Multichain Review

What is Multichain?

Multichain, originally launched in July 2020 as Anyswap, is a cross-chain router protocol (CRP) facilitating seamless token bridging across various blockchains. The project's foundation was marked by significant support, including a notable investment from Binance's accelerator program. Multichain quickly distinguished itself by supporting a wide range of blockchains, both Ethereum Virtual Machine (EVM) compatible and others like Cosmos and Terra. 

One of Multichain's key strengths is its ability to bridge tokens through two primary methods: locking tokens on one blockchain and minting wrapped tokens on another, and using liquidity pools for tokens that exist in native forms on multiple blockchains. The platform also introduced a governance token, MULTI, enabling holders to participate in project governance.

Are there any controversies around Multichain?

Multichain's journey has not been without its challenges. The platform has faced multiple exploits and security breaches, leading to significant losses. Its operations have been disrupted multiple times, including a temporary shutdown following the arrest of its CEO, Zhaojun, in May 2023. This led to a period of uncertainty and operational difficulties, as Zhaojun and his family held essential access and control over the platform's operations. The lack of clear communication from the Multichain team during this period amplified the uncertainty for users and the community.

Despite these setbacks, Multichain has managed to relaunch its operations in June 2023. However, the relaunch was marred by another exploit. Following it Multichain went silent and discontinued its operation until November 2023 when it relaunched only to be immediately exploited again. 

As of the time of writing this review, the platform seems operational, however all its official communication channels, including X(Twitter) and Discord, have remained silent since June 2023. The leadership situation at Multichain remains uncertain, with the operational status of the platform in a state of flux. The community awaits further updates on the platform's governance and operational capabilities.

How does Multichain work?

Multichain operates as a cross-chain router protocol (CRP), which essentially serves as a bridge for transferring assets across various blockchain networks. The core of Multichain's operation lies in its token bridging mechanism, which is executed through two primary methods:

In the first method - also called “Lock-and-Mint”, tokens are locked on the source blockchain in a smart contract. Correspondingly, an equivalent amount of wrapped tokens (representing the locked asset) is minted on the target blockchain. This process ensures a 1:1 peg between the locked asset and the minted wrapped asset, preserving the value across chains.

In the second method, suitable for tokens that already exist natively on multiple blockchains, Multichain employs liquidity pools to facilitate transfers. Users swap their tokens with an equivalent value in the target chain's native or equivalent token.

Multichain's routers are crucial in streamlining the user experience. They automatically determine which of the above methods to employ based on the asset being transferred and the involved blockchains. 

The security and reliability of Multichain are bolstered by a network of Secure Multi-Party Computation (SMPC) nodes. These nodes, run by various independent entities, each hold a part of the private key required for transaction authorization. The distributed nature of these keys aims to ensure that no single entity has complete control, thereby enhancing security and reducing the risk of a single point of failure.

How does the Multichain Lock-and-Mint mechanism work?

The Multichain Lock-and-Mint mechanism is the primary method Multichain uses to bridge assets between different blockchains. It involves two key steps - locking and minting.

When a user wants to transfer an asset from one blockchain (source chain) to another (destination chain), the asset is first locked in a smart contract on the source chain. This action ensures that the asset is securely held and cannot be used for other purposes while the transfer is in progress.

Corresponding to the locked asset, Multichain mints a wrapped version of the asset on the destination chain. This wrapped asset represents the original asset but is compatible with the blockchain technology of the destination chain. 

The process can be reversed when transferring assets back to the original chain. The wrapped asset on the destination chain is burned (destroyed), and the originally locked asset is released from the smart contract on the source chain.

Secure Multi-Party Computation (SMPC) nodes, run by trusted organizations and individuals, play a crucial role in this mechanism. They collectively sign transactions related to the lock-and-mint process, with each node only knowing a part of the key. 

How do Multichain liquidity pools work?

Multichain Liquidity Pools are another essential component of Multichain's cross-chain transfer mechanism, especially for assets that are native to multiple blockchains. 

Liquidity pools are formed on various blockchains within the Multichain ecosystem. These pools are filled with native tokens, supplied either by Multichain itself or by external liquidity providers.

