Footprint: What Makes Cross-Chain Bridges Unique?

"A day in the crypto world is like a year in the human world," confirming the rapid development of DeFi. According to data from Footprint Analytics, the total value locked (TVL) in DeFi has been continuously rising since June this year, reaching $251 billion. With the continuous development of the blockchain industry, various public chains and projects are engaged in fierce competition, reaching a certain scale. However, due to differences in underlying technologies, infrastructure, security models, etc., each public chain has become an independent value island, resulting in the inability to freely exchange assets on different chains. At this point, cross-chain bridges have become a solution to connect these islands, allowing assets to be efficiently interchanged across multiple chains.

This article will help you understand cross-chain bridges from the following 4 perspectives:

1. Definition of Cross-Chain Bridge
2. Performance Data of Cross-Chain Bridges
3. Issues Solved by Cross-Chain Bridges
4. How to Choose a Cross-Chain Bridge

1. What is a Cross-Chain Bridge?

A Cross-Chain Bridge is a connection method for transferring tokens or data between blockchains. The two chains may have different protocols, rules, and governance models. The Cross-Chain Bridge provides a compatible way for secure interaction between them.

When a user wants to convert an asset [ERC20 A] on Ethereum into an asset [BEP20 A] on the Binance Smart Chain (BSC) through AnySwap, [ERC20 A] is locked on the source chain, then the bridge notifies and generates [BEP20 A] on the BSC chain, which is then sent to the user.

The entire process of using a Cross-Chain Bridge takes about 5-20 minutes, with Gas fees estimated at $10-20, depending on the congestion of the Ethereum network at the time.

A Cross-Chain Bridge has the following characteristics: quick and convenient user transactions, low operation difficulty, and low transfer costs.

2. Recent Performance of Cross-Chain Bridges

Currently, most Cross-Chain Bridges on the market are second-layer extension bridges primarily built on Ethereum, aiming to achieve interoperability with Ethereum.

According to Footprint data, as of October 26, 2021, the Total Value Locked (TVL) of Cross-Chain Bridges is $16.2 billion, with a growth rate of over 72.25% in the past 30 days, showing rapid development. The top 4 Cross-Chain Bridges, including Avalanche Bridge, Polygon Bridges, Arbitrum Bridges, and Fantom Anyswap Bridge, occupy 95.61% of the total Cross-Chain Bridges, with Fantom Anyswap Bridge having the highest monthly growth rate of 401.23%.

Based on data from cointofu's Cross-ChainBridge tool, these top 4 Cross-Chain Bridges also have relatively high user experience ratings.

TVL & Distribution of Cross-Chain Bridges (Since April 2021) Data Source: Footprint Analytics

TVL Rankings & 30-Day TVL Changes of Cross-Chain Bridges, Data Source: Footprint Analytics

As shown in Footprint's charts, from early September to date, Optimism has the most active depositors, followed by Avalanche. The current lowest transfer fee is $0.25, as per L2 Fees, indicating relatively stable fee changes.

Among these Cross-Chain Bridges, which assets are being circulated?

According to Footprint data, the main trading assets on Cross-Chain Bridges are ETH and WETH. As of October 26, the total locked value of ETH on 15 Cross-Chain Bridges reached $6.882 billion, accounting for about 42.6% of the total locked value, making it the most widely used asset by investors. Following ETH is WBTC, with a total locked value of approximately $2.376 billion, accounting for about 14.7% of the total locked value. Additionally, USDC stablecoin has a total locked value of around $2.298 billion, representing 14.23% of the total locked value. The combined locked value of these top three mainstream trading assets exceeds 70%.

3. How Cross-Chain Bridges Solve Problems

Without bridges, investors would need to go through exchanges, involving at least two steps with transaction fees for single-chain transfers. Cross-Chain Bridges facilitate multi-chain prosperity, enabling asset interoperability and high security. Investors tend to choose Ethereum Bridges for asset-related issues. With many Layer1 blockchains needing bridges to connect to other systems, Cross-Chain Bridges play a crucial role in asset transfers, making them highly valuable.

Moreover, they address the following issues:

1. Speeding up transactions while reducing Gas fees

• 2. Free exchange of user assets with a high user experience
• 3. Increased productivity and utility of existing crypto assets
• 4. Enhanced security and privacy
• 5. Solving fund transfer issues, etc.

Scenarios suitable for using Cross-Chain Bridges:

• 1. Transferring tokens between Ethereum and a Layer 2 network for faster and more convenient asset transfers, reducing complexity and costs;
• 2. Using during high fees and Ethereum congestion;
• 3. When assets supported by a single chain are limited compared to those supported by Cross-Chain Bridges;
• 4. For investors to quickly gain access to new chain investments, evaluating the new chain's mechanisms and security;
• 5. Performing arbitrage trades across DEX on Optimism, Arbitrum, and Polygon, etc.

4. How to Choose the Right Bridge

Evaluate based on the following aspects:

• 1. Consider well-established and sizable Cross-Chain Bridges, with a suggested TVL of over $1 billion, stable TVL change rates, indicating reliable cross-chain mechanisms and trusted execution environments, suitable for long-term use with guaranteed security;
• 2. Reasonable transfer fees, generally between $1-5 for cross-chain costs: using Avalanche Bridge as a benchmark; reasonable asset interaction speed with an expected transfer time of 10-30 minutes; the above two criteria are for reference only.
• 3. Prioritize security; newly established or small-scale bridges with lower TVL are not recommended for asset transfers. Such bridges may have incomplete cross-chain mechanisms, making them vulnerable to hacking and theft.

Additionally, there are aggregation tools offering one-stop cross-chain bridge solutions. CoinTofu, for example, provides a comprehensive user experience, allowing users to access cross-chain pages, display supported bridges, estimated arrival times, transaction fees, and user experience ratings.

With the development of the DeFi industry, Cross-Chain Bridges are more popular than traditional exchanges, enabling interoperability between different blockchain applications and facilitating asset transfers between projects, public chains, and investors, solving fund transfer issues and providing users with greater convenience and lower transaction costs.

The above content is for informational purposes only and does not constitute investment advice. If there are any obvious misunderstandings or inaccuracies, feedback is welcome.

Footprint Analytics Website: https://www.footprint.network/
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About Footprint Analytics

Footprint Analytics is an all-in-one visual blockchain data analysis platform. Footprint helps resolve blockchain data cleaning and integration issues, providing users with a zero-threshold blockchain data analysis experience. Offering over a thousand table templates and a drag-and-drop charting experience, anyone can create personalized data charts within 10 seconds, easily gaining insights into blockchain data and understanding the stories behind the data.