Regulation of bone morphogenetic protein (BMP) signaling by chordin-dependent extracellular regulatory network. Inhibition of BMP signaling by chordin can be enhanced by formation of a ternary complex with Twsg1/Tsg. At the same time, this complex promotes transport of the BMP ligands to a distant site to allow formation of a sharp high BMP activity center. Inactivation of chordin function is achieved by Tolloid/BMP-1-dependent proteolytic processing to release the associated BMP ligands. Cleavage of chordin is prevented by Sizzled, Crescent, or Sfrp5, which titrate Tolloid/BMP-1 away from chordin. The scaffolding protein ONT1 binds both Tolloid/BMP-1 and chordin to facilitate chordin processing. The proteins containing chordin-like cysteine-rich (CR) domains, including CHRDLs and CV-2, can form a similar ternary complex with BMP and Twsg1 to have stronger BMP-inhibitory activity.