When a user initiates a cross-chain transfer, the Multichain system checks for the required asset in the liquidity pool of the target blockchain. The user's asset is then swapped with an equivalent asset from this pool. The success of the transfer heavily depends on the availability of sufficient liquidity in the pools. 

Providing liquidity to these pools is incentivized by transaction fees and other rewards, which are derived from the fees paid by users conducting cross-chain transfers. The more liquidity a provider contributes, the larger their share of transaction fees becomes.

How do Multichain cross-chain routers work?

Multichain Cross-Chain Routers are an integral part of the Multichain ecosystem, designed to facilitate the transfer of assets across multiple blockchain networks. These routers are designed to enable a more streamlined and efficient process for cross-chain transactions. 

The Multichain router acts as a sophisticated bridge connecting more than two blockchains. It determines the best method for transferring assets, depending on the type of asset and the involved blockchains.

For tokens that are native to a specific blockchain, the router uses liquidity pools for cross-chain transfers. In this case, assets are swapped using the liquidity available in these pools on the respective blockchains.

When it comes to bridged assets, the router utilizes a different approach. These are assets created using specific smart contracts that allow for their minting and burning across chains. Here, the router ensures that a liquidity pool of the asset is available on the chain where it was originally minted.

In some instances, the router combines native and bridged assets for cross-chain transfers. This usually happens when a token is native on some chains but needs to be bridged for additional chains.

How do Multichain Multi-Party Computation (SMPC) Nodes work?

SMPC nodes in the Multichain network are designed to collectively perform computations while keeping the data private. This means that each node only knows a part of the overall data or key, and no single node has complete information.

The core of SMPC functionality lies in distributed key generation. In this process, the private key needed for authorizing transactions is divided and distributed across multiple nodes - meaning that each node independently owns a fragment of the key. This approach ensures that the complete private key is never fully assembled in one location, aiming to make it nearly impossible for bad actors to reconstruct the key and compromise the network.

When a transaction occurs, it requires authorization, which is where SMPC nodes come into play. Instead of a single signature from one complete key, the transaction is authorized through multiple signatures – each coming from a fragment of the key held by different SMPC nodes.

What is Multichain's MULTI Token?

Multichain's MULTI token is the governance token of the Multichain ecosystem, playing a vital role in its decentralized governance structure. 

MULTI token holders are empowered to participate in governance decisions of the Multichain ecosystem. This participation includes voting on various proposals and changes related to the development and operation of the Multichain protocol.

The MULTI token succeeded the ANY token as part of Multichain's rebranding in December 2021. Holders of the ANY token were given the opportunity to convert their holdings to MULTI on a 1:1 basis.

The total supply of MULTI tokens is capped at 100 million, mirroring the total supply of the original ANY tokens. At the time of the swap, the circulating supply of MULTI was set based on the circulating supply of ANY, while the remaining uncirculated MULTI tokens are locked in smart contracts.

MULTI token holders can stake their tokens to receive veMULTI, a mechanism that allows them to earn a share of the platform's fees. This model is designed to incentivize long-term holding and active participation in the ecosystem. The rewards for staking are distributed weekly, and the amount received is dependent on the quantity of tokens staked and the duration of the stake.

The uncirculated MULTI tokens are under the control of the Multichain DAO (Decentralized Autonomous Organization), where their specific use is determined by community governance. 

What is Multichain’s governance model?

Multichain's governance model is primarily centered around its governance token, MULTI, and incorporates elements of a decentralized autonomous organization (DAO). The governance token MULTI is integral to this model, as it allows holders to participate in governance decisions of the Multichain community and ecosystem. The transition to this governance model was a part of Multichain's evolution from Anyswap. 

The MultiDAO, as an extension of Multichain, is a community-driven initiative that focuses on enhancing Multichain's role as in cross-chain interoperability. Its mission is to support key business functions such as marketing, administration, security, and R&D for Multichain. 

MultiDAO operates on a "work-to-earn" model through a Proof of Contribution System, allowing members, or 'Multi Citizens', to earn rewards for their contributions. This includes tasks like translation of articles, which are rewarded with bounties.

