🐚In A Nutshell
This page explains how Smoke V0 works.
The best way to understand Smoke is to understand how it started.
Realization
What if we could simply lend funds to users on any chain out there and they could pay back later? Especially for users with collateral locked on a different chain.
Iteration
The approach was to find existing cross-chain lending protocols to let users deposit funds on one chain and spend funds on all other chains.
But the problem with this is that most of these lending protocols require cross-chain messaging. But we wanted fast lending, without security trade-offs.
Solution
A game theoretical approach is to have a credit card issuer, like a bank, to lend capital on any chain by having a birds eye view of a user's position across all chains. They would not lend more than locked collateral as it is their own capital. This ensures:
That users can instantly spend using an issuer's approval
Users cannot double spend simultaneously on 2 chains as they use a single issuer
Users cannot withdraw their collateral without an issuer's approval while having debt on other chains
Force Withdrawal: Users can force withdraw from the system by proving that they do not have debt across chains using cross-chain messaging.
Smoke has Three Main Stakeholders
1. Users
Users create a Smoke account on one of chains and manage their accounts by setting spending limits.
2. Issuers
Issuers issue cards to users, track user deposits and spends from off-chain, and instantly approve spending on any chain. They also manage their capital to always have funds to loan out. And, approve collateral withdrawals based on a user’s limit.
3. Smoke Protocol
Smart contracts, fee parameters and cross-chain infrastructure maintained by Smoke to protect users and issuers. Smoke also aides with repayment from any chain in a cost effective manner.
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