Best Cross-Chain Bridges Powering Interoperability in DeFi
May 9, 2022
The further we are down the road to mass-scale decentralization, the less we will need to rely on legacy finance. It seems to be easier said than done, but if you’d like to benefit from utilizing multiple chains in your project–there’s no shying away from using bridges. How to approach that?
The daily headlines, top tech publications, social media platforms, and crypto price charts have all shown no mercy in bombarding people with stories of DeFi’s (decentralized finance) colossal success over the years. What started as a peer-to-peer electronic system over a decade ago, blossomed into a full-fledged financial system that promises a superior financial infrastructure to people across the globe.
The industry is now home to myriad different blockchain ecosystems that in their own capacity are contributing to the success of the industry. However, each of these individual ecosystems is siloed from the rest of the industry, and for valid reasons. The siloed nature helps protect the blockchains’ security but in the long-run limits users to a single ecosystem.
With more and more people entering the decentralized finance realm, problems like scalability, high transaction fees, and slow speeds have become evident. Users prefer to have a system that lets them move assets between networks to overcome the problems on one blockchain network and in this regard, the lack of interoperability between chains poses a threat to the overall success of DeFi. Enter crypto bridges.
How Crypto Bridges Promote Cross-Chain Interoperability
As the name suggests, crypto bridges are portals between two vastly different blockchain ecosystems, allowing for the transfer of information, smart contracts, and digital assets between them. There are unidirectional, single-chain bridges that allow users to send assets only to a single blockchain network. Then there are also multichain bi-directional bridges that allow two-way transfer of assets between two chains and extend their support to multiple blockchain networks.
To perform cross-chain swaps, they create synthetic derivatives for native chain assets that are compatible with the destination chain. For instance, if a user wants to swap ETH for BNB, a wrapped token for ETH compatible with the BEP-20 format is created and sent to the user’s wallet. This simple mechanism allows users to swap assets between multiple chains in the industry, allowing them to leverage the low-cost, high scalability, and high speed of other new chains in the industry. They can even borrow funds and participate in better investment and farming opportunities on other networks.
Moreover, decentralized applications can also leverage bridges to access the signature features of other blockchain networks and enhance their own capabilities. Developers from different blockchain networks can also collaborate to build superior decentralized applications for users. These bridges allow for a significant outflow of value from Ethereum to other chains and as such power DeFi’s interoperability movement.
Best Crypto Bridges in the DeFi Industry
In the past few years, major blockchains in DeFi resorted to building bridges between networks to meet the growing need for interoperability within the industry. Here’s taking a look at some of the best ones powering the DeFi industry.
Portal Token Bridge (formerly Wormhole)
Portal is one of the most popular cross-chain bridges in the industry. This decentralized bridge was originally built on the Solana Network for bi-directional crypto token transfers between Solana and Ethereum. Now, however, Portal is a multichain network that connects seven of DeFi’s leading blockchains including Solana, Ethereum, BSC, Polygon, Terra, Avalanche, and Oasis which account for 88% of the DeFi industry.
Portal employs special validator nodes called Guardians to provide users with the best cross-chain swap experience. Guardians monitor the activity on the bridge and verify user requests. When a user wants to transfer a crypto token from one chain to the other, Guardian nodes burn the requested amount of tokens on the initial chain. They then mint the same amount of tokens in a platform-specific wrapped format for the destination chain.
Portal Token Bridge stands out from the rest for its extremely low transaction fees of $0.0001 per transfer and its beginner-friendly interface. The bridge has a TVL of $3.5 billion and has processed over $400K transactions so far.
The Binance Bridge is yet another popular cross-chain bridge that aims to facilitate interoperability within the crypto industry. This Ethereum-Binance Smart Chain (BSC) Bridge lets anyone convert their crypto tokens into and back from Binance Chain and BSC compatible formats. As of now, the Binance Bridge supports the conversion of ERC-20 tokens along with a selected few coins on other networks including XRP, LINK, ATOM, DOT, XTZ, and ONT.
