Decentralized finance has grown exponentially, with over $100 billion in crypto assets locked in DeFi protocols as of 2022. However, developers and users face a dilemma - whether to build on Ethereum, the dominant hub of DeFi activity, or more scalable alternative networks like Solana, Avalanche, and BNB Chain that can handle higher throughput at lower cost.
No single smart contract platform has emerged as the definitive "best" chain on all metrics like security, scalability, decentralization, and tooling support. This has led to fragmentation, with assets, users, and liquidity distributed across multiple competing blockchains.
Cross-chain bridge technologies aim to solve this fragmentation by enabling communication and interoperability between blockchain networks. Bridges allow transferring assets and data between chains, unleashing composability between isolated DeFi ecosystems.
In this guide, we'll explore the top approaches to cross-chain bridges and their tradeoffs.
Token Wrapping
The most basic type of cross-chain bridge works by wrapping or representing assets on other chains. For example, wrapped Bitcoin (wBTC) tokens represent BTC locked in a custodial reserve on Ethereum. Users can trade wBTC on DEXs and supply it to Ethereum DeFi protocols while still indirectly holding the pegged BTC.
Wrapped assets now exist for thousands of cryptocurrencies on networks like Ethereum, BNB Chain, Solana, Polygon and Avalanche. Wrapping enables basic transfer of value between blockchains by harnessing validation and market activity on destination chains.
Tradeoffs:
Simple to implementLimited functionality beyond basic value transferRequires centralized custodians to secure reserves
Hashed Timelock Contracts
More advanced bridges use hashed timelock contracts (HTLCs) to facilitate trustless swaps and asset transfers between chains. Users create secret keys and hashes of them to "lock" funds on each chain. The secrets are exchanged after a time delay to "unlock" the funds and complete the transfer.
For example, to send 1 ETH on Ethereum to BNB Chain, you would:
- Generate secret S and hash H(S)
- Lock 1 ETH in an HTLC on Ethereum using H(S)
- Create BNB Chain HTLC with same H(S)
- Reveal secret S after time delay to unlock both transfers
This allows users to trustlessly swap value without intermediaries.
Tradeoffs:
Decentralized and trustlessCan only transfer crypto assetsUser experience has some friction
Direct Bridges
The most robust type of bridge uses relayers to securely post data and state roots between blockchain networks. This allows arbitrary contract-level integration between chains, not just asset transfers.
For example, Wormhole bridges Ethereum and Solana by relaying messages between validator nodes on each network via Solana's high-speed consensus. This enables seamless composability between DeFi ecosystems.
Bridges like Wormhole, Axelar and Quantum allow building applications that harness the strengths of multiple chains - for example using stablecoins on Ethereum as collateral for lending on Solana.
Tradeoffs:
Most seamless interoperabilityRequires complex multi-chain consensusHarder to decentralize/secure relayers
Hybrid Bridges
Some bridges combine elements of the above approaches for optimal interoperability and security. For example:
- Celer cBridge uses HTLC transfers secured by relayers for trustless interoperability.
- Axelar uses HTLCs and relayers based on destinations for optimal UX.
- Quantum bridges enable relayers to post proofs to Ethereum for stronger security.
