation, abstraction seems endless, from account abstraction and chain abstraction to intent and DeFAI. The demand from technology and the market is also driving the birth of more layers of abstraction. We need abstraction, but it should be moderate. The problem of liquidity fragmentation is essentially more like an "integration issue of the ecosystem"; it does not solely rely on the increase of abstraction levels but rather on how to solve it by optimizing existing protocols.

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

Although "intention" is a grand narrative concept, the core support for ERC-7683 is likely to primarily rely on certain mainstream decentralized exchange platforms to drive its realization. Whether it is Intent or DeFAI, the essence of both lies in better serving DeFi, and the key element for maintaining the healthy development of DeFi is market liquidity. This dependency must be established on the conditions of "efficient liquidity supply" and "deeply integrated liquidity."

1. The liquidity advantages of a new version of a large DEX

The introduction of the new version has made liquidity pool management more flexible and efficient, especially for concentrated liquidity provision targeting different price ranges. This mechanism optimizes capital efficiency, making cross-chain trading smoother. In previous versions, each new pool required a separate smart contract to be deployed, resulting in high Gas fees. The new version replaces this with a single PoolManager contract, centralizing the management of all mining pools, reducing deployment costs by 99% and lowering exchange costs. At the same time, the new feature also allows for the development of customized AMM pools, enabling the ERC-7683 protocol to adjust according to different market demands, better matching different trading pairs and asset liquidity.

2. The potential of the new product line

The new product line is expected to further enhance cross-chain interoperability, potentially incorporating new cross-chain bridging mechanisms or deep integration with ERC-7683, providing more efficient channels for cross-chain asset exchange. If cross-chain liquidity solutions can be offered, it will become an important platform for executing cross-chain intentions with ERC-7683. Therefore, ERC-7683 can achieve seamless cross-chain transactions on a larger scale by leveraging the liquidity pools and technical optimizations of the new product line.

3. The implementation of cross-chain protocols depends on

Due to the reliance of ERC-7683 on standardized cross-chain trading structures and settlement mechanisms, certain mainstream DEXs hold a significant position in decentralized exchanges. This protocol is likely to depend on the liquidity pools, automated market making, and cross-chain trading capabilities provided by these platforms, especially in supporting the new product line. These platforms can not only support the efficient execution of ERC-7683, but more importantly, ensure the stability and security of its cross-chain and multi-asset trading.

V. The Practical Significance of Intent

When we set aside the abstract definition of "intention," it can actually be understood as a clear trading goal or driving force. The concept of intention can be traced back to an analysis article published on June 1st of last year regarding intention-based architecture and its risks. However, it has remained in the conceptual phase, and issues related to fragmented liquidity and the solution path of solvers have not been resolved. Nevertheless, the introduction of ERC-7683 seems to have given us a glimpse of a better solution to the fragmented liquidity dilemma.

The ultimate goal is to inject new vitality into decentralized trading platforms, hoping to trigger a new wave of DeFi enthusiasm. Therefore, the intention of ERC-7683 is not merely to continue Layer 2 expansion, but to attract more users and liquidity by achieving more efficient transactions, creating richer functionalities, stronger cross-chain interoperability, and even introducing new incentive mechanisms or trading models.

If certain mainstream DEXs introduce new smart contract logic or trading models at the protocol level, through ERC-7683, it can further enhance cross-chain liquidity, reduce transaction costs, and increase more trading pairs and liquidity pools based on the existing AMM model. This will make these platforms no longer just liquidity-distributed AMMs, and these improvements will also become an important part of "intention".