Cross-chain bridges Overview

Currently, there are at least 126 Layer 1 blockchains, each with its unique features. Bitcoin, as an electronic cash transfer network, is used less frequently, and BTC's value has not been fully realized. Ethereum is a network rich in applications, but it often experiences congestion, leading to high gas fees. BTC wants to participate in Ethereum DeFi, while ETH hopes to transfer to other chains for transactions during congestion.

In this context, the flow of assets and information between different chains has become an inevitable trend, leading to the emergence of cross-chain bridges. This article will comprehensively sort out the cross-chain ecosystem from three dimensions: ecological status, technical solutions, and development trends.

Cross-chain ecosystem status

The cross-chain phenomenon has become very common:

1. There are many cross-chain bridges. Ethereum, BNB Chain, and Polygon have 100, 68, and 48 cross-chain bridges respectively. The emergence of new public chains and Layer 2 will bring more cross-chain bridges.

2. There are many types of cross-chain assets. Taking BTC as an example, it has given rise to cross-chain assets such as WBTC, anyBTC, VBTC, etc. NFT cross-chain will bring more cross-chain assets.

3. Cross-chain penetration into various ecosystems and DAPPs. Mainstream chains and layers are adopting cross-chain solutions, with the Ethereum ecosystem's cross-chain bridges having a locked volume of 7.8 billion USD. A certain cross-chain bridge has connected 55 chains or layers.

4. Cross-chain assets are widely present in DeFi, such as WBTC in the lending market and ceUSDC in DEX.

The most prosperous cross-chain ecosystems currently are Ethereum, BNB Chain, Polygon, Avalanche, and Fantom. Among cross-chain assets, USDC has the highest proportion, followed by USDT, MATIC, ETH/WETH, and DAI.

The cross-chain bridges with the highest locked value rankings include Polygon Bridge, Arbitrum Bridge, Optimism Bridge, StarGate, WBTC, etc.

Main Technical Solutions and Advantages/Disadvantages

There are mainly three technical solutions for cross-chain bridges:

1. Lock-up + Minting/Burning

A typical representative is WBTC. Users lock BTC, and the custodian mints an equivalent amount of WBTC to return to the users. The security depends on the smart contract or custodian. The more decentralized the distribution of validators, the more complete the staking mechanism, and the assets are hosted by the smart contract, the higher the security.

Apart from WBTC, the Polygon Bridge, Arbitrum Bridge, and Rainbow Bridge also use this mechanism. This method has a lower cross-chain efficiency.

2. Liquidity Pool Type

Increase liquidity pools based on lockup + minting/burning to improve cross-chain speed. Native assets fill the source chain pool, obtaining cross-chain assets from the target chain pool. Security risks are primarily borne by LP.

Those using this method include ThorSwap, Hop Exchange, Synapse Bridge, and others. LayerZero has further optimized this with "unified liquidity pools" and Endpoint.

3. Atomic Swap Type

Access assets through private keys, use time locks to prevent malicious acts, and no need for third-party trust, making it the safest option. However, both chains must be based on the same algorithm and support HTLC.

The advantages are that assets can be traded directly without intermediaries, with low costs and fast speeds, making it more decentralized. cBridge is a major representative.

Cross-chain Development Trends and Opportunities

1. Layer2 official bridges focus on security and limit the cross-chain ecosystem scope.

2. Aggregated cross-chain bridges enhance user experience, such as Optimism Bridge, XY Finance, etc.

3. More and more cross-chain bridges are offering staking options to optimize liquidity pool depth.

4. NFT cross-chain has become a new potential track, but the difficulty of implementation is higher than that of homogeneous tokens.

5. The cross-chain bridges fund pool participates in the DeFi ecosystem, improving capital utilization.

6. Other innovations such as cross-chain support between chains and CEXs, multi-currency simultaneous cross-chain, and cross-chain for multiple payees are continuously emerging.

Despite security challenges, the demand for cross-chain solutions will continue. Future opportunities lie in achieving full-chain interoperability, the integration of cross-chain with DeFi, cross-chain for NFTs, and focusing on specific ecosystems such as L2 cross-chain, among others. The paradigm for the cross-chain bridges track has yet to be established and remains full of potential and variables.