The Future of Cross-Chain Bridges: Full Interoperability Becomes Inevitable, Liquidity Bridges Will Decline

Author: 0xmiddle, Geek Web3

Editor: Faust, Geek Web3

This article is from Geek Web3. Geek Web3 is an industry research institution dedicated to becoming the Web3 version of "The Economist", focusing on Web3 technology and its social impact, aspiring to create a public goods platform, and serving as an important channel for entrepreneurs to showcase their ideas.

This article aims to explore the future of cross-chain bridges in the encryption industry. What kind of cross-chain protocol has more potential? What kind of cross-chain application is more likely to be widely adopted? How should developers build cross-chain applications? In the following text, the author will discuss the development trend of cross-chain bridges and put forward three core arguments.

·A secure and high-performance new generation cross-chain bridge will become mainstream.

·全链应用会成为新的 dApp 范式 · Full-chain applications will become the new dApp paradigm.

·The official bridge of asset issuers such as USDC will replace the liquidity swap bridge.

Cross-chain technology can be understood as an extension of scalability. When a single chain is not capable of handling all transaction requests, multiple chains can be used to carry them, connected by cross-chain bridges. To understand cross-chain bridges, it is necessary to first clarify what problems they aim to solve, and divide them into different levels.

Simply put, cross-chain bridges can be divided into protocol layer and application layer. The protocol layer is responsible for providing a secure and orderly platform for cross-chain message transmission, while the application layer builds dApps based on this platform to serve users and meet various needs in different scenarios.

Cross-chain Bridges Evolution at the Protocol Level

The core of the protocol layer is the secure mechanism for cross-chain message transmission, which is the validation method for cross-chain messages. According to different validation methods and the ideas of Vitalik and others, the industry has divided cross-chain bridges into three types: atomic swaps based on hash time locks, witness verification, and light client verification. Later, Arjun Bhuptani, the founder of Connext, categorized cross-chain bridges into three paradigms: local validation, external validation, and native validation.

Local verification is only applicable to asset cross-chain and cannot support cross-chain messaging arbitrarily. The user experience is not friendly as it requires users to operate twice to complete a transaction. Some of the earliest cross-chain bridges that adopted this solution have changed their minds and abandoned this route. Native verification is the safest, but the cost is too high. On the one hand, the gas cost paid by users is too high, and in some cases, it is not economically feasible. On the other hand, the coding cost for developers is too high. In order to access different blockchains, they need to develop corresponding light client verification programs separately, which requires a huge amount of work and has extremely limited adoption.

Finally, most cross-chain bridges still adopt external verification schemes, which are relatively low in terms of user gas costs and development implementation costs, and support arbitrary message cross-chain. However, the security of external verification is most criticized, as both Multichian, which suffered a major breach this year, and RoninBridge (the official bridge of Axie Infinity) and HorizenBridge (the official bridge of Harmony Chain) which had their keys stolen by hackers in the past, have shown us that a simple external verification scheme cannot be the ultimate solution for cross-chain bridges!

The security risks of cross-chain bridges have hindered the development of cross-chain dApps. When designing corresponding business at the application layer, caution is required to avoid links related to cross-chain interoperability as much as possible. Well-known applications tend to build their own cross-chain bridges (such as AAVE, Maker, Compound and other top DeFi projects). It can be imagined that in a city with poor public security, people would choose to travel as little as possible, and wealthy people would bring their own bodyguards when traveling.

But it is comforting to know that a new generation of safer cross-chain bridges is rapidly emerging. Among them are double security layer bridges such as LayerZero and Chainlink CCIP; ZK bridges that combine ZK technology with lightweight clients (represented by projects such as Polyhedra, MAP Protocol, and Way Network); optimistic verification bridges that use economic game mechanisms to protect cross-chain security (represented by projects such as Nomad and cBridge); and bridges that combine ZK and TEE technology (represented by projects such as Bool Network). To learn more about their specific mechanisms, you can refer to the author's previous article "Multichain is Down, What Can Save Cross-Chain Bridges?"

In short, the new generation of cross-chain bridge infrastructure achieves higher security without sacrificing performance, providing solid guarantees for the design of cross-chain interoperability in the application layer. At the beginning of the paradigm shift of cross-chain interaction in the application layer, almost all dApps were deployed on Ethereum because there were no other options. However, with the prosperity of the application layer ecosystem, Ethereum became overwhelmed, which gave other public chains the opportunity to develop, resulting in various ETH Killers, sidechains, and Layer2 solutions.

