A comprehensive guide to crypto bridges, their purpose, and how they work.
Bridges are connections between blockchains. They are a great way to move your tokens from one chain to another, giving you access to a wider variety of applications and protocols. This article will discuss some of the uses for bridges in networks and blockchains.
Bridges are used to send funds between different blockchains. For example, let’s say you want to send USDC from your Ethereum wallet to your Polygon wallet. Unfortunately, these blockchains cannot interact directly, so sending tokens from an Ethereum address to a Polygon address is impossible. To get around this problem, you can use a bridge like Synapse or Multichain to get your funds from one network, Ethereum, to another, Polygon.
Bridges allow for interoperability across different chains to increase the functionality of both public and private networks. They enable the more fluid movement of funds in a decentralized manner without needing to sell any assets.
If you want to move an asset from one blockchain to another without going through a third-party centralized exchange or paying high fees, then bridges are the answer. You may want to do this if you want to use a decentralized application (dApp) on another chain. For example, if your Ether is on Ethereum, but you want to buy an NFT on the Polygon network, you would need to bridge your Ether from Ethereum to Polygon.
Bridges serve as a portal between two blockchains and allow users on both chains access to each other’s capabilities. They do this in a decentralized manner, without needing to trust centralized exchanges to process your funds or wait for deposit and withdrawal times. As a result, bridges are often cheaper and faster than centralized exchanges.
There are many bridges to choose from, but generally, they are reasonably cheap, even if you are using them frequently. Here are a few popular bridges and their fees.
Bridges vary in cost depending on which bridge you use and which chain you are bridging to. Fees are usually paid in the token you are bridging, meaning you will receive the amount you bridge, minus the associated fee on the new chain.
These fees go to the bridge operators and the stakers of their tokens. This way, the bridge makes money by providing the service.
Yes, bridges generally work on all blockchains. They are compatible with any blockchain that supports smart contracts, tokens, and addresses. Bridges will compete to add a popular chain as fast as possible so that they may benefit from the fees generated by going through their bridge. If a chain begins to gain traction, a popular bridge will likely support it as soon as possible.
This means that bridges will always support popular blockchains and networks as long as there is a demand for them. In addition, because bridges collect fees on every movement, they will appeal to users that want to bridge funds to a particular network.
If you’re a user or developer on Ethereum, a few bridges have been built to help the blockchain interact with other blockchains and networks.
Just about every bridge works with Ethereum. To name a few:
These are the bridges that move the most volume across various chains:
Here are some other bridges, courtesy of DefiLlama.
Bridges have become notorious in recent years for being frequent target of hacks. The Ronin bridge, Wormhole bridge, and Harmony bridge have all been hacked in the last year, losing nearly a billion dollars in user funds.
Bridges are prime targets for hackers because they hold a substantial amount of funds in a wide variety of tokens. The process of bridging tokens is also complex and involves central points of failure, making them vulnerable to attacks. When bridges do get hacked, users who have funds currently on the bridge, or users who own the bridge's tokens can be at risk of losing their investments.
These hacks are not common and typically don’t affect users that bridge native assets like stablecoins. Bridge operators are also very strict about security practices, so do your research before storing funds on a bridge.
Many protocols have social media channels, such as Twitter, Telegram, or Discord, where you can communicate with them. You can ask them what their security practices are and how you could be affected should they ever get hacked.
A bridge is a complex protocol requiring smart contracts to be deployed on multiple chains simultaneously. Additionally, external programs communicate between those chains to ensure your funds are dispersed on the new chain after receiving them on the old. For example, if you want to bridge from Polygon to Avalanche, you must first send your funds to the bridge’s recipient contract on Polygon. Then the bridge will verify this using relayers that may be on their chain or entirely off-chain. Finally, once sufficient verification has been achieved, often with the passage of a few blocks to ensure irreversibility, the relayers will send funds to you on Avalanche.
In addition to moving funds around, you can also provide liquidity on some bridges. One example of a bridge to do this on is Synapse. With Synapse, you can provide liquidity to their stablecoin pools and earn an interest rate paid out in their SYN token. The rate you are paid depends on the chain and the price of SYN. You can also provide liquidity on Multichain in their vast amount of altcoin pools. When you provide liquidity, you help other users bridge their funds across various blockchains. In return, you collect a small amount of the fees received.
It is possible to invest in bridges that you think will generate lots of cash flow in the future. Most bridges have a native token you can purchase to get a share of the profits. For example, Multichain has their MULTI token, Synapse has their SYN token, and Allbridge has their ABR token.
Staking these tokens typically earns both emissions of new tokens, and protocol revenue, meaning the fees collected by the bridge.
This is one way to invest in a bridge you think will collect a lot of fees as bridging becomes more popular in the DeFi space. However, keep in mind that investing in crypto assets is risky, and you should learn more about anything you want to buy before investing in a bridge.
Bridges are great tools to help you move between different Blockchains. They allow you to use the token or coin on one blockchain and then transfer it over to another without selling them and buying new ones on the other platform. You can see the benefits this has for people who want to invest across different chains at once or even those looking to use decentralized applications across many chains. Bridges enable you to move funds in a decentralized manner without needing to rely on slow exchanges. They are also very fast and cheap, making them the preferred way to transfer funds.