What is Cross-Chain Bridge
Cross-chain bridge is a protocol that helps users transfer their digital assets from one blockchain to another. It can be seen as a "bridge" for value transfer between different blockchains.
With the development of smart contract platforms led by Ethereum, there is a growing demand from users to experience various applications on different platforms, which has led to the need to circulate funds on different platforms. At the same time, more and more DeFi projects hope to obtain more liquidity from multiple blockchains. Cross-chain bridges have emerged to meet these needs.
Cross-Chain Asset Transfer
Currently, two common cross-chain fund transfer solutions are: Lock/Burn + Mint and Liquidity Swap.
- Lock/Burn + Mint will lock or burn the native assets on the source chain, while minting an equivalent amount of wrapped assets on the target chain to achieve a cross-chain transfer of funds. However, this solution does not achieve true cross-chain transfer of funds. The wrapped assets on the target chain only represent proof of the user's funds on the source chain, and the native assets are not transferred. Currently, cross-chain bridges that use the Lock/Burn + Mint solution include WBTC, Multichain, and Wormhole.
- Liquidity Swap solution relies on smart contracts. Cross-chain bridges first need to establish a liquidity pool on the source chain and the target chain, respectively. When transferring assets, the user's funds will be deposited into the liquidity pool on the source chain, and then an equivalent amount of assets will be withdrawn from the target chain's liquidity pool. This solution truly achieves the cross-chain transfer of funds, but it does not support non-smart contract platforms (such as Bitcoin) and assets that are not available on the target chain (such as XRP, which is not available on the Ethereum network). Currently, cross-chain bridges that use the Liquidity Swap solution include Synapse Protocol, Stargate Finance, and Hop Protocol.
In addition to cross-chain asset transfer, cross-chain bridges also involve a key technology - cross-chain communication, which refers to how to detect the network status on both ends of the cross-chain bridge and transmit information. Currently, cross-chain protocols generally use two cross-chain communication technologies: Single/Multi-Party Verification and Relayer + Light Client.
- [Single/Multi-Party Verification] performs cross-chain communication through one or multiple parties. Among them, Single-Party Verification is centralized and executed by reputable institutions holding and trading cross-chain assets. Currently, cross-chain bridges that use the Single-Party Verification scheme include WBTC and Wormhole. The operation mode of Multi-Party Verification is similar to that of blockchain, relying on multiple nodes to jointly complete cross-chain communication through a consensus mechanism. Cross-chain protocols that use the Multi-Party Verification scheme include Multichain and Synapse.
- The Relayer + Light Client scheme requires the deployment of a smart contract on both the source and target chains to collect transaction requests and states, as well as execute transactions. Additionally, this solution introduces a third-party relayer to synchronize and verify transaction information. A relayer is a third-party service provider that is responsible for relaying information from one party to another. In cross-chain communication, it is typically responsible for synchronizing transaction information between chains. Currently, cross-chain bridges that use the Relayer + Light Client scheme include Cosmos (IBC as the relay) and LayerZero (use own Relayer by default, and third-party deployment is also supported).
Below is a comparison of the main cross-chain bridges in the current market. The comparison dimensions include asset/chain support, cross-chain communication mechanism, and asset cross-chain mechanism, among others.
On the other hand, although cross-chain bridges can eliminate barriers between different blockchains and enhance interoperability between chains, they also bring many security risks and are more susceptible to hacker attacks. According to data, in 2022, the top 5 cross-chain bridges that suffered security incidents and losses include Ronin and Wormhole, with a total loss of about 1.3 billion US dollars.
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