The AE-ETH bridge and Wrapped Aeternity Token ($WAE)

In the rapidly evolving blockchain space, interoperability has become a cornerstone of progress. Aeternity has taken a bold step in this direction with the AE-ETH Bridge, an innovative solution developed in collaboration with Acurast, enabling the trustless transfer of assets between the æternity blockchain and the Ethereum network

Central to this system is the Wrapped Aeternity token ($WAE), a critical component that allows the Aeternity native coin $AE to be used as an ERC-20 token on the ethereum network.  In this post, we’ll explore how the bridge operates, the concept of $WAE, its minting and burning mechanisms, and its significance for both users and developers.

The AE-ETH Bridge is designed to enable trustless cross-chain transfers between æternity and Ethereum, unlocking the best features of both networks. It allows users to move æternity’s native assets like $AE or AEX-9 fungible tokens to Ethereum to participate in its DeFi ecosystem while also facilitating the transfer of Ethereum-based assets to æternity to benefit from its scalability, high transaction throughput, protocol native oracles, off-chain transactions via state channels, and ultra- low fees for on-chain transactions. 

What is a wrapped token ?

The concept of wrapped tokens is pivotal to understanding the bridge. A wrapped token, such as Wrapped Aeternity ($WAE), is a blockchain asset that represents another asset, in this case, the native $AE coin, on a different blockchain. It maintains a 1:1 peg with the original asset. When you lock 1 $AE coin on æternity, you receive 1 $WAE on Ethereum, ensuring its value remains consistent. This mechanism relies on smart contracts to lock the original asset on the source chain and minting its wrapped version on the destination chain, once the lock has been verified. 

The minting and burning of $WAE ensure the system’s integrity. When users bridge $AE to Ethereum, the bridge smart contract locks the AE coins on the æternity blockchain. Oracles validate this lock, and the bridge mints an equal amount of $WAE on Ethereum once the lock is validated. $WAE and any AEX-9 wrapped token can then be used like any other Ethereum-compatible token within the Ethereum ecosystem, including trading, providing liquidity or participating in DeFi protocols. You can see the $WAE token contract on etherscan by clicking this link

When users wish to transfer their assets back to æternity, the $WAE tokens are burned on Ethereum, with oracles confirming the burn event to release the corresponding AE coins on æternity, delivering them to the user's æternity address. 

Wrapping tokens can be achieved in two distinct ways: trustless and custodial. Trustless wrapping, as implemented in $WAE, involves locking the original assets on the source blockchain using smart contracts and oracles to mint an equivalent wrapped token on the target chain. This process is decentralized and requires no intermediaries. In contrast, custodial wrapping relies on a trusted intermediary to hold the original assets and issue the wrapped version. For example, Wrapped Bitcoin (WBTC) uses BitGo, a centralized custodian, to store Bitcoin and mint WBTC on Ethereum. While both methods enable cross-chain utility, trustless wrapping aligns more closely with the principles of decentralization.

New spaces for innovation

This cross-chain functionality introduces numerous advantages for the æcosystem. The AE-ETH Bridge extends the utility of $AE by integrating it with Ethereum’s DeFi network, enabling users to engage with platforms like Uniswap, Aave, or Curve using $WAE.

At the same time, it allows Ethereum users to benefit from æternity’s superior scalability and significantly lower transaction costs. This dual capability empowers users to choose the best network for their needs, whether it’s accessing liquidity on Ethereum or leveraging cost-efficient transactions on æternity.

For developers, $WAE opens up a wealth of opportunities. On Ethereum, $WAE can be seamlessly integrated into existing DeFi protocols, enabling AE to be utilized as collateral, liquidity, or a staking asset. Smart contracts can be written to interact with $WAE in the same way as any other ERC-20 token, expanding the usability of æternity’s native coin in Ethereum-based applications. On the æternity side, developers can use the bridged assets for creating innovative applications that combine Ethereum’s liquidity with æternity’s scalability. This interoperability fosters a richer development environment where cross-chain projects can thrive.

The introduction of $WAE also enhances liquidity for the æcosystem. By enabling AE to be traded on Ethereum-based platforms, the bridge increases access to a broader audience, attracting new users and investors to æternity. 

This increased exposure can catalyze growth for æternity-based projects, as liquidity from Ethereum flows into the æternity ecosystem. Moreover, it fosters collaboration between the two communities, creating opportunities for shared growth and innovation.

One of the most important aspects of the AE-ETH Bridge is its trustless nature. The system relies on smart contracts and decentralized oracles to ensure the security and accuracy of cross-chain transactions. By eliminating reliance on centralized intermediaries, the bridge upholds the principles of decentralization, ensuring that users retain full control of their assets throughout the transfer process. This security model not only builds trust among users but also establishes a solid foundation for future developments in interoperability.

The AE-ETH Bridge and $WAE represent a significant leap forward for æternity, Ethereum, and blockchain interoperability at large. By seamlessly connecting two robust ecosystems, this innovation allows users to harness the strengths of both networks while opening up new opportunities for developers. As blockchain technology continues to evolve, solutions like the AE-ETH Bridge will play a vital role in fostering collaboration and driving the adoption of decentralized applications across diverse platforms.

Whether you’re a user looking to expand your asset’s utility or a developer aiming to build the next big thing in Web3, the AE-ETH Bridge and $WAE provide the tools to make it possible. This is not just a step toward interoperability—it’s a step toward a more connected, collaborative future for blockchain technology.