I. Introduction

In the blockchain ecosystem, the proliferation of chains, assets, and protocols has complicated access to liquidity and trading across different networks. Emerging solutions aim to address this challenge, and Catalyst is one of them. Catalyst is a cross-chain Automated Market Maker (AMM) designed to simplify and accelerate value exchanges beyond the boundaries of traditional blockchains. Instead of forcing users to navigate through various bridges and interfaces, Catalyst offers a unified model for executing fast and secure swaps across different ecosystems, including cryptocurrencies like Monad.

Notes and Definitions:

AMM (Automated Market Maker): An AMM is a smart contract that creates an automatic market for trading assets. It replaces the traditional order book with a mathematical function that determines prices based on the ratio of assets available in a liquidity pool.

Cross-chain: A cross-chain protocol is designed to interact with multiple blockchains, allowing the transfer of assets, data, and value from one chain to another.

Monad (@monad_xyz, monad.xyz): Monad is a cryptocurrency and high-performance blockchain ecosystem aiming to provide a faster, more economical, and scalable experience. It serves as an ideal support for multi-chain applications like Catalyst.

II. Context and the Liquidity Cross-Chain Problem

2.1 The Challenges of Liquidity Fragmentation

Traditionally, each blockchain has its own liquidity pools and AMMs (like Uniswap on Ethereum), creating value silos that are difficult to interconnect. To perform an exchange between two assets on different chains, users had to navigate complex paths: using a bridge, converting assets, and executing multiple transactions. This friction results in additional costs, delays, and security risks.

2.2 Catalyst’s Role in Solving the Problem

Catalyst (X: @CatalystSystem, Website: https://crosscats.xyz/) simplifies this process. Through an interoperable messaging layer, Catalyst connects liquidity pools across different chains. The innovation lies in dividing the AMM’s state across multiple networks while maintaining price consistency through a unique mechanism called the “Unit of Liquidity” (UoL).

III. The Concept of Unit of Liquidity (UoL)

3.1 Definition

The Unit of Liquidity (UoL) is an abstract representation of asset value that can be transferred between blockchains. When you deposit an asset on one chain, you receive UoL in return, which serves as a standardized measure to represent the deposited value. These UoLs can then be exchanged or “redeemed” on another blockchain, enabling cross-chain swaps without the need for a stablecoin or intermediary asset.

3.2 Advantages

Linear Scalability: The Catalyst protocol scales with the number of connected chains because it only requires liquidity for each new asset, not for each chain.

Global Interoperability: Once integrated, any blockchain can transfer value to any other, facilitating the expansion of the DeFi ecosystem across various networks.

3.3 Simplified Example

Imagine you have ETH tokens on the Ethereum blockchain and you want to obtain tokens from another chain (for example, Monad). Instead of going through a traditional bridge, Catalyst allows you to deposit your ETH, receive UoLs, transfer these UoLs to the Monad chain, and then convert them into the desired asset—all in a unified process.

IV. Catalyst’s Internal Mechanics

4.1 Mathematical Foundations (Uniswap v2 Recap)

AMMs like Uniswap v2 rely on a constant product formula: X * Y = K, where X and Y are the quantities of two assets in a pool. This relationship determines the marginal price and allows for the calculation of swaps. Catalyst draws inspiration from this logic but extends it across multiple chains using UoLs.

4.2 State Separation and Cross-Chain Messaging

Catalyst uses an inter-chain messaging layer to transmit information about reserves and execute swaps. Each chain can “understand” the value represented by UoLs without needing to know the global state of the system. This allows for distributed liquidity pools connected by a single, secure messaging system.

4.3 Security by Design

Single Bridge Message per Swap: The risk of attacks is minimized as Catalyst reduces the complexity of cross-chain exchanges.

No Intermediate Locking or Dependence on a Single Bridge: The protocol relies on tested and verified interoperable solutions like IBC (Inter-Blockchain Communication).

V. Catalyst’s Vision and Objectives

5.1 Application Chains and Modularity

Catalyst’s vision aligns with a “modular” future where dedicated application-specific blockchains (application chains) freely interact. Catalyst facilitates this future by providing a universal and permissionless liquidity layer, allowing any new chain, including Monad, to instantly benefit from the global DeFi ecosystem.

