Cross-chain bridge helps users transfer their digital assets from one blockchain to another protocol. It can be seen as a "bridge" for value transfer between different blockchains.

With the development of the smart contract platform ecosystem led by Ethereum, users have developed a need to transfer funds on different platforms in order to experience various applications on different platforms. At the same time, more and more DeFi projects hope to obtain more liquidity from multiple blockchains. Cross-chain bridges came into being.

Cross-chain asset transfer

There are currently two common cross-chain bridge fund transfer solutions in the market: "lock/destroy + casting" and " Liquidity swaps”.

• "Lock/Destroy + Mint" will lock or destroy the native assets on the source chain, while casting an equal amount of packaged assets on the target chain to achieve cross-chain transfer of funds. But this solution does not achieve true cross-chain funds. The user's packaged assets on the target chain only represent the proof of the user's funds on the source chain, and the original assets have not been transferred. Currently, cross-chain bridges using the “lock/destroy + mint” scheme include WBTC, Multichain, and Wormhole.
• The "liquidity swap" solution relies on smart contracts. The cross-chain bridge first needs to establish a liquidity pool on the source chain and the target chain. When transferring assets, the user's funds will be deposited into the liquidity pool on the source chain, and then assets of equal value will be withdrawn from the fund pool on the target chain. This solution truly enables funds to be cross-chain, but it does not support non-smart contract platforms (Bitcoin) and assets that are not available within the target chain (XRP is not available in the Ethereum network). Currently, cross-chain bridges using the "liquidity swap" solution include Synapse Protocol, Stargate Finance, and Hop Protocol.

Cross-chain communication

In addition to cross-chain funds, cross-chain bridges also involve a key technology - cross-chain communication, that is How to detect the network status at both ends of the cross-chain bridge and transfer information. Currently, cross-chain bridge protocols in the market generally use two cross-chain communication technologies: "uniparty/multi-party verification" and "relayer + light client".

• “One-party/multi-party verification” conducts cross-chain communication through one party or multiple parties. Among them, "unilateral verification" is centralized, and some reputable institutions carry out the custody of cross-chain assets and the execution of transactions. Currently, cross-chain bridges using the "unilateral verification" scheme include: WBTC and Wormhole. The operating mode of "multi-party verification" is similar to that of the blockchain, relying on multiple nodes to complete cross-chain communication through a consensus mechanism. Cross-chain protocols that use the "multi-party verification" scheme include Multichain and Synapse.
• The "relay + light client" solution requires deploying a smart contract on the source chain and the target chain respectively to collect transaction requests, transaction status, and be responsible for executing transactions. At the same time, this solution will introduce a third-party relay to synchronize and verify transaction information. A relay is a third-party service responsible for passing information from one party to another. When communicating across chains, it is usually responsible for synchronizing transaction information between connected chains. Currently, cross-chain bridges that use "relayer + light client" include Cosmos (IBC as the repeater) and LayerZero (which uses its own Relayer as the repeater by default and also supports third-party deployment).

The following is a comparison of the main cross-chain bridges in the current market. Comparison dimensions include asset/chain support, cross-chain communication, asset cross-chain mechanism, etc.

On the other hand, although cross-chain bridge can eliminate barriers between different blockchains and improve interoperability between chains through asset cross-chain/communication, it also It brings a lot of security risks to itself, making it more vulnerable to hacker attacks and causing losses. According to data, in 2022, the Top 5 cross-chain bridges that suffered losses from security incidents include Ronin, Wormhole, etc., with a total loss of approximately US$1.3 billion.