10 Reasons to Move Assets From Here to There!
Starting with BTC and Ethereum....
Introduction
At LI.FI we’ve spent a lot (like 50,000+ words) explaining how bridges work and comparing their security tradeoffs. However, we have yet to really explain why there is demand for moving asset X from chain A to chain B – which is a really crucial concept to understand when learning about bridges…
So, here’s an article on just that, titled: 10 Reasons to Move Assets From Here to There!
Section A: The Main Two Reasons to Move Assets Across Chains
Let’s start with the basics. The two main reasons that bridges are needed can be traced back to the two main reasons that crypto is popular: BTC and Ethereum.
Doing Stuff With BTC
If you are reading an article about cross-chain stuff, you don’t need me to tell you that Bitcoin is cool. You most likely understand why a native internet commodity that bears a striking resemblance to gold (minus the shinyness and, um, physicalness) is fantastic.
However, you have probably, by now, bought BTC and thought to yourself: “um, what do I do with it?” The Bitcoin network (where bitcoins reside) is pretty limited use-case-wise. BTC holders can send BTC to one another or set up a lightning channel or maybe use some sort of Bitcoin-native DeFi protocol (though probably not).
While BTC is the first and largest and arguably most successful crypto asset, it is largely separated from decentralized finance (DeFi) because Bitcoin and Ethereum are not compatible. bitcoins (yes, lower-case b) cannot be natively spent on Ethereum because bitcoins are programmed in a different language and abide by different rules than Ethereum. This is problematic because Ethereum is where the vast majority of DeFi exists. On Ethereum, that beautiful smart contract platform, users can swap, loan, borrow, leverage, and deposit assets across hundreds of different dApps (aka businesses that are powered by code).
This is where moving bitcoins from Bitcoin to Ethereum comes in. bitcoin owners, myself included, oftentimes want to interact with DeFi stuff. For example, Aave, a decentralized money market protocol that originated on Ethereum, offers interest on crypto asset deposits – just like a normal bank would offer yield on a savings account, except this bank lives on a blockchain and is totally transparent. Right now Aave offers bitcoin depositors .26% APY with little bankruptcy risk (as all borrowing/lending information is available on-chain (rather than the black box system we’ve seen hurt CeFi platforms recently)).
Obviously, this is intriguing for bitcoin holders, as earning interest on BTC is better than not earning interest on BTC. However, as mentioned above, bitcoin cannot be directly deposited on Aave because Aave runs on top of Ethereum.
So what happens? How does bitcoin get to Aave? Well, this is why moving across chains is necessary!
Somehow, someway, bitcoin needs to be deposited on Ethereum.
In the case of bitcoins, the most popular way to do move from Bitcoin to Ethereum is via wrapped Bitcoin (WBTC), a token that exists on Ethereum as a representation of a bitcoin stored off-chain thanks to custodians like BitGo, Kyber, and Ren. To put that in normal words: users can deposit 1 BTC into a BTC vault hosted by BitGo, Kyber, and Ren, who will then mint a WBTC on Ethereum. If/when someone wants to take the WBTC out of Ethereum and get BTC back, the process simply works in reverse.
As the website describes: “WBTC standardizes Bitcoin to the ERC20 format, creating smart contracts for Bitcoin. This makes it easier to write smart contracts that integrate Bitcoin transfers.”
Anyways, the moral of this story is that one of the main reasons for bridges is doing stuff with a crypto asset like a bitcoin on a network outside of Bitcoin. This, of course, is not limited to just Ethereum. WBTC is now available on pretty much every single chain, making it probably the most widely accepted asset outside of stablecoins like USDT and USDC.
Getting Outside of Ethereum
If you are reading an article about crypto bridges you don’t need me to tell you that Ethereum is cool. You most likely understand why a global computer that bears a striking resemblance to the internet (with the addition of superpowers like true digital ownership) is fantastic.
However, you have probably, by now, used Ethereum and thought to yourself: “um, why is this so expensive?” The Ethereum network (where ETH resides) is pretty limited throughput-wise. Ethereum users can do a lot of stuff, from buying/making/selling NFTs, trading/leveraging/swapping tokens, and more via DeFi, but because gas fees are so high due to network constraints, users with less than six figures of ETH are essentially priced out of the market. (Example: the average Uniswap v3 trade was $7 yesterday, which is like half a Netflix subscription for the ability to swap one shitcoin for another (this is too expensive!).)
