The xDai bridge allows for non-custodial transfers of DAI between the Ethereum and Gnosis chain (formerly xDai chain).
The Gnosis Chain (previously xDai Chain) was the first blockchain that featured the xDai stablecoin as its main currency for transactions. It uses a dual-token model using xDai for transactional payments and the STAKE token for consensus based on a delegated Proof-of-Stake (PoS) consensus model. xDai is a stablecoin that is pegged to 1 USD and is a derivative of the DAI stablecoin by Maker. STAKE is a multichain token designed to ensure transaction consensus and receive incentives for fair block production. STAKE is not required for everday transactions as it is volatile. The dual-token model was created to maintain xDai's stable properties while enabling solid incentives for validators. DAI is a decentralized and overcollateralized stablecoin backed by crypto assets locked in a Maker vault. xDai runs on the Gnosis sidechain, while DAI runs on the Ethereum mainnet. Users cannot buy xDai directly as it is bridged through the xDai bridge by transferring DAI.
The xDai bridge is a ntiave DAI bridge from Ethereum that is used to mint and burn xDai, the native asset used for gas and transaction fees on Gnosis. The user first needs to mint DAI through Maker or buy DAI from an exchange. The user would then deposit the DAI into the xDai bridge, after which the xDai bridge contract on Gnosis notifies the block rewards contract. The consensus algorithm then mints xDai to the user's corresponding address on Gnosis in the next block. The xDai bridge relies on trusted external validators as cross-chain bridge oracles. The xDai bridge currently generates bridge revenue by depositing a portion of DAI stablecoins locked in the bridge into Aave and Compound. There are currently 1M DAI held in reserves, with the remaining balance used to generate yield. This revenue is then used by the GnosisDAO treasury to fund Gnosis development.
As xDai bridge relies on external validators it is more prone to centralization risks. With externally verified bridge systems, users essentially have to put their trust on the reputation that all validators will act honestly. The bridge contract is currently operated by a 4/6 multisig. There are plans in the roadmap to move towards a trustless bridge design.