5.2 Tools and dApps

Catalyst aims to provide the necessary tools to build multi-chain decentralized applications (dApps). Developers can create interoperable services, from token trading across multiple networks to complex scenarios like purchasing an NFT on another blockchain, all conditioned by specific logic (price, availability, rates, etc.).

VI. Types of Swaps and Use Cases

6.1 Local Swaps

Local swaps occur within the same chain, such as exchanging ETH for USDC on Ethereum. They are instantaneous and utilize the entire available liquidity.

6.2 Cross-Chain Swaps

These swaps, the core innovation of Catalyst, allow asset exchanges between two different chains. For example, swapping MATIC (on Polygon) for BNB (on BNB Chain) using UoL as an intermediary. These swaps take more time than local swaps as the protocol needs to verify the states of both chains but remain simpler and faster than traditional solutions.

6.3 Underwriting (Confirmation Guarantee)

Catalyst offers “underwritten swaps,” where a third party (an underwriter) guarantees the swift completion of the swap, reducing risk and delay for the user.

6.4 Logic Dependent Swaps

The protocol permits swaps that depend on programmed logic (conditional smart contracts). For example, purchasing an NFT on another chain only if its price is below a certain threshold. If the condition isn’t met, the swap is canceled, offering advanced flexibility and programmability.

VII. Liquidity Pools and Liquidity Swaps

7.1 Unpartitioned Pools

Catalyst maintains liquidity in “vaults” without partitions, allowing full utilization of available liquidity for both local and cross-chain swaps. A pool can contain multiple assets across different chains, forming a coherent set.

7.2 Liquidity Swaps (Macro Multi-Asset Deposits)

Liquidity swaps enable users to deposit a single asset on one chain and redistribute its value across different chains and assets via Catalyst. For example, depositing only ETH on Ethereum and gaining equivalent exposure to multiple tokens and chains without manually managing asset ratio arbitrage. This lowers the entry barrier for users wanting to provide diversified liquidity.

VIII. Permissionless Deployments

8.1 Permissionless Deployments

Catalyst can be deployed on any compatible chain (EVM, CosmWasm, etc.). For new chains, Catalyst can serve as a liquidity module, allowing automatic and permissionless connections with other chains in the Catalyst network.

8.2 Implications for Monad

Monad, as a high-performance and scalable blockchain, can integrate Catalyst to offer its users immediate access to multi-chain liquidity. Monad cryptocurrency holders can interact with other assets and ecosystems, enhancing Monad’s attractiveness and Catalyst’s adoption.

IX. Fees and Economic Model

9.1 Transaction Fees

Each swap executed via the Catalyst protocol incurs an initial fee of 5 basis points (0.05%). Governance may adjust these fees in the future. The fees are allocated to liquidity providers (LPs), rewarding those who supply capital to the system.

X. Conclusion

10.1 Summary

Catalyst offers a novel approach to cross-chain trading, freeing users and developers from the constraints of traditional bridges and liquidity fragmentation. Its Unit of Liquidity concept enables asset valuation and exchange without relying on a stablecoin or intermediary, providing a more elegant and scalable solution.

10.2 Accessibility and Scalability

From beginners looking to simply exchange assets across two blockchains to DeFi experts seeking to build complex strategies, Catalyst provides a transparent technical layer. For ecosystem players like Monad cryptocurrency (@monad_xyz, monad.xyz), this integration paves the way for fluid, borderless liquidity, supporting a truly multi-chain future.

Additional Resources:

Catalyst: X: @CatalystSystem, Website: https://crosscats.xyz/

Monad: X: @monad_xyz, Website: https://monad.xyz/

Catalyst Whitepaper: whitepaper.catalyst.exchange (for an in-depth mathematical exploration)

Final Note: The Catalyst protocol represents a central tool for building a truly interoperable DeFi ecosystem. With its innovative approach and inherent modularity, Catalyst simplifies user experience, enhances security, and maximizes liquidity efficiency in an expanding blockchain world.

Author: Yool