When a user of the bridge requests token transfer, the native tokens are wrapped and converted into BEP-2 and BEP-20 formats. Once the conversion is complete, these tokens can be used as native BEP-20 tokens for staking and swapping across various protocols with the BSC ecosystem.
The actual conversion process is quite straightforward and it takes only a few minutes to bridge tokens between the networks. Moreover, the bridge charges zero transaction fees. Users are only required to pay gas on the native and destination chains. The Bridge interface is open to any user, even without a Binance account, and is one of the most popular points of entry from Ethereum into the Binance Network.
The Avalanche Bridge is a bi-directional cross-chain bridge between the Avalanche and Ethereum networks, facilitating the seamless transfer of tokens between the two networks. It uses ChainSafe’s ChainBridge and facilitates two-way transfers of both crypto tokens and NFTs. Users who want to initiate a cross-chain swap and use ERC-20 tokens within decentralized applications on Avalanche, can deposit and lock their assets in the ChainBridge Smart Contract.
Once the assets are deposited, a proposal is created and sent to the relayers of the Bridge. The Relayers (Protofire, Hashquark, POA Network, Avascan) responsible for securing the bridge will compare the proposal against Avalanche’s data and approve or reject the proposal through a voting process. Once the proposal is approved, equivalent tokens are minted on the Avalanche Network and can be used within various protocols.
The additional voting process makes Avalanche one of the most secure crypto bridges to transfer assets and it has a TVL of over $5 billion.
Tezos Wrap Protocol Bridge
Built by the DeFi development firm Bender Labs, the Wrap Protocol is a permissionless, decentralized, bi-directional bridge between the Ethereum and Tezos networks. The protocol allows users to wrap their ERC-20 into FA2 tokens that can be used within the Tezos ecosystem. Through the wrap protocol, holders of ERC-20 tokens can benefit from the high network speeds, affordable transaction costs, and scalability of Tezos.
The protocol also supports the wrapping of ERC-721 tokens. This means that users can seamlessly move their NFTs between the two networks. Wrap helps bring cross-chain assets onto the Tezos network and also creates new use-cases for these wrapped tokens. They can be used for yield farming and to provide liquidity to wToken/XTZ pairs.
This creates an opportunity for them to earn a share of the wrapping and unwrapping fees collected by the protocol. The $WRAP token, which is both an ERC-20 and FA2 token powers the Wrap Protocol Bridge.
Synapse names itself as a “layer ∞” decentralized protocol that aims to facilitate cross-chain interoperability within DeFi. The protocol consists of two core components i.e. the Synapse Bridge and the Synapse AMM. Synapse’s cross-chain bridge allows for the frictionless transfer of crypto assets across multiple blockchain networks including, Arbitrum, Avalanche, Boba, Binance Smart Chain, Ethereum, Fantom, Harmony, and Polygon.
Users can also seamlessly cross-chain swap between stablecoin assets on blockchain networks. For instance, BUSD on Binance Smart Chain can be swapped for USDT on Avalanche and vice-versa, using the Synapse Bridge. This cross-chain bridge infrastructure is powered by multi-party computation validators who secure the bridge and react to events on blockchain networks connected by Synapse. Still, in its nascent stages, the Bridge already has a TVL of over $96 million.
Bitcoin Cash SmartBCH Bridge
SmartBCH is an EVM (Ethereum Virtual Machine) compatible side chain that runs parallel to the Bitcoin Cash Network. It aims to provide scaling solutions and affordability to power the next generation of decentralized applications.
The SmartBCH bridge powered by the Coinflex decentralized exchange aims to bring Bitcoin Cash (BCH) into the decentralized finance sphere for use across different protocols. The bridge enables instant swaps between BCH and SmartBCH. Users essentially deposit their BCH and immediately receive SmartBCH into their Metamask wallets.
The Metamask wallet is configured to the SmartBCH network and users can simply use their wrapped BCH for a myriad of different DeFi applications.
