Bridge
Basics
- Projects, tools or companies who facilitate sending tokens between different blockchains. These bridges always come with trade offs. Most of the bridges are centralized.
- Due to the different ledgers, different programming languages and blockchain technology being used within Layer 1 and Layer 2 blockchains, it is impossible for blockchains to seamlessly exchange tokens between each other. This created the issue of having siloed blockchain economies. To reach scale and to tap into each others liquidity, blockchain projects started building 'bridges' between each other. In practice, you cannot send ETH to Bitcoin, due to the completely different technology used (account model vs UTXO model), and even if it would be from EVM chain to EVM chain (like Ethereum to Polygon), its nodes would still not share the same ledger. A way to circumvent this issue, is by 'wrapping' tokens, creating a IOU of the original token, built in the code of the chain it gets bridged to. This means that the new wrapped token loses the native chain's attributes and instead has those of the new chain. More on the trade offs can be read lower in this page.
- Coinbase wrote a good starter blog on Bridges and its risks (20-4-2022).
- From a MakerDAO blog;
"Blockchain bridges enable interoperability between vastly different networks, such as Bitcoin and Ethereum, and between one parent blockchain and its child chain, called a sidechain, which either operates under different consensus rules or inherits its security from the parent blockchain (e.g., rollups built on Ethereum).1 This interoperability could include the transfer of tokens, data, and even smart contract instructions between independent platforms, allowing users to:
- Deploy digital assets hosted on one blockchain to dapps on another
- Conduct fast, low-cost transactions of tokens hosted on otherwise less scalable chains
- Execute dapps across more than one platform."
Bridge Projects
Etherscan has a bridge dashboard.
A list of bridges can be found here.
Some of the well known bridge projects are:
Usage
"Total balance held across all chains tracked in June amounted to $8 billion. Today, that number exceeds $18 billion. While Polygon’s total balance dropped from ~$7 billion to ~$5.5 billion, other bridges made huge progress in adding value. Only two non-Polygon bridges had balances surpassing $100 million in June; today three bridges hold more than $1 billion each and 15 have exceeded the $100 million mark.
As the main token deposited into Axie Infinity’s Ronin, AXS shot to the top of the list. Ether dropped to second place, partially explained by WETH appearing at #4 as several new bridges accepted it instead of Ether. Total AAVE amounts dropped, an interesting finding given that it was widely used in Polygon and is a major partner for the Avalanche Rush. Users may have been waiting for the launch to deposit into Avalanche. AXS is by far the most concentrated token per bridged chain out of the top tokens, with AXS locked in Ronin making up 56% of its circulating supply!
The combined $18 billion locked in Ethereum bridges exceed TVL for every single DeFi app across all chains, jumping from #8 four months ago."
Bridge Trade Offs
- Bridges come in a variety of flavors with varying levels of trust associated with them.
- Bridges are often able to freeze your coins.
- Bridges often have their security handled by a company instead of by decentralized nodes.
- Bridges do not bridge your 'real' token. But give you an IOU on the other chain. Look into wrapped tokens for more information or read further below.
- Bridges are often touted as trustless, but in practicality are almost always permissioned and centralized. Users usually 'trust' the bridge creators with actually sending the user a representation token (wrapped token version) of the native token being bridged. This is due to the limitations of siloed blockchain technology. To have a bridge, the bridge creator deploys smart contracts on both chains, where the tokens get stored. Your native token never actually leaves its chain, it just gets stored into the smart contract. On the other chain, the bridge creator mints an IOU token of the locked native token. There is no direct communication that is decentralized between the two chains, since this would require the nodes of both chains to be in consensus, which they are not programmed to do. A bridge creator therefore often acts as middle man and 'checks' both chains for the user. This introduces trust. Some bridges are very clear in their centralization and are owned by a company or a project's Developer Labs. Other projects feign decentralization by putting the bridge's security in the hands of a group of chosen partners. So far it seems bridges can only be decentralized by putting a completely new consensus mechanism (with a new token) in between, like THORchain has done, thereby having a permissionless group of nodes handlining the security.
