Bridging the World
An article on bridges, not the ones connecting two pieces of land like the days of old, but rather the ones bridging several blockchains together seamlessly, the new bridges of the 21st century
Intro to Bridges
My example of physical bridges as seen above can also be seen as a perfect metaphor for what bridges are in the blockchain space — for connecting two points in space.
In the real world where a bridge connecting two parts of a city enables both people and resources to go back and forth as they see fit, similarly, a blockchain bridge enables two blockchains to bridge tokens to one another.
Now, in the crypto world it’s not just about linking two eerily similar points in space, no, it’s also required to connect two chains that have various distinct consensus algorithms and in the past had no way of communicating.
This is where bridges come in, bridges enable the individual to send data (more often than not tokens) between several blockchains and layers (Think L1 to L2 etc). This, therefore, achieves what in the real world, just like in crypto is incredibly important — interoperability. Interoperability is vital to increasing adoption in crypto, just like how globalism was vital in growing the wealth of the real world — think of the concept of the network effect.
The Pillars of Bridges
Now, when a person crosses a bridge and moves from one piece of land to the other he/she technically is relocated to another spot in time. Now with crypto, it doesn’t quite work the same way. With bridges in crypto, we make use of a lock and mint process. We go through a three-pronged process.
- Locking the asset(s) on their native blockchain via a smart contract
- New assets of equal amount to the locked assets are minted on the second blockchain
- When bridging back, the minted assets are burned and the original assets unlocked, therefore, preventing duplicate assets from being operated on two chains at the same time
This is the way of decentralized bridges
Now opposite trustless solutions exist trust-based ones. Just like there are decentralized bridges there are also centralized bridges.
Here is the obvious example that of Wrapped Bitcoin (wBTC). Users can deposit any arbitrary amount of BTC with a centralized merchant like wbtc or BitGo and then receive an equivalent ERC-20 token (wBTC) that can freely be used on the Ethereum blockchain to gain yield. This means that all the wBTC is backed 1:1 by actual BTC, and therefore gives the two tokens the same value, and thus can always be redeemed for the underlying asset.
Let’s take a look at some of the main decentralized blockchain bridges in existence all working on different products
Synapse is a decentralized blockchain (you should know what this is by now anon) and provides trust-less transactions to a myriad of L1’s and L2’s. It also takes it one degree further and brings De-Fi to the bridging industry. How so? Synapse has implemented pools, likewise to how most DEX’s have, where you can become a Liquidity Provider. Subsequently, you can stake your LP tokens, and gain an even higher yield, nothing new in De-Fi, but for bridging it’s quite revolutionary.
So how does Synapse work? Synapse works by having cross-chain validators operating between chains, therefore, securing the network. They do this by utilizing multi-party computation (MPC).
When 2/3 of the validators have signed the same transaction utilising their own unique key, the network then reaches consensus and performs a transaction to the desired chain.
Synapse also makes use of AMM technology by directing liquidity to where it’s needed. They do this by re-balancing assets within the protocols cross-chain LP pools.
Synapse has seen a huge increase in users and volume since launch, as they have implemented governance and incentivization through their SYN token.
Multichain was previously known as AnySwap, before they rebranded to multichain, to showcase that they’re now a cross-chain solution provider, instead of just a cross-chain DEX.
Similarly to Synapse, Multichain also provides restrictionless bridging to a myriad of blockchains with EVM-like features and even parachain networks, as well as a myriad of other chains. Multichain has vastly more chains available for bridging, this can mostly be attributed to their first-mover advantage, as they were one of the first prominent cross-chain bridge providers.
Multichain works somewhat similarly to Synapse, but not quite. Multichain also makes use of MPC nodes, but instead of using cross-chain validators, they instead use sMPC nodes that operate separately from any blockchain and sign transactions jointly. The nodes are unable to sign transactions alone and are required to do so together, however, they similarly to MPC only ever know part of the key.
Multichain achieves a daily volume of around $100M and also has more than $5B Total Value Locked, which situates them as the leader in cross-chain bridging
This can largely be attributed to the following attribute:
One thing multichain does extremely well is its ability to secure partnership, after partnership. They’ve been able to partner with many protocols that have implemented their bridge mechanisms. This means that while you may think you’ve never used their product before, you might actually have interacted with it, by using one of their many partner’s bridging features.
What Bridges Mean for the Future of Crypto
The incredible thing about blockchain bridges is that they facilitate the quick and seamless movement of assets from chain to chain, causing the network effect as previously mentioned because of the increased interoperability.
This interoperability is incredibly vital to a healthy and continuously growing crypto industry, wherein users aren’t limited to one chain, but is able to seamlessly transfer assets to other chains without going to a centralized exchange.
What’s going to be interesting to see is how Cosmos’ IBC develops in tandem with Osmosis and whether or not they’re going to be able to grab a large portion of the current value locked in bridges.
The key to bringing users and value to a bridge solution is to incentivize the user to bring it over to your protocol if you fail to do so others will take your place, and you’ll eventually falter behind as other protocols provide better yield for your assets -
The bridgooooor and the rotatoooor become one. Gone the Curve Wars have, for the Bridge Wars have begun.