A critical element of MultiDAO is the Multi-SBT (Soulbound Token), a non-fungible, non-transferable token representing an individual's voting power in the DAO, based on their Proof of Contribution score. This score is influenced by the member's veMULTI holdings and participation in events and DAO-related work. Different contribution levels within Multi-SBT, such as Bronze, Silver, Gold, Platinum, and Diamond, determine the members' bonus rewards and governance capabilities.

MultiDAO comprises various guilds like marketing, business development, development, and research, each focusing on specific aspects of project incubation and collaboration. Governance in MultiDAO involves public and meta-proposals, with active participation from Multi Citizens. The treasury, managed by council members, plays a crucial role in funding and operational decisions. Emergency governance processes are also in place for rapid decision-making. 

What is the Multichain team?

The team behind Multichain, has experienced significant challenges and changes, particularly surrounding its leadership and their roles in recent events. One of the key figures associated with Multichain is Zhaojun, who served as the CEO. His involvement with Multichain became particularly notable following an incident involving unauthorized transfers of a large amount of tokens from Multichain's networks, leading to a temporary suspension of operations.

Following this, some developers from Multichain's team initiated a new project named ValueRouter, which shares similarities with Multichain in its function and technology. Despite its potential, the project faced skepticism from the community, especially considering the unresolved issues related to the Multichain.

The situation with Multichain further escalated when rumors surfaced about the possible arrest of its core leadership team in China, including CEO Zhaojun. This led to considerable uncertainty among users and partners, as the team's silence and lack of updates amplified concerns. DJ Qian, a co-founder of Multichain who is no longer with the project, made official inquiries regarding the situation with Zhaojun and founding partner Xu Guochang but did not receive clear answers.

Additionally, the lack of communication from the leadership resulted in complications for various stakeholders in the ecosystem, including partners and token holders. There were notable reactions from entities like Conflux Network and the Fantom Foundation in response to the unfolding situation.

Is Multichain safe?

The safety of Multichain has come under scrutiny following a series of security incidents. One of the most significant was a massive exploit resulting in over $125 million in losses. This incident involved unauthorized withdrawals from Multichain's Fantom bridge and other assets like wrapped Ether and wrapped Bitcoin. 

Moreover, due to the arrests of important team members and the total lack of communication following them, DeFi Teller urges its readers to proceed with utmost caution when/if they decide to interact with Multichain.

Has Multichain been hacked?

Multichain has experienced several significant hacks in its history, with each incident raising serious concerns about the protocol's security.

1. First Major Exploit (July 6, 2023): This incident involved unauthorized withdrawals of more than $125 million and is considered one of the largest crypto hacks on record. The bulk of the assets were withdrawn from Multichain's Fantom bridge, including wrapped Ether (wETH), wrapped Bitcoin (wBTC), and USDC. Additional funds were taken from the Dogecoin and Moon River bridges. The hack led to a severe drop in the value of Multichain's token, MULTI. The compromise of Multichain’s multi-party computation (MPC) keys is suspected to have facilitated the exploit​​​​.
2. CEO's Arrest and Operational Challenges (May 31, 2023): Prior to the July exploit, Multichain faced significant operational issues following the arrest of its CEO, Zhaojun, by Chinese authorities. The arrest led to a loss of access to vital operational servers and funds, and Zhaojun's sister was also implicated in transferring funds for "asset preservation". This situation forced the suspension of services for more than 10 chains and caused delays in transactions​​​​.
3. Additional Exploits and Security Breaches: In addition to these major incidents, Multichain has suffered from other security breaches and technical problems, including an approval-draining attack in 2022, which resulted in a loss of $3 million. The protocol also faced issues with delayed transactions and other technical problems, further impacting user confidence and stability​​.

What is the latest Multichain roadmap?

Since the team behind the project has stopped any official communication with the public it is unclear if there are any future plans of development for the project.

Links

https://docs.multichain.org/ 

https://multidao.gitbook.io/ 

https://snapshot.org/#/multichaindao.eth/ 

Author:

Frank Stewskid

Last updated: Jan 09, 2024