Bridge Protocols Race To Win Consumer Trust

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  • “You should be scared of bridges. There’s a huge risk pro­file,” the head of DAOs at Alliance said
  • DeFi bridges cre­ate trade-offs between sim­plic­i­ty, decen­tral­iza­tion and cost

Bridge pro­to­cols, designed to offer rel­a­tive­ly seam­less trans­fers between dif­fer­ent blockchains, have been strug­gling to attract users as cryp­tocur­ren­cy mar­kets con­tin­ue to churn large­ly sideways. 

Mul­ti­chain, the largest such cross-chain bridge, has seen its total val­ue locked (TVL) shrink to under $2 bil­lion from $7 bil­lion in March, accord­ing to cryp­to data firm DeFi Llama.

As com­pe­ti­tion for users inten­si­fies, DeFi plat­forms are jock­ey­ing to become the pre­ferred cross-chain pro­to­col investors wary of bridges — which have wiped out more than $1 bil­lion in 2022, large­ly via avoid­able hacks. 

Cross-chain bridg­ing pro­lif­er­at­ed dur­ing the 2021 yield-farm­ing bonan­za. Will Robin­son, the head of com­mu­ni­ty at dig­i­tal assets-focused invest­ment man­ag­er Alliance, said con­sumers ought to do their research before using bridges.

“You should be scared of bridges,” Robin­son told Block­works. “There’s a huge risk pro­file. They’re still new, they break for unex­pect­ed rea­sons, and you don’t know what you’re get­ting into.”

Alternative bridging solutions

Osmo­sis recent­ly part­nered with the decen­tral­ized net­work Axe­lar on a “one-click” bridge that runs on Ethereum. The cross-chain protocol’s secu­ri­ty lies in its decen­tral­iza­tion, accord­ing to Sergey Gor­bunov, co-founder of Axelar.

“Oth­er bridges have per­mis­sioned nodes that par­tic­i­pate in the sys­tem, but Axe­lar requires no trust for live­ness or safe­ty,” Gor­bunov told Block­works. “Even if peo­ple can’t oper­ate their machines, Axe­lar still works on smart contracts.”

Per­mis­sioned bridg­ing was large­ly to blame for the $625 mil­lion Ronin Bridge exploit, where mul­ti­ple val­ida­tors secur­ing the Axie Infin­i­ty bridge were housed by the com­pa­ny. Axie has since increased and fur­ther decen­tral­ized its validators.

Axe­lar del­e­gates most bridg­ing leg­work to the pro­to­col, so all con­sumers see is assets moved from one chain to anoth­er — regard­less of swaps on the back end.

With bridges receiv­ing lots of bad press in 2022, some DeFi (decen­tral­ized finance) plat­forms are hop­ing to do away with the tech­nol­o­gy altogether.

The decen­tral­ized exchange (DEX) Hash­flow went on a media blitz this year adver­tis­ing its “bridge­less” cross-chain swap pro­to­col. Rather than hav­ing smart con­tracts per­form swaps, Hash­flow moves assets by hav­ing ded­i­cat­ed mar­ket mak­ers agree on prices.

“Mint-and-burn bridges can only gen­er­ate rep­re­sen­ta­tion­al assets escrowed by the under­ly­ing chain,” Varun Kumar, CEO of Hash­flow, said in an email. Hash­flow uses a “request-for-quote” mod­el where mar­ket mak­ers set prices and “off-chain com­po­nents han­dle the gnarly parts where slip­page and MEV would be introduced.”

Dominic Williams, founder of the pro­to­col Inter­net Com­put­er, believes bridg­ing pro­to­cols like Axe­lar and Hash­flow are not decen­tral­ized enough. 

“If you have a cen­tral­ized enti­ty that’s tak­ing funds, soon­er or lat­er things are gonna go wrong and you’ll get hacked,” Williams said to Block­works. “Bridges require a trust­ed oper­a­tor, so you get the same old problems.” 

With wrapped tokens, “you’re basi­cal­ly ask­ing the bridge to look after your mon­ey,” Williams said.

Wrapped assets are a com­mon bridg­ing prac­tice where a pro­to­col holds onto an investor’s orig­i­nal assets while pro­vid­ing an IOU to be swapped on dif­fer­ent blockchains. Secu­ri­ty breach­es cause wrapped assets to lose their val­ue. After the Worm­hole hack, a $320 mil­lion bailout was need­ed to save Solana pro­to­cols that accept­ed wrapped ether as collateral.

Williams said his Inter­net Com­put­er net­work will allow asset move­ment with­out bridges through an inno­va­tion called chain key cryp­tog­ra­phy — the split­ting of val­ida­tor keys into pieces to make a blockchain pub­licly accessible. 

Inter­net Com­put­er received over $100 mil­lion in fund­ing from ven­ture cap­i­tal firms a16z and Poly­chain Cap­i­tal in 2018 — before a mar­ket down­turn stripped the project’s token of 95% of its val­ue in just two weeks. 

Inter­net Com­put­er says its bridge­less pro­to­col will soon inte­grate with Bit­coin, though the com­pa­ny has not pro­vid­ed a spe­cif­ic date.

Vita­lik Buterin, co-founder of Ethereum, warned cross-chain bridges would have trou­ble keep­ing assets safe ear­ly this year. Secu­ri­ty will like­ly remain an inher­ent risk investors take when mov­ing assets between chains, but DeFi is a young indus­try, indus­try par­tic­i­pants say. 

In each of this year’s major bridge hacks, “pro­to­cols broke for way dumb­er rea­sons” than Buterin imag­ined, Robin­son said. As DeFi matures, fake job offers will be less viable means for exploit­ing con­sumer wallets.


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  • Jack Kubinec

    Block­works

    Edi­to­r­i­al Intern

    Jack Kubinec is an intern with the Block­works edi­to­r­i­al team. He is a ris­ing senior at Cor­nell Uni­ver­si­ty where he has writ­ten for the Dai­ly Sun and serves as Edi­tor in Chief of Cor­nell Clar­i­tas. Con­tact Jack at [email pro­tect­ed]

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