Gnosis is one of the popular names in the blockchain market, which arrived in 2015 in the form of a decentralized prediction market. The team had initially planned on offering an independent blockchain platform. However, the team identified the need for developing infrastructure tools that can support expansion of the Ethereum ecosystem utilities. The xDAI Bridge is an integral component in the Gnosis DAO or Decentralized Autonomous Organization

As a matter of fact, GnosisDAO and xDAI communities combined with each other for the development of the Gnosis Chain. It serves as a sidechain or layer 2 solution for resolving different scaling challenges encountered in the Ethereum blockchain. The Gnosis Chain serves as an execution-layer EVM chain that relies on xDAI stablecoin for facilitating transactions and fee payments. 

How is the bridge relevant for xDAI chain, known as Gnosis Chain now? You cannot procure xDAI directly like other stablecoins. Therefore, a bridged version of the stablecoin is essential for facilitating transactions on Gnosis Chain. The following discussion offers you a detailed introduction to xDAI Stablecoin Bridge and its working. 

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Understanding the Gnosis Chain

One of the first highlights in accounts of xDAI Bridge explained for beginners would focus on Gnosis Chain. It is the first blockchain that features xDAI as the main preferred currency for different transactions. The Gnosis Chain follows a dual-token model, with xDAI and STAKE tokens. xDAI works as a suitable choice for transaction payments, while the STAKE token serves an important role in consensus verifications. 

The STAKE token leverages a delegated Proof of Stake or DPoS consensus model and has been tailored as a multichain token. It can facilitate transaction consensus alongside rewards for block production. On the other hand, xDAI has been pegged at a 1:1 ratio to USD as a derivative of DAI stablecoin. xDAI is operational on the Gnosis sidechain, and DAI works on the Ethereum mainnet. 

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Gnosis Chain Bridges

If you want to find answers to ‘what is xDAI Bridge,‘ you must understand the role of bridges on the Gnosis Chain. Gnosis utilizes native bridges for sending tokens and data. The bridges depend on a group of trusted bridge validators for their operations. In addition, Gnosis also has a roadmap for achieving productive implementation of trustless bridges. The constantly growing ecosystem of third-party bridges developed on native bridges in Gnosis also offers crucial value advantages. For example, third-party bridges could help users with the benefits of faster liquidity and improved user experiences. 

The native bridges, such as Omnibridge and the one for converting xDAI, serve as first-class citizens in the architecture of the Gnosis Chain. Native bridges, such as the one for creating xDAI, offer crucial value advantages with minting and burning native tokens used for gas fees. You can find a better impression of xDAI Bridge by referring to the conceptual architecture for Gnosis Bridges. The three primary types of bridges in Gnosis include native bridges, third-party bridges, and application-specific bridges. 

Native bridges, as the name implies, have been developed on the Gnosis Chain and help in minting the canonical token representation of original assets such as DAI stablecoin. The third-party bridges help users in swapping for canonical tokens developed on the native bridges. Application-specific bridges are the custom bridges offered by certain applications for the maintenance of their own canonical tokens on the Gnosis Chain. 

The two native bridges on Gnosis Chain include Omnibridge and the xDAI Bridge, which serve distinct functionalities. The latter is a useful ingredient for minting the native stablecoin through bridging DAI stablecoin from Ethereum. On the other hand, you can rely on the Arbitrary Message Bridge in the other native bridge for use cases in bridging tokens as well as data. 

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What is the xDAI Bridge?

The basic impression of Gnosis Chain bridges offers viable insights for understanding xDAI bridging. Most of the answers for ‘what is xDAI Bridge‘ emphasize the fact that it is a native DAI bridge between the Gnosis Chain and Ethereum. On top of it, you must also note that the bridge is crucial for minting and burning xDAI, the native currency of the Gnosis Chain. 

Working of xDAI Bridge

The fundamentals of xDAI Gnosis Chain Bridge showcase prominent indications of its functionalities in bridging DAI to xDAI. How does it work? You can find answers to ‘how does xDAI Bridge works‘ by reflecting on the step-by-step procedure. Users have to start by minting DAI tokens through the Maker protocol or purchasing DAI on an exchange. The user would deposit DAI in the xDAI Bridge, and the bridge contract on Gnosis Chain provides notification to the block rewards contract. Subsequently, the consensus algorithm would mint xDAI on the corresponding Gnosis address of the user in the next block. 

The bridge depends on cross-chain bridge oracles for serving the role of trusted external validators. xDAI bridging works on the generation of bridge revenue through depositing a specific share of DAI stablecoins in the bridge in protocols such as Compound and Aave. As of now, around 1 million DAI have been locked in reserves while the remaining balance helps in generating yield. The yield revenue goes into the GnosisDAO treasury, which ultimately uses the funds for fuelling Gnosis development. 

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How Can You Use the xDAI Bridge?

The high-level description of how xDAI bridging works on the Gnosis Chain presents a streamlined overview of its functionalities. You need a technical impression of how the bridge works in real use cases. The answers to “How do you bridge xDAI?” could offer a viable impression of the practical implications of xDAI. Let us take a look at the different facets of applications of xDAI bridging. 

Ethereum to Gnosis Chain Bridging

You can mint the xDAI token only by transferring DAI to the Gnosis Chain from Ethereum. The bridge on xDAI Chain is important for this transfer process. Over the course of the transfer process, the bridge calls a block reward contract for minting xDAI to the user account. It is important to note that the contract calls are invoked through the consensus engine for facilitating the creation of xDAI tokens. Therefore, traceability of balance updates is significantly complicated and difficult in comparison to simple value transfers. Here is a technical overview of the Ethereum-Gnosis Chain bridging process.