While Ethereum is the first and largest and arguably most successful smart contract platform, it is unapproachable for new entrants to the crypto market. As a blockchain, Ethereum can really only facilitate about 17 transactions per second, which is so low that comparing it to the tried and true “Visa’s 65,000 TPS” is laughable. Since there are so few transactions per second, purchasing blockspace is really expensive (ELI5 reasoning: using Ethereum costs ETH and the more complex a transaction, the more ETH it costs to perform).
For that reason, a ton of other smart contracting platforms have been built. In 2021, it was the year of the alternative layer 1. This is where Solana, Avalanche, Cosmos, Polkadot, BNB Chain, and *gulp* Terra took off, as they offered (in theory) the same decentralized financial applications as Ethereum for a fraction of the cost(though the actual state of decentralization is debatable). In 2022, developers have begun using Ethereum as a settlement layer by way of blockchain rollups like Optimism, Arbitrum, and StarkNet, along with alternative Ethereum scaling solutions like Polygon – which, again, offer Ethereum-like applications at a fraction of the cost.
This is where moving assets from Ethereum to other chains comes in. Users who started on Ethereum are now seeing comparable chains offering comparable applications at low costs. Let’s continue using Aave, that delightful decentralized money market protocol that originated on Ethereum, as an example.
Since launching on Ethereum, Aave has expanded to six other chains. On August 10th, the average cost of supplying an asset on the Ethereum deployment of Aave was $10.47. On its Arbitrum deployment… supplying an asset cost me $.24.
Obviously, this is intriguing for Ethereum users, as using DeFi protocols for 1/100th of the price is better than using DeFi protocols for 100/100ths of the price. However, as mentioned above, Ethereum assets cannot be directly deposited on the Arbitrum deployment of Aave because Arbitrum is not Ethereum.
So what happens? How do Ethereum assets get to Aave on Arbitrum? Well, this is why BRIDGES are needed!
Somehow, someway, Ethereum assets need to be deposited on Arbitrum (or any other chain).
In the case of Arbitrum, there exist 10s of bridges than can move assets from somewhere else to Arbitrum. At LI.FI, we support a bunch of them, like Connext, Hop, Multichain, and Arbitrum Bridge. Each bridge uses a unique design that ranges across the spectrum of trust to move asset X from Ethereum (or any other chain) to Arbitrum.
Anyways, the moral of this story is that one of the main reasons for bridges is doing stuff with crypto assets from Ethereum on another smart contract platform for like half the cost.
Section B: Other (Practical) Reasons to Move Asset X from Chain A to Chain B
Ok, deep breath. The basics have now been covered and we still have a lot of reasons to go. However, I won’t bore you to death with 10,000 words here. This is _supposed_ to be a *quick* article (insert sound of editor sighing in frustration).
Here are 8 short, bullet-pointed reasons for why someone might want to move an asset from here to there.
Aave is offering 4.96% APY for sUSD deposits on Optimism
Farming the upcoming StarkNet airdrop requires tokens to be moved to StarkNet.
Offsetting carbon credits on KlimaDAO requires MATIC
Earning 8.09% APY on JONES staking is only available on Arbitrum
Farming future Optimism airdrops require token to be moved to Optimism
Purchasing an NFT on Joepegs is only permitted via the use of AVAX or WAVAX.
BNB is necessary for using PancakeSwap, the most used dApp in August.
Magic Eden is about to launch Ethereum support
This list could go on. Essentially, any time a user wants to _use_ a product that is not on Ethereum (or the chain they originally have assets on), then a bridge is necessary to move the assets.
Section C: The Conclusion
So those are ten reasons to bridge things from here to there, or there to over there, or even from over there to here.
For those of you who know what a light client is, then you should definitely send this to your friends who don’t know what a light client is because they probably have no idea why someone would even need to bridge an asset from here to there. As Yoda would say: Pass on what you have learned.”
For those of you who just Google-searched “what’s a light client,” well, I hope this article can act as a foundation for you during your gradual bridging education. This stuff can be confusing and we at LI.FI want to be with you for every step of your bridgeducation.
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