Bridges and Inter-Chain Protocols Simplified
Guest post brought to you by Symbiosis!
Hey there! Welcome to the latest edition of LI.FI’s Cross Chain Insider. Today’s guest post has been written by the awesome team over at Symbiosis, sharing their unique perspectives on the cross-chain world. Keep in mind that the opinions expressed in this post are strictly their own and don't necessarily reflect the views of LI.FI.
Make sure to check out Symbiosis’ dApp, and follow them on Twitter!
Introduction
Interoperability between blockchains is one of the major problems in web3. With the rise of new blockchains, there’s an evident need for a solution that can enable blockchains to communicate with each other. Two technologies have emerged that make this communication possible: bridges and inter-chain protocols. In this article, we will look into how these two technologies work and analyse the differences between them.
Let’s dive in!
In 2019, there were two major blockchains: Bitcoin and Ethereum. Due to the lack of interoperability, these chains could not talk to each other and it was not possible to send assets between them. To overcome this limitation, the wBTC bridge, the first blockchain bridge was introduced. wBTC bridge made it possible for users to send native BTC from the Bitcoin network to Ethereum. As a result, several opportunities for using BTC in Ethereum’s DeFi ecosystem opened up. For instance, users could now leverage BTC as collateral and also use their BTC in yield farming.
Let’s understand how the wBTC bridge works on a technical level, with the help of an example.
Suppose a user wants to transfer some of his BTC to the Ethereum network and uses the wBTC bridge. To make this happen, the wBTC bridge locks the BTC on the Bitcoin network and mints an equivalent amount of ETH on the Ethereum network. In essence, the assets don't technically move across blockchains, they are simply locked on one side, and minted on the other.
Now, let’s say the user wants to do a reverse transaction, i.e., convert ETH on the Ethereum network to BTC on the Bitcoin network using wBTC bridge. In this case, the wBTC bridge burns the ETH tokens on the Ethereum network and an equivalent amount of BTC are unlocked and sent to the users wallet on the Bitcoin network.
All the minting and burning of assets involved in this process is done by utilizing smart contracts. While the smart contracts enable the wBTC bridge to mint and burn an infinite amount of wrapped assets, they also expose the bridge architecture to smart contract risks which is the most common reason for most of the bridge hacks in recent history.
Similar to the wBTC bridge, there exist many other bridges in the ecosystem. However, there are certain key differences in how they work.
Generally, bridges can be divided into four types:
Those that use external validators (Multichain, Wormhole)
Those that use light clients and relays (Rainbow Bridge, Optics, IBC)
Liquidity networks (cBridge, Connext, Hop)
Those that keep the liquidity on the host-chain and route transactions (Symbiosis, Synapse)
Note: Some protocols use a hybrid mechanism wherein they leverage multiple approaches simultaneously (e.g., Celer and Multichain). Moreover, protocols like Symbiosis cannot be fully classified as a bridge as they function like a cross-chain AMM DEX, operating with a relayer network on top of the host-chain.
In the current scheme of things, bridges are majorly used for transferring assets between chains and unsurprisingly, some of the most popular bridges in the ecosystem today are token bridges like Stargate, Multichain, Across, Hop, among others. However, as the cross-chain ecosystem evolves, the need to send more complex data across chains will likely increase and thus, inter-chain messaging protocols or as LI.FI likes to call them, arbitrary messaging bridges (AMBs), will grow in demand.
Inter-chain protocols open up several possibilities in terms of use-cases for the cross-chain world. They not only enable dApps to send assets across chains but also allow them to send execution logic which makes it possible to facilitate complex cross-chain strategies. Some of the include:
Unified multi-chain management systems (cross-chain DAOs)
DeFi aggregators, including cross-chain yield aggregators
Super wallets – one address that can manage multiple sub-accounts across multiple networks.
Many inter-chain protocols such as IBC, Axelar, LayerZero, and Symbiosis, have emerged in the past year. While all of them enable the same functionality, i.e., allowing dApps to send complex data across chains, their security models and features are different. For example:
IBC is built specifically to cater to the needs of the Cosmos ecosystem. It allows Cosmos chains to communicate with each other without establishing third-party trust. It’s one of the more trust-minimized solutions in the ecosystem today since it leverages light clients in its architecture. However, this reliance on light clients limits its expandability to chains beyond the Cosmos ecosystem.
Axelar enables inter-chain messaging by creating a PoS blockchain built on top of the Cosmos SDK. The Axelar network is built on a hub-and-spoke model, which allows for one-to-many inter-chain communications. Axelar leverages IBC to communicate with other IBC-compatible chains and it is believed to be the solution that will popularise Cosmos <> EVM connectivity.
LayerZero gives developers the flexibility to set their own security principles for their dApps by leveraging its isolated security model. It uses a combination of relayers and oracles to enable cross-chain communication and also offers developers a default security system if they don’t want to set up their own security profile.
Symbiosis is an example of a simplified inter-chain protocol. It uses relayers for inter-chain calls and AMM DEX mode on the host chain to offer seamless cross-chain swaps. Additionally, Symbiosis has an inter-chain protocol that allows users to provide liquidity to other DeFi protocols, mint NFTs, exchange for native BTC, and do just about anything on the destination chain in a single transaction and with any token. Moreover, Symbiosis does not use oracles or other third-party protocols.
Closing Thoughts
The essence of bridge or inter-chain messaging is to somehow get information from one chain to another.
For bridges, this information is somewhat limited, as only liquidity is being moved by users creating a transaction that locks and unlocks some type of token on the host and destination chain, respectively. This is super helpful for users, but not necessarily a gamechanger for crypto.
However, with inter-chain protocols, chains are able to converse at a deeper level, allowing for more complex transaction and application types to be built. This is the big thing for web3 and, while still in the early innings, has a chance to really change how crypto applications and blockchains interact!
In the end, that is why the Symbiosis team thinks that inter-chain protocols are more promising than bridges long-term, but bridges will remain as a simple tool for the transfer of assets between chains in the short term.
If your team would like to submit a guest post, let us know → email mark@li.finance or arjun@li.finance.
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