Bridges between Blockchains (Bridges)

In the vibrant Decentralized Finance (DeFi) universe, interoperability is the key to success. Bridges between blockchains are essential tools that facilitate the transfer of assets and data between different blockchains and protocols. In this article, we will explore in depth what DeFi Bridges are, how they work and why they are essential for the future of the DeFi ecosystem.

What are the bridges between blockchains?

DeFi bridges are technological infrastructures designed to connect different blockchains and protocols within the DeFi ecosystem. They enable the secure and efficient movement of assets and data between different platforms, overcoming interoperability barriers between blockchains.

This simple explanation gives us a general idea, but it is very important to understand this basic concept in order to understand how exactly things work when sharing data.

There are two main types of connections: those that are controlled by a single entity or system (called "centralized") and those that do not depend on any central entity (called "decentralized").

Centralized bridges

They need to be controlled by someone in particular, which means that users have to trust that person or entity to use a specific service or application.

Decentralized bridges

They don't need you to trust a single entity. Instead, they work thanks to a group of computers that agree with each other on how things should be handled, based on rules that are written in software. This approach avoids many problems that can occur with centralized connections, such as corruption or abuse of power, because it promotes transparency and encourages participation by many people.

Operation of DeFi bridges

DeFi bridges employ various mechanisms to facilitate the transfer of assets between blockchains. One of the most common methods is asset bridging, where assets are bridged on one blockchain to generate equivalent tokens on another. This process, known as "bridging" or "cross-chain bridging," allows users to use those assets in different protocols and applications.

Another approach used is the use of oracles, which act as intermediaries to transfer data between blockchains. Oracles collect and verify off-chain information, such as asset prices, and transfer it to other blockchains where it can be used by DeFi applications.

The operation of these bridges can be simplified into four steps:

1. Bridge Configuration: The bridge is established between two chains, A and B, creating the basic infrastructure for their operation. This process involves the creation of smart contracts that connect both chains and facilitate the exchange of information between them.
2. Exchange Request: If you wish to transfer a token from chain A to chain B, you go to the bridge and specify the amount of tokens you wish to exchange on A, and provide the destination address on B. At this point, on chain A, the bridge receives your funds and directs them to a "vault" controlled by a smart contract. This smart contract notifies a blockchain oracle of the action, along with the data needed to continue the process on the B chain.
3. Process on Chain B: The smart contract on chain B receives the information from the oracle and proceeds to mint the tokens on that chain. Once this process is completed, the tokens are sent to the address provided by the user.
4. Collateral and Recovery: Tokens on chain A are locked as collateral for tokens on chain B and can only be retrieved through the reverse process.

Risks of Bridges

The risks associated with blockchain bridges are diverse and must be considered:

1. Vulnerability Exploitation: There have been reported cases where smart contracts on blockchain bridges have been breached by attackers, resulting in the loss of large amounts of cryptocurrencies. These vulnerabilities can be exploited by malicious actors to commit fraud.
2. Custodial Risks: Custodial bridges may expose users to risks related to the security of funds. There is a risk that the centralized entity behind a custodial bridge may steal users' funds. Therefore, it is important to select well-established projects with a proven track record if you decide to use a custodial bridge.
3. Transaction Rate Bottlenecks: The limited processing capacity of an individual chain can become an obstacle to large-scale blockchain interoperability. These bottlenecks can affect the efficiency of blockchain bridges and slow down transactions.
4. Scalability Issues: While bridging can help alleviate congestion in saturated networks, moving assets to another chain does not solve the underlying scalability problem. In addition, lack of access to the same range of decentralized applications (dApps) and services across all chains can limit scalability efficiency.
5. Interconnected Security Risks: By connecting different blockchains, blockchain bridges can expose the underlying protocols to risks related to trust disparity. The overall security of interconnected networks is determined by the weakest link, highlighting the importance of maintaining high security standards across all connected protocols.

Importance of bridges between blockchains

DeFi Bridges are critical to the expansion, integration and mass adoption of the decentralized financial ecosystem. By removing interoperability barriers, they enable users to access a wider range of services and opportunities within DeFi.

They foster collaboration and innovation by facilitating the integration of different projects and protocols, allowing developers to build more robust and scalable applications.

In addition, DeFi bridges are vital to the mass adoption of DeFi by making it easier for users to migrate their assets and data between different platforms and blockchains, reducing the friction and costs associated with using DeFi applications.

Highlighted examples

Some of the most prominent Cross-Chain protocols are the following:

• Stargate Finance: https://stargate.finance/
• Multichain: https://multichain.org/
• Portal: https://portalbridge.com/
• WBTC: https://wbtc.network/

Conclusions

DeFi bridges are an essential part of the decentralized financial ecosystem, facilitating interoperability between different blockchains and protocols. These technological infrastructures are critical to the expansion, integration and mass adoption of DeFi, enabling users to access a wider range of services and opportunities within the world of decentralized finance.