The recent bull run of TIA and Celestia behind it have once again drawn public attention to the modular concept. In March 2024, Celestia’s market value reached $2.95 billion, an eight-fold increase in the past five months. In addition to Celestia, the modular product Dymension was launched on November 15, 2023, deploying approximately 14,000 rollapps. Eigenlayer has locked $2.5 billion worth of assets in the protocol.

The growth rate of Ethereum Layer2 assets is not to be outdone, with Arbitrum trading $7.8 billion of ETH through the standard bridge alone; Optimism and zkSync rollups execute millions of transactions daily.

Could the development of modular blockchain architecture and the rapid growth of Ethereum Layer2 assets herald the coming of the modular era? Mitosis, the subject of this article, is a liquidity protocol born to solve the scalability problem of cross-chain liquidity in the modular era.

A Modular Liquidity Protocol to Meet Future Cross-chain Needs

A key prerequisite for DeFi multi-chain scaling is a well-functioning cross-chain protocol, and today’s cross-chain landscape revolves around protocols such as Stargate and Across, which address cross-chain needs within the Ethereum L1 or L2 ecosystem. LPs share protocol fee revenue without further utilization of locked assets, chain connections are retained and updated in a permissioned manner, and proprietary trust assumptions guarantee the security of each solution. The current setup can and should be adjusted to fully meet the upcoming cross-chain needs of the multi-chain era.

Mitosis believes the key is to scale cross-chain liquidity with the entire DeFi ecosystem, make locked assets composable, make LPs feel valuable, and aims to achieve this goal from the following aspects:

Ensuring Scalability of Capital Efficiency

The only use case for liquidity networks today is cross-chain transfers. While this should be the basic use case for cross-chain liquidity, the lack of further utilization may make cross-chain LPing less attractive than other DeFi use cases. Because a large amount of liquidity is needed to meet the upcoming high demand for cross-chain transactions between modular blockchains, severe transaction restrictions may result.

Mitosis makes cross-chain LPing more attractive by making it liquid. Mitosis LPs receive derivative tokens that can be exchanged 1:1 with their locked assets. LPs can use these derivative tokens to participate in various DeFi applications on supported Ethereum L1 chains and L2 Rollups, essentially allowing LPs to earn additional income on their cross-chain assets on a default fee-sharing basis.

Mitosis LP can also seamlessly import its derivative tokens into the Mitosis Chain. The Mitosis DeFi Ecosystem is our proposal to redefine cross-chain transactions, replacing traditional chain-to-chain execution with an efficient approach using derivative tokens on the Mitosis Chain, guaranteeing instant finality.

Achieving Flexible Network Scalability

In contrast to the blockchain industry’s ongoing transition to modularity and permissionless, today’s cross-chain interoperability remains isolated. The Liquidity Network can only serve chains integrated through its underlying Any Message Bridge (AMB) solution. This results in a subordinate structure where chains rely on permissioned AMB connections to provide cross-chain liquidity to their users. This interoperability setup lacks the scalability needed to meet the high cross-chain demand of the many upcoming modular blockchains.

Mitosis’ cross-chain liquidity is built on permissionless interoperability, a core philosophy of its strategic partner Hyperlane. Anyone can quickly deploy Mitosis smart contracts and connect to other modular chains through the rapid governance process on Mitosis. By releasing liquidity from the subordinate structure of the AMB solution, Mitosis ensures sovereignty and brings cross-chain interoperability to the same level as the ongoing modular transition.

Adopting Robust Security Scalability

Current cross-chain security cannot scale with the locked LP assets it should protect.

For solutions protected by AMB operators, there seems to be a poor match between the clearly visible TVL and the opaqueness of the penalties that operators must pay for malicious behavior. For solutions secured by PoS chains and governance tokens, the number of staked tokens inevitably sets a cap on the growth of TVL, as PoS node operators are incentivized to profit from the protocol once the economic security threshold is breached. In today’s cross-chain protocols, there are still questions about whose responsibility this is.

Mitosis uses a crypto-economic security structure that becomes more robust as the protocol’s TVL increases. In addition to the security of Mitosis Chain PoS operated by a trusted group of validators, Mitosis plans to leverage the security of re-collateralized ETH to validate cross-chain messaging. Additionally, cross-chain LPs can choose to offer their derivative tokens to secure Hyperlane-powered cross-chain messaging and be rewarded with Mitosis governance tokens.

Components of Mitosis

miAsset

miAssets are cross-chain LP tokens minted at a 1:1 ratio with deposited assets. The value of miAssets is always pegged to the main assets at a 1:1 ratio. However, if a deposit helps balance Mitosis Vaults, extra miAssets might be issued during minting; if a redemption significantly disrupts the balance of Mitosis Vaults, a small penalty might be imposed.

miAssets accumulate revenue by default. Users can obtain rebasing benefits by simply holding miAssets. The default yield for miAssets is related to the cross-chain activity facilitated by leveraging the provided assets. Fees generated by cross-chain users are allocated to LP. This distribution occurs in a rebase format, similar to stETH. The number of miAssets increases in real time.

Mitosis Architecture

The Mitosis Liquidity Protocol consists of Mitosis Vaults, Mitosis Chain, Hyperlane AMB and Mitosis ISM.

Mitosis Vaults

Mitosis Vaults keep liquidity safe. These are smart contracts deployed in every network supported by the Mitosis Liquidity Network.

On supported networks, Liquidity Providers (LP) deposit their assets into Mitosis Vault. Mitosis Vault securely stores assets and initiates the miAsset minting process. Limited partners receive miAssets at a 1:1 ratio to the primary assets they deposit. (e.g. deposit eETH, receive meETH). With these miAssets, LPs can engage in various DeFi activities. When LPs wish to recover their primary assets, their miAssets will be burned and the original assets will be withdrawn from the Mitosis Vault.

Mitosis Chain

The Mitosis chain is an EVM-compatible Cosmos chain. It plays a dual role: incubating various DeFi protocols and acting as the source of truth for cross-chain activity.

This ecosystem is a particularly interesting place for LPs to leverage miAssets, as it brings together assets from different networks in the form of miAssets. For cross-chain users, the DeFi protocol within the Mitosis ecosystem facilitates the execution of various cross-chain activities.

Mitosis Ledger Module

Operating cross-chain activities is challenging because state changes occur on different chains, resulting in a large number of sources of truth.

To ensure the viability of certain cross-chain activities and prevent unnecessary gas costs, the network must monitor the Mitosis Vault on each chain connected to the Mitosis Liquidity Network. However, as the number of supported networks grows, the efficiency of this task decreases exponentially or even becomes impossible. To solve this problem, Mitosis Chain maintains the Mitosis Ledger – a common source of truth. All cross-chain activities pass through the Mitosis Chain, which records these activities on the Mitosis ledger. The Mitosis Ledger ensures a reliable source of truth; the network only needs to refer to the Mitosis Chain.

Development Roadmap

Mitosis’s project roadmap consists of four unique phases, with the first and second phase already completed.

Phase 1: A closed test composed of a selected group of validators (completed in December 2023)

Phase 2 (Expedition): Mitosis Expedition testnet (March 8, 2024 - March 15, 2024)

Phase 3: Public Testnet (Q2 2024)

Phase 4: Mainnet + TGE (Q3 2024)

Among them, the Mitosis Expedition event marks the beginning of LRT cross-chain expansion, and Liquidity Restaking Tokens (LRT) have the potential to become the next generation DeFi primitives. Mitosis could be a rare multi-chain transition partner for LRT. It collaborates with the market leader of LRT, EtherFi, as the first partner of Expedition, participating in the multi-chain transition of eETH.

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