Cross-chain Bridges Overview: Ecological Status, Technical Solutions, and Development Trends

According to statistics, there are currently at least 126 Layer 1 blockchains. These blockchains each have their own characteristics, such as Bitcoin being an electronic cash transfer network and Ethereum being a feature-rich smart contract platform. There is a demand for asset and information flow between different chains, leading to the emergence of cross-chain bridges.

This article will comprehensively sort out the cross-chain ecosystem from three dimensions: ecological status, technical solutions, trends, and opportunities.

Cross-chain ecosystem status

Cross-chain has become a widespread phenomenon:

1. There are numerous cross-chain bridges. The number of cross-chain bridges on mainstream public chains such as Ethereum, BNB Chain, and Polygon has reached 100, 68, and 48 respectively.

2. There are many types of cross-chain assets. Taking BTC as an example, it has given rise to various cross-chain assets such as WBTC and anyBTC. NFT cross-chain is also increasing asset diversity.

3. Cross-chain penetration into various ecosystems and DAPPs. Mainstream public chains and Layer 2 have adopted cross-chain solutions, with a bridge lock-up amount of 7.8 billion dollars in the Ethereum ecosystem.

4. The deep integration of cross-chain and DeFi. WBTC in the lending market and ceUSDC in DEX are typical applications of cross-chain assets.

Currently, the most active cross-chain ecosystems are Ethereum, BNB Chain, Polygon, Avalanche, and Fantom. USDC, USDT, MATIC, ETH/WETH, and DAI are the main cross-chain assets. The cross-chain bridges with higher locked amounts include Polygon Bridge, Arbitrum Bridge, and Optimism Bridge.

Cross-chain technology solutions

There are mainly three technical solutions for cross-chain bridges:

1. Locking + Minting/Burning

A typical representative is WBTC. Users lock native assets, and cross-chain bridges mint equivalent assets on the target chain. Upon redemption, cross-chain assets are destroyed, and native assets are unlocked.

Advantages: The solution is simple and straightforward. Disadvantages: Dependence on third-party custody, risks of single point of failure.

2. Liquidity Pool

Establish liquidity pools on the source chain and target chain, allowing users to directly exchange assets from the pools when performing cross-chain transactions.

Advantages: cross-chain speed is fast Disadvantage: LP takes on higher risks

LayerZero has optimized on this basis, improving efficiency and security through unified liquidity pools and cross-chain message verification.

3. Atomic Swap

Achieve peer-to-peer asset exchange through the Hash Time-Locked Contract (HTLC).

Advantages: High degree of decentralization, good security Disadvantages: Requires chains to be compatible with HTLC, limited applicability.

Cross-chain Development Trends

1. The Layer2 official bridge focuses on security, concentrating on cross-chain between Layer1 and Layer2.

2. Cross-chain aggregators enhance user experience by providing multiple routing options.

3. More cross-chain bridges introduce staking mechanisms to optimize liquidity pool depth.

4. NFT cross-chain has become a new potential track

5. The deep integration of cross-chain liquidity pools with the DeFi ecosystem

6. Support for cross-chain and multi-currency simultaneous cross-chain innovations between CEX and blockchain.

Cross-chain bridges still face challenges such as security and capital efficiency, but there is still great potential in areas like full-chain interoperability and NFT cross-chain. The paradigm of the cross-chain bridge track has not yet been established and remains full of potential and variables.