We consider the problem of being a cross-chain wealth management platform with deposits, redemptions and investment assets across multiple networks. We discuss the need for blockchain bridges to facilitates fund flows across platforms. We point out several issues with existing bridges. We develop an algorithm – tailored to overcome current constraints – that dynamically changes the utilization of bridge capacities and hence the amounts to be transferred across networks. We illustrate several scenarios using numerical simulations.
Building bridges that do not burn
With the development of several blockchain platforms, investors will seek diversified returns to mitigate the risks from investing in one particular network (Lu, 2019, Prewett et al., 2020, Zamani et al., 2020, Briola et al., 2023; End-note 2). Service providers will focus on rolling out various products on different chains — which become investment opportunities. The complexity of managing funds – and risks – across multiple platforms will give rise to specialized blockchain wealth managers.
Blockchain bridge background basics
At present, blockchain bridges act as both a bottleneck and an Achilles heel.
We consider the problem of being a cross chain asset management platform when there are limitations on the amount of funds – and types of assets – that can be transferred via bridges. More and bigger bridges will be built – as time passes – easing bridge capacity issues once the traffic on the bridges will increase. But right now, there are strict limits on how much funds can be moved from one network to another.
Transferring assets across networks P,Q
The algorithm to mitigate bridge limitations is given below, with clarifications regarding fundamental aspects that motivate various steps. Based on these factors, we develop detailed formulae that would help with decision making related to bridge transfers.
Weight calculations and portfolio rebalancing will be performed periodically — perhaps at irregular intervals to avoid front running (Baum et al., 2021; End-note 8). When rebalancing happens, new deposits and redemption requests from…
Implementation pointers, areas for improvements and conclusions
Wealth managers will select assets across multiple platforms such that investors will get exposure to the whole suite of assets the fund invests over all chains. Having positions on different chains – and hence linking different networks – is one way of providing diversified exposure to investors. The fund prices will have to be the same across all the networks where the investment funds are deployed (Kashyap, 2021). Maintaining investments across networks and adhering to certain portfolio…
Declaration of competing interest
We have no other disclosures to make or have any conflicts of interest. The creation of this manuscript has not received funding from any source.
