A Guide to Cross-Chain Bridges

Cross-chain bridges are applications that allow the transfer of tokens and other information between blockchains. Thanks to them, it becomes possible to conduct transactions in De-Fi space across multiple different networks.

Bridges ensure the coordination of cryptographic algorithms that will be used in the transmission of information and the interaction of systems. In fact, the bridge is a set of tools: oracles, smart contracts, nodes that monitor the state of the system, generate changes within blockchains and process incoming transactions from other systems.

We can give an analogy with states here: each state has its own language, its own laws, and borders. Similarly to different states, different chains may have distinct protocols, rules, and governance models, while the bridges create a reliable mechanism for them to interoperate. 

With the rapid development of DeFi market, the need need for a covenient solution to transfer the assets between chains became apparent. Bridges evolved from this need to unite the fragmented ecosystem of blockchains together.

Types of bridges

Before figuring out how to send the crypto to a different chains, let us take a moment to distinguish between the types of bridges. They can be centralized and decentralized. The classification depends on how the assets are transferred. 

The first variety differs in that it has pre-designated validators that control token deposits. They are responsible for verifying the lock, burn, and mint transaction on the bridge smart contracts.

Now it's worth figuring out how a decentralized cross-chain bridge works. Under this structure, the validator there are independent entities. 

Analyzing the history of cross-chain transfers 

In the past, bridging protocols heavily relied on the mint-and-burn mechanism. However, it severely downgraded the user experience, requiring advanced knowledge in the DeFi field, and also introduced potential security risks related to minting contracts. 

A user journey in a simple transfer of USDC from Ethereum to Solana consisted of several steps and was quite convoluted. 

Once the transfer was initiated, the bridge contract locked the tokens on the source chain (Ethereum), and the bridge proceeded with minting the USDC tokens on Solana. However, the minting has led to the wrapped asset being created, which was a separate token from the native USDC issued by Circle on Solana.

Besides the fact that it required the tokens to be unwrapped (swapping the wrapped token for the native one), it also fractionalized the liquidity since every bridge had its own version of the wrapped assets from every different chain that it originated from. 

Bridge teams partnered with DEXes to launch the liquidity mining programs, incentivizing retail investors to supply liquidity to the wrapped assets by creating a liquidity pair with the network’s native token. It consequently leads to numerous wrapped assets being traded, which could be difficult to keep track of. 

Notable examples of mint-and-burn-focused bridges include Portal Bridge, Multichain, and Allbridge Classic. 

However, in the last few years the landscape of cross-chain protocols began to change.

The evolution of the bridging protocols

With the advances in bridging protocols, the focus was shifted towards native swaps of assets, prioritizing user experience and moving away from wrapped assets. 

One of the examples of a cross-chain protocol for native transfers is Stargate. Built on LayerZero, the platform enables the transfer of native assets between a wide variety of blockchains. 

Another product that puts particular emphasise on native liquidity transfers is Allbridge Core, the new flagman product created by the team behind Allbridge Classic. Let's look at it in more detail.

Allbridge Core is a cross-chain swap platform that allows you to exchange dollar-pegged tokens (also known as stablecoins). But the main advantage Allbridge Core is that it reduces perhaps the largest gap in the DeFi sector — the gap between EVM and non-EVM networks. The protocol already supports Solana, Ethereum, Tron and BNB Chain, with more networks on the horizon.

In general, the platform offers a significant imporvements in user experience and makes cross-chain swaps as simple as one click of a button. On top of that, the user gain access to unique chains like Solana and Tron at very competetive swap fees.

How it works

Allbridge Core utilizes several messaging protocols to transfer the information between chains. One of them is Wormhole, a decentralized protocol operated by Jump Crypto, which is also used by their Portal Bridge. The other protocol being Allbridge’s own messaging, which supports the chains that Wormhole doesn’t (i.e. Tron). 

Allbridge Core has native liquidity pools for each supported token in each of the supported networks.Using the specified inter-network message protocol (Wormhole or Allbridge), virtual tokens are sent from the source network to the destination target network.

Outgoing tokens are sent to the pool, where they are exchanged for virtual assets, which are a representation of the value of tokens within the protocol. The bridge smart contract on the target blockchain exchanges virtual assets for native ones from the liquidity pool and sends them to the user.

Wrapping up

Cross-chain transfer protocols are well suited for people who want to retain custody of their own assets and transfer funds in a decentralized way, as opposed to operating with centralized exchanges. 

However, we advise you to complete you due dilligence before using any of the DeFi services and investigate the products for security audits, team history, and other details. 

In conclusion, bridges allow you to seamlessly transfer funds between different chains and utilize the unique advantages every individual chain possesses. They act as stepping stone to connect the invididual islands of separated networks into a unified ecosystem, while contributing to the expansion of DeFi services across the space..