Atomic Aave Lending Position Swap (Trustless and Cross-Chain)

Introduction

Welcome to the Atomic Aave Lending Position Swap (AALPS) project!

This project demonstrates a completely trustless, decentralized, cryptographically secure protocol for cross-chain atomic swaps of Aave lending positions (aTokens). It enables holders of lending positions (aTokens) in Aave to securely exchange aTokens for other aTokens, or any ERC20 token between any chain that supports AaveV3.

For example, someone can use an AALPS to trustlessly swap their aTokens on Avalanche for USDC on Polygon - or aTokens on Ethereum for aTokens on Avalanche. (For the purposes of this demo, I have deployed the protocol exclusively on Mumbai and Sepolia, but it would work on any EVM chain)

We refer to the mechanism as the Atomic Aave Lending Position Swap (AALPS). The outcome is full interoperability between any EVM chains for trading Aave liquidity positions. ✨👻

Prerequisites

Before you get started, ensure you have the following installed:

• Node.js (version 16.20.0 or higher)
• NPM (Node Package Manager)
• Hardhat (version 2.19.1)
• I used WSL2 as my terminal

Installation

To set up the Atomic Aave Lending Swap project on your local machine, follow these steps:

1. Ensure you have the prerequisites above

npm install

Simulate an AALPS locally via hardhat with Mock aTokens

AALPS works in the exact same way on 1 chain or in a multi-chain setting. It does not need to know which chains it is operating on. In this local simulation, two parties swap mock aDai and aWBTC using AALPS.

To simulate the swap locally:

Open a second terminal and spin up a hardhat node

npx hardhat node

Then in the first terminal type

npx hardhat run scripts/simulate.ts

All Tests are Passing

Run the tests by typing the following from the root directory

npx hardhat test

How does it work?

AALPS leverages a Secure Exchange Protocol (SEP) that relies on one-way hashing of a cryptographic secret and time-constraints on specific actions. Here are the steps for completing an AALPS. It ensures that all parties funds' remain safe throughout the lifecycle of the transaction.

1. Agreement Creation:

• Party A initiates the process by locking funds on their blockchain. This lock includes a cryptographic challenge, whose solution is a secret code, that only they know the solution to initially. If Party B learns this secret within the deadline, they may unlock these funds.
• The agreement also specifies a deadline by which the transaction must be completed.

2. Agreement Commitment by Party B:

• Party B, upon reviewing the locked assets, engages in the agreement by creating a similar agreement on their blockchain, referencing the cryptographic challenge set by Party A.
• Party B's agreement also includes a deadline, which is set earlier than Party A's deadline, to ensure that Party A has enough time to respond.

3. Asset Locked:

• Both parties' assets are now effectively locked and cannot be accessed by anyone else.
• The assets will only be released when the cryptographic challenge is correctly solved.

4. Challenge Solution and Asset Exchange:

• Party A now reveals the solution to the cryptographic challenge (the secret code) on Party B's blockchain to claim Party B's locked assets.
• By revealing the solution on the blockchain, Party A automatically makes it public, allowing Party B to use the same solution on Party A's blockchain.

5. Completion of the Swap:

• Party B uses the now-revealed solution to claim the assets locked by Party A on Party A’s blockchain.
• This ensures that both parties receive the assets they were swapping, completing the exchange.

6. Failure to Complete:

• If Party A fails to reveal the solution before Party B's deadline, Party B can reclaim their locked assets, as the agreement becomes void.
• Similarly, if Party B does not claim Party A's assets after the solution is revealed and before Party A's deadline, Party A can reclaim their locked assets.

Flow of an AALPS between two parties

Live & Verified Contracts

Polygon Mumbai

https://mumbai.polygonscan.com/address/0x0Ac42b02BFE612454Ea6706Ad910e4d8AF79076e#code

Ethereum Sepolia

https://sepolia.etherscan.io/address/0x537D205A880ea1d927Acb2cb88d16B6D017bE46f#code

Cross-chain swap using AALPS between Polygon Mumbai and Ethereum Sepolia

This project has been used to successfully transfer aWMatic and aWETH positions between Polygon Mumbai and Ethereum Sepolia respectively. See the following transactions on the respective blockchains for a detailed history

1. Alice locks up 0.001 aWMATIC on the Mumbai testnet https://mumbai.polygonscan.com/tx/0x65dc595303973ff8e8a189b2319a23167ae6457c5ad4d982f97344e0b4431901

2. Bob locks up 0.00.1 aWETH on the Sepolia testnet https://sepolia.etherscan.io/tx/0x1b245dc9c3ef0738aff9b82572320b118fe5f6930076aa8ef8b24ac203153997

3. Alice withdraws the aWMATIC exposing the secret _key value https://mumbai.polygonscan.com/tx/0xfc88c84a449bdab4071e10fc117c181ae7d963c225ac6f68b42cd83c22e75544

#	Name	Type	Data
0	_aalpsInstanceId	bytes32	0xc1099f01b38d76e06fb085f84ea3a479ab7cb7e6977c2df9c9c38970f61b7543
1	_key	bytes32	0xc69f07ec6be26b07ff53788ee2ddb717b5ac87d77b8d865a03e7909513fbdf27

4. Bob captures the exposed _key value and uses it to withdraw the aWETH https://sepolia.etherscan.io/tx/0xdc8e27d3a43991fa7b80a20c338a6bb05ed64b6a8430eb6b0d8a1d8db29a6d35

#	Name	Type	Data
0	_aalpsInstanceId	bytes32	0x282690b71e5c914d8964f239a5d9b9d3bb73ada523ae0eb9be5683ec1f01ea64
1	_key	bytes32	0xc69f07ec6be26b07ff53788ee2ddb717b5ac87d77b8d865a03e7909513fbdf27

Further Work

• With more time, I would have liked to create a front-end with a real-time order book that could match users, and instantly finalize AALPS programatically.
• Strict enforcement of deadlines. For now there are dangers involved with hanging transactions. If a transaction hangs and ends up being finalized after the deadline, funds are at risk.
• Extended support for non-evm chains. Chains like bitcoin, litecoin and other UTXOs have a scripting language that can support all the features included here.
• Deploy contracts on all EVM chains, including Avalanche, Arbitrum, Optimistic Ethereum, etc.