Blockchain Bridges: The Concept and Current Issues. Part 2

Blockchain Bridges: The Concept and Current Issues. Part 2

As we’ve mentioned in part 1 (The Fragmented DeFI: What Are the Downsides of Current Fragmentation?),one of the main issues with DeFi is its fragmentation. Different blockchains have their own coins and wallets. In order to work multi-chain, the need to create multiple wallets and accounts builds a burden, for both the users and the app developers.

One of the most common solutions to that problem is blockchain bridges.

What’s a Bridge?

The concept is similar to wrapping solutions (predecessors of the current bridges’ generation): you lock assets from one blockchain with a 3rd party, and in return, they give you a new token, that represents the value of your asset, on another blockchain (e.g., WBTC accepted Bitcoin, and issued a token called WBTC on the Ethereum chain).

A bridge relies on smart contracts running on the source and target blockchains and a set of oracles that coordinate the operation. It takes a token on the source blockchain from the user and signals the smart contract on the target blockchain to issue a token of similar value, with a somewhat similar name (e.g., USDT on Ethereum can be converted to USDT.e on Avalanche, or wUSDT on Solana through the appropriate bridges).

Bridges first appeared when the first scaling blockchains came along and allowed you to transfer your L1 assets to L2 (see e.g., Polygon Bridge).

It quickly became apparent, as more blockchains appeared, that users required true cross-chain (L1->L1) bridges. Dozens of bridges started popping up offering more and more tokens, across an ever-growing list of blockchains.

The bridges became the lifelines of the new blockchains: with the crypto boom of mid-2021, a lot of money was looking for a new home, and rather than cash out, people moved it to newer chains, taking advantage of new and exciting protocols.

Rather than having to send an asset back to an exchange, sell it through an available pair, convert to the new coin you wanted, and send it out again (each operation costing fees, and time), bridges offered users a quick way to exchange their tokens on one blockchain for equal-value tokens on another.

Insecurity

A bridge means a user surrenders funds in one universe and hopes that a complex sequence of applications will communicate to each other that they’re due funds in another universe. As expected, any bug or data loss along the way means actual funds loss:

◼On July 10, 2021, a bridge called ChainSwap was hacked to the tune of $8m.

◼A day later, on July 11, 2021, one of the biggest bridges, AnySwap, was hacked as well ($8.7m). AnySwap swore they’d fix the vulnerability and relaunched under the name MultiChain Bridge.

◼On January 19, 2022, the MultiChain bridge was hacked again ($3m this time) — the name change didn’t work.

◼On February 2, 2022, the Wormhole Bridge, trusted by many who transferred assets to-from the Solana blockchain, was hacked in what’s (so far) the second biggest DeFi hack — $325m.

They offered the hacker $10m to return the money. They then took their bridge down and relaunched after 24 hours under the name PortalBridge.

◼On February 6th 2022, the Meter bridge had $4.4m taken in a hack that used the same vulnerability as the Wormhole hack.

Slow Operation

Other than the hacks mentioned above, bridges have always suffered from slowdowns. The Internet mentions cases of users waiting 45 min and more for a bridge to swap tokens.

High Gas Fees

Some target blockchains (for example, every transfer from-to Ethereum) are extremely expensive. As of Feb.13, the average Ethereum gas fee was 59.46, with its peak price being 373,80 a year ago. Take a look at this diagram of the average gas fee prices of Ethereum from April 2021 to February 2022.

In part 3, we will describe the Diversifi solution for leveraging multi-chain capabilities, omitting the time, security, and money issues caused by the inborn downsides of blockchain bridges.

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