Cross-chain Bridges Ecosystem Overview: Current Status, Technology, and Development Trends

The number of blockchain networks has exceeded a hundred, each with its own characteristics. Bitcoin has few applications as an electronic cash transfer network, while Ethereum has a wealth of applications but suffers from severe congestion. The flow of assets and information between different chains has become a necessity, leading to the emergence of cross-chain bridges. This article will comprehensively outline the cross-chain ecosystem from three dimensions: ecological status, technical solutions, and development trends.

Cross-chain ecosystem status

Cross-chain has become a common 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 dozens.

2. There are various types of cross-chain assets. Taking BTC as an example, it has given rise to multiple cross-chain assets such as WBTC and anyBTC. NFT cross-chain will bring more forms of assets.

3. Cross-chain penetration into various ecosystems. Mainstream public chains and Layer 2 both adopt cross-chain solutions, with the locked value of cross-chain bridges in the Ethereum ecosystem reaching $7.8 billion. Some cross-chain bridges, such as Multichain, have connected more than 50 networks.

4. Cross-chain and DeFi are deeply integrated. Various cross-chain assets are often seen in lending, DEX, and other DApps.

Currently, the most active ecosystems in cross-chain include 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 high TVL 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 hand over BTC to a custodian, and the issuer mints an equivalent amount of WBTC to return to the user. Security depends on smart contracts or third-party custodians. Cross-chain efficiency is relatively low.

2. Liquidity Pool

Establish liquidity pools on the source chain and the target chain, depositing native assets and cross-chain assets in advance. Users can directly withdraw assets from the pool when performing cross-chain transactions, making the process faster. The security risks are mainly borne by liquidity providers. LayerZero has optimized this.

3. Atomic Swap

Direct on-chain asset swaps are achieved through HTLC without intermediaries. The highest level of security is required, but both chains must use the same algorithm and support HTLC. cBridge adopts this solution.

Cross-chain Development Trends

1. The official Layer 2 bridge focuses on security, concentrating on cross-chain between Layer 1 and Layer 2.

2. Aggregated cross-chain bridges improve user experience by providing multiple routing options.

3. More and more cross-chain bridges offer staking, optimizing the depth of liquidity pools.

4. NFT cross-chain has become a new track, facing more technical challenges.

5. Participate in the DeFi ecosystem with cross-chain liquidity pools to improve capital utilization.

6. Other innovations such as supporting CEX cross-chain and multi-currency cross-chain simultaneously are constantly emerging.

Despite security risks, the demand for cross-chain will continue. Future opportunities lie in full-chain interoperability, integration with DeFi, cross-chain for NFTs, and specific ecological cross-chain areas. Cross-chain bridges remain a track full of potential and variables.