  • Users have to start the bridging process by locking a specific amount of DAI on the Ethereum bridge contract. 
  • The first step would trigger the user’s request for affirmation. 
  • Now, validators have to monitor the deposit and call the function for executing affirmation on the Gnosis Chain bridge contract. 
  • In the next step, the bridge contract on Gnosis Chain would wait for confirmation. Upon satisfying the majority of confirmations, the xDAI Bridge contract would invoke the block reward contract. The block reward contract helps in recording the receiver addresses and the amount of xDAI it has to mint. 

Finally, the consensus engine calls the block reward contract for updating the xDAI balance of the user. The block reward contract logs could help in viewing the address of receivers and the amount of minted xDAI. 

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Gnosis Chain to Ethereum Bridging

The responses for “how does xDAI Bridge works” would also focus on bridging from Gnosis Chain to Ethereum blockchain. As a matter of fact, moving xDAI from Gnosis Chain to Ethereum implies the transformation of xDAI to DAI. Here is an outline of the steps you must follow for burning xDAI.     

  • Users would have to initiate the withdrawal transaction on the Gnosis Chain Bridge. 
  • Now, it is important to broadcast an event pertaining to a user’s request for a signature. 
  • Validators would observe the event and invoke the call for submitting signatures on Gnosis Chain. 
  • Following the consensus approach, the bridge would start an event to verify the collected signatures. 
  • Any user could initiate the withdrawal through validators or UI directly on Ethereum and unlock DAI.
  • Upon completion, the withdrawal transaction would broadcast the relayed message on Ethereum mainnet. 

Yield Returns for Bridge Deposits

Majority of people interested in “How do you bridge xDAI?” would also seek information on earning yield through bridge deposits. The Gnosis Chain Bridge deposits a specific share of DAI locked in the bridge contract on Ethereum in protocols such as Compound and Aave for earning yield. In this case, bridge governance helps in determining the share of bridge deposits. 

The basics of bridge withdrawal requests on xDAI Bridge explained for beginners would showcase the use of DAI deposits in the reserve. When withdrawal requests would extend beyond the 1 million DAI reserve, the requested amount alongside 1 million DAI reserve is obtained from Compound immediately. The 1 million DAI withdrawn from the Compound could help replenish the reserve. 

Interest on the DAI deposited in the Compound alongside COMP tokens is subject to periodic collection schedules. The xDAI chain transfers the interest and COMP tokens to an EOA by leveraging a manual method call. The funds obtained in yields could help in supporting different bridge operations, including gas refunds for users and other planned developments. If Compound does not have the amount requested for withdrawal, users have to wait for desired Compound liquidity levels. 

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xDAI Bridge Governance

Another important highlight in understanding “what is xDAI Bridge” would point at governance on the Gnosis Chain native bridge. The growing usage of the Gnosis Chain Bridge, along with increasing value locked in the bridge, invited the need for governance. With the help of governance, the bridge aims to improve decentralization by offering decision-making powers to governors. Gnosis Chain introduced governance mechanisms through a multi-signature Gnosis Safe wallet in 2020. Finally, the Gnosis Chain implemented an updated governance mechanism on October 23, 2020, after deploying Gnosis Safe to xDAI.

The governing board for xDAI Bridge takes on the responsibilities for the management of bridge operations on both sides, Ethereum as well as Gnosis. It is important to note that Gnosis Chain Bridge requires at least 7 signatures to approve any management proposal. Some of the notable functions of the governing board include updates for the bridge contract and contract parameters. In addition, the governing board also addresses the need for updating bridge validator parameters, such as modifying the signature threshold or validator set. You should also notice that Gnosis Safe accounts play a vital role in managing all actions of the governing board. 

The Gnosis Safe accounts on Ethereum mainnet and Gnosis serve distinct functions for governance. While the Ethereum mainnet account supports the operations on the Ethereum contract, the Gnosis account works for xDAI contract operations. Another important highlight in the details of governance for xDAI Bridge explained would focus on the use of 16 Bridge Governors. The Bridge Governors include GnosisDAO, TokenBridge, Metacartel, Gnosis Safe, Protofire, RaidGuild, Gnosis Team, Anyblock Analytics, Giveth, Cow Protocol, and others.

Process of Governance on xDAI Bridge

The facility of decentralized governance complements the Gnosis Chain native bridge. You can seek more details beyond “How do you bridge xDAI?” by learning more about the governance process and parameters. The governance process relies on three distinct steps such as ideation, specification, and multi-sig voting, followed by execution. In the first step, a proposal is posted on the Gnosis Forum. 

Subsequently, the specification stage focuses on creating a Gnosis Improvement Proposal 73 post. The proposal must obtain the majority of votes in the forum poll before moving toward the next stage. In the final step, the GIP 73 post is reviewed alongside presenting possibilities for inclusion of the GnosisDAO Snapshot 60 poll. Upon approval of the majority, the token bridge would implement relevant changes highlighted in the proposal.

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Bottom Line

The introduction to xDAI Bridge focused on the fundamentals of Gnosis Chain bridges and their functions. You can notice how the xDAI native bridge on Gnosis Chain serves a vital role in empowering the Gnosis ecosystem. As a native currency of the Gnosis Chain, xDAI is an essential component in tokenomics of the chain. 

Therefore, bridging DAI from Ethereum to xDAI on Gnosis could offer better scope for interoperability. On top of it, the native bridge on xDAI chain helps in ensuring integrity through the use of external validators. At the same time, you could also notice how governance serves as a unique highlight in the Gnosis Chain Bridge. Learn more about Gnosis and its bridges in detail now.

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*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!