Fantom AnySwap Bridge
The Fanton AnySwap Bridge is a bi-directional solution that allows the cross-chain transfer of assets between the Ethereum Network and the EVM-compatible Fantom Network. The Fantom Network is highly scalable, faster, and cheaper when compared to the Ethereum Network and ERC-20 token holders can benefit from its signature features.
AnySwap at its core is a multi-chain liquidity solution and it uses liquidity pools deployed across various blockchain networks to enable the bridging of assets. This system facilitates token transfer to Fantom from Ethereum, Avalanche, Polygon, and the Binance Smart Chain.
The AnySwap Bridge currently has a TVL of over $2.4 billion and is popular for its user-friendly interface.
While these are top blockchain bridges facilitating interoperability in DeFi, there are other bridges like the Cosmos Bridge, Polygon PoS Bridge, and Terra Money Bridge that provide innovative ways to swap tokens and transfer assets between networks.
The Vulnerabilities of Crypto Bridges
When interacting with crypto bridges, users have to take extra caution as they are rather complex to develop and – as we learned from various hacks – hard to audit. The complexity comes from the fact that bridges often have to communicate two separate islands that have been written with different programming languages, have different consensus layers, etc. There are no standards for them, as there are for blockchain themselves these days.
The bridges are then considered crypto’s weak spots as through complexity, there comes a larger potential for finding bugs and exploits. The auditors will be looking for them, but so do hackers – whoever finds a severe issue first, wins.
So far, some of the biggest hacks in crypto were in the bridges area, accounting for more than $1 bn exploited in just over a year. Here are some of the biggest hacks:
Ronin, Axie Infinity’s blockchain, allows users to lock their ETH and USDC to buy NFTs used in the game. However, attackers managed to steal over 117,000 ETH and 25,500,000 USDC on March 23rd, which at that time was worth well over $625 million.
The attacker used hacked private security keys to validate transfers between Ronin and Ethereum and withdraw significant amounts of assets. The main issue was not enough level of decentralization – taking control over 5 of the 9 total nodes allowed the hacker to manipulate the network however he liked.
Portal Token Bridge (Wormhole)
Wormhole which we have mentioned earlier has fallen to an attack leading to stealing of 120,000 wETH, accounting for about $325 million at that time.
The attacker has minted the wETH tokens after forging a valid transaction signature, and then exchanged them for ETH through the bridge. The vulnerability has been found prior to the hack and has been added to the Wormhole’s GitHub repository. The hacker acted quickly, using the exploit about an hour after it was uploaded – seemingly, the fix hadn’t been deployed to the network at the time of publishing it. That was a highly costly human error – first on the level of code, but then on how such critical information had been handled.
Poly Network is a cross-chain protocol, effectively acting as a bridge between over 20 blockchains. Assets worth over $600 million have been stolen due to an exploit that allowed the attacker to verify cross-chain transactions by setting smart contract’s public keys to match his own private keys. The flaw was purely in the smart contract design where one of them had special privileges and yet, any user could call them.
Thankfully, the hacker identified as Mr. White Hat has done it to showcase the exploit and returned all the assets back, adding a few more coming from the $500,000 bug bounty which he had received from the Poly Network.
All the above cases are slightly different, but they show two sides of problems with bridges. One is that they require complex logic, which simply increases the probability of leaving an exploit in the code. The second is that bridges should follow a similar design as blockchains which they connect. This means that they should operate in a decentralized manner that makes them truly immut
Opening Up the Larger DeFi Industry
Cross-chain bridges are undoubtedly the most innovative solution to DeFi’s long-standing problem of interoperability. By allowing users to swap tokens between multiple blockchains, they break the cycle of users, developers, and investors being limited to a single ecosystem and open up the larger DeFi industry to all of them. However, using these cross-chain bridges requires prior knowledge of the crypto and blockchain industries, and users need to conduct their own research before accessing a crypto bridge.
If you have innovative blockchain ideas with transformative potential, don’t hesitate to schedule a meeting with us. Our core team is here to help you transform your ideas into reality.