From the perspective of dApps, Ethereum is like a mega city such as Shanghai, with a large population but limited resources and high land prices. If my business scenario requires high throughput but low interoperability, it can be deployed on a less crowded sidechain. For example, a printing factory or plantation does not need to be located in Shanghai, but can be located in the suburbs.

The story of dYdX leaving Ethereum is well known to those in the encryption industry. At the same time, a dApp can be deployed on multiple chains and engage in "chain operations" to serve users on different chains, expanding its scale and income. For example, the first successful case of a vampire attack, Sushiswap, has been deployed on 28 chains, including almost all the named public chains we can think of.

However, this multi-chain application ecosystem brings a poor experience to users: in order to interact with applications on different chains, users need to understand the differences between different chains, register addresses on multiple chains, recharge gas fees on each chain, and finally transfer assets back and forth on different chains - oh my, it's too tiring! What's even worse is that many DeFi protocols involve the use of liquidity, and if you deploy on multiple chains, you have to guide liquidity on multiple chains, which will scatter liquidity on different chains and not share depth. When users trade, it will create a greater price impact.

Some people are concerned about the development of Ethereum L2, believing that it may decompose the liquidity of Ethereum and cause it to lose its competitive advantage. Some researchers have proposed a unified liquidity solution such as SLAMM, but this solution creates more problems than it solves and is very clumsy. I won't go into details here, but interested friends can look for relevant information.

The real core issue is: how can we aggregate resources and ecosystems on various chains together, so that users do not have to perceive the existence of "chains"? For example, if I have 1 ETH, can I use it wherever I want, and hide the automatic conversion and payment of Gas on different chains? If I want to use a certain application, can I use it on any chain without crossing assets? At the same time, the project party does not need to choose the chain anymore, and does not need to deploy on multiple chains repeatedly, but can deploy on the most suitable chain, and then people on different chains can come and use it?

The application layer needs a new paradigm to hide the "chain" layer. Someone has created a new term called "chain abstraction" by imitating the concept of "account abstraction". Let's take a look at how the LSD project works. For example, Bifrost claims to be the pioneer of the full-chain LSD and adopts a different architecture design from other LSD products. Bifrost has its own chain, Bifrost Parachain, which is a parallel chain of Polkadot. Bifrost's liquidity staking module is only deployed on Bifrost Parachain, and the liquidity of its LSD asset-vToken is also fully on Bifrost Parachain. However, other chains can use Bifrost Parachain's liquidity staking module and liquidity by remote calling.

· Users can mint vTokens on other chains;

· Users can redeem vTokens on other chains.

· Users can exchange vTokens on other chains, but the underlying liquidity is related to the Bifrost chain;

· Users can provide liquidity for vToken/Token pools on other chains for Bifrost Parachain and receive LP Tokens.

· Users can destroy LP Tokens on other chains to redeem liquidity.

These operations are completely transparent to the user in terms of the cross-chain transfer process behind the scenes. Everything feels like it's being done locally, and you can experience it for yourself through the Omni LSD dApp. The Omni LSD dApp currently supports remote minting/redeeming/exchanging of vTokens on Ethereum, Moonbeam, Moonriver, and Astar.

Maybe you would say, besides USDC, isn't USDT also a commonly used medium asset? Not to mention in the DEX field, the usage rate of USDT is far lower than that of USDC. Aren't you afraid that Tether will also follow Circle and come up with something like this? So, what I want to tell you is: SwapBridge is dead, and the official bridge of asset issuers will have an unbeatable cost advantage in terms of cross-chain liquidity. As for some SwapBridges turning to integrate CCTP, that is the logic of the aggregator. In summary, the cross-chain bridge protocol layer is becoming more secure and reliable, and the era of multi-signature bridges is ending.

In the past, the unsafe impression caused by cross-chain has been eliminated with the popularity of the new generation of cross-chain infrastructure. Cross-chain applications are greatly improving user experience through paradigm iteration, and the significance of "chain abstraction" is no less than "account abstraction", which is creating conditions for the mass adoption of Web3. The CCTP launched by Circle has ended the Warring States period of SwapBridge liquidity competition, and we have seen the ultimate goal of cross-chain asset exchange. In short, the cross-chain field is undergoing dramatic changes! Only by understanding the future path can we walk more confidently.

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