Hundreds of blockchains exist already and the number is still growing. Each has its own protocol, governance model, economy and other unique features that make them incompatible with each other.
Cross-chain bridges are designed to solve the compatibility problem. These are decentralised platforms that allow crypto assets to be transferred between different networks.
To put it simply: using a cross-chain bridge, you can, for example, swap USDT on ERC-20 (Ethereum) to USDT on BEP-20 (BNB Smart Chain).
Wrapped tokens are created for transfers between blockchains. For the same purposes liquidity pools in different ecosystems and relay nodes with liquidity in different networks are used.
Before using a bridge you need to connect a cryptocurrency wallet to it. You can connect Tangem Wallet to cross-chain bridges, as well as to any other DeFi-platforms, using the WalletConnect protocol. Visually, a cross-chain transfer is the same as swapping within the same network.
How cross-chain bridges work
Cryptocurrency transfer between blockchains using a bridge is as follows:
- Crypto from blockchain A is sent to a smart contract with the recipient's address in blockchain B.
- A smart-contract (lock-contract) locks the received crypto and notifies the oracle that a certain crypto transaction has been made to a specific address.
An oracle is an algorithm that confirms that a particular transaction was made and validated on the source network. It then enables a smart contract on the destination blockchain to proceed the transaction.
- Upon receiving confirmation of the transaction in blockchain A, a smart contract (mint contract) mints a copy of the crypto locked in the original blockchain, i.e. wrapped tokens (synthetic asset) and forwards them to the addressee's wallet.
A wrapped token is a synthetic crypto asset equivalent in value to the original token, regardless of which network it is placed on.
- When a reverse transaction is made, tokens previously issued in blockchain B with their synthetic counterparts in blockchain A are destroyed (burned), oracles confirm the destruction, the original crypto is unlocked and sent to the user's wallet.
Liquidity pools are another option for transferring tokens across a network bridge. The crypto from blockchain A is locked in the bridge's liquidity pool, and the crypto of blockchain B from another pool is sent to your wallet.
In the first case, token wrapping transfers its value from one blockchain to another, that is, to get a token in the other network that is equivalent in value to the original.
The second option involves swapping a token in one network for a token in another.
This means, when you are transferring crypto from one blockchain to another, it is not the actual transfer, it only seems this way. Although it makes no difference to a user, a user receives a token in the desired network.
Cross-chain bridges problems
Decentralized bridges have different problems.
- Long process. A cross-chain bridge is a protocol that connects two technologically different blockchains with different economies; it is not easy to connect them. Networks may have different transaction speeds, consensus algorithms, and other factors. As a result, it slows down the speed of tokens moving from one blockchain to another.
- The risk of hacking and irretrievable loss of assets. It is believed that smart contracts of cross-chain bridges are most vulnerable to be compromised. But the network itself can be a target of attacks. For example, the Ronin bridge was hacked by taking control of five of the nine nodes that processed transactions. If the original crypto was stolen from the bridge, their wrapped copies would immediately depreciate to zero because the pegged crypto was stolen.
There is also the problem of finding the right bridge to move the crypto you want from one network to another. You can use DeBridges, a cross-chain bridge aggregator, to find the right bridge for you.
Cross-chain transfers require special algorithms that allow you to interact with multiple blockchains and liquidity providers across different ecosystems.
7 popular cross-chain bridges
There are enough cross-chain bridges available today, and as the DeFi sector increases, their number is growing. Bridges can be different, with different blockchains and tokens combinations: one token can be transferred to multiple networks; multiple tokens converted between two blockchains; multiple tokens transferred between multiple blockchains.
Anyswap, a decentralized bridge, supports 35 blockchains. It charges only for gas, and has automated pricing and liquidity. It provides large numbers of tokens to be swapped across Ethereum, Avalanche, BNB Chain, Fantom and other networks. It also allows tokens to be moved between Level 2: Arbitrum, Optimism, Polygon, etc.
Connext allows transactions between Ethereum, Avalanche, Polygon, BNB Chain and other blockchains and L2 solutions (supports 13 blockchains).
cBridge supports 30+ blockchains and allows USDT, USDC, BUSD and other stablecoins to be moved between networks, as well as tokens on Ethereum, BSC and other L1 and L2 networks. In addition, the bridge enables NFT transferring from one blockchain to another: like, from BNB Chain to Ethereum.
Tezos Wrap Protocol
Tezos Wrap Protocol is a decentralized bridge for moving ERC-20 and ERC-721 tokens from Ethereum to Tezos. Сross-chain bridge can be integrated into Plenty (a platform for creating liquidity and trading FA 1.2. and FA 2 tokens within Tezos).
Avalanche Bridge allows you to transfer tokens between Ethereum and Avalanche. The platform does not charge a fee, you only need to pay for gas. For crypto exchanges over $75, you get 0.1 AVAX airdrop.
This cross-chain bridge provides stablecoins transferring (USDT, USDC, DAI, etc.) between Ethereum L 2 blockchains. The bridge supports Ethereum, Polygon, Arbitrum, Optimism and Gnosis networks.
THORChain is a decentralized financial protocol with native RUNE token to swap crypto directly between different blockchains.
The process takes two stages:
Crypto swapping from blockchain A to a RUNE token (funds from the first liquidity pool are used);
Swapping of RUNE token for a crypto in blockchain B (using funds from the second liquidity pool).
THORChain supports Ethereum, Bitcoin, Litecoin, Bitcoin Cash, Binance Chain, Dogecoin and other networks.
Decentralized finance sector is evolving every day, and this significant progress results in increasing popularity of blockchain bridging and cross-chain transfers. Swapping of different coins and tokens between networks is very much in demand in the market, and the number of new projects is growing, which indicates further evolution of the sector.