99% of Cross-chain Bridges are Doomed to Collapse

When you look at the ratings of cryptocurrencies by market cap on any crypto exchange, 6 out of the top 10 are native tokens of public chains. None of the cross-chain projects in the whole blockchain universe made into even the top 100. Why?

1. Is it because there is no market demand?

No. Ever since the emergence of “Ethereum Killers” such as Solana, Avalanche, Cardano, billions of dollars of digital assets have moved from Ethereum to new public chains in a massive scale via cross-chain bridges. Cross-chain solutions are part of the reason why Ethereum’s dominance in Defi is eroding.

2. Is it because the cross-chain solution is still in its infancy?

No. The concept of cross-chain bridge was established almost 5 years ago.

3. Has the lack of interoperability issue been solved by meta-blockchain Cosmos and Polkadot?

No. As you know, other than Cosmos and Terra in Cosmos Network, other public chains like Cardano, Avalanche, Solana, Tron, Celo, Fantom, Near, Harmony are all using third-party cross- chain bridges to tackle the interoperability issue, of which the aggregate scale far exceeds Cosmos Network itself. As for Polkadot, there is not even one parachain successfully made to the public chain “top league”.

4. Is it because centralized exchanges (“CEXs”) are more and more recognized nowadays?

No. CEXs, in nature, are doing cross-chain transactions in deed. But with the security and regulations issues that arise everywhere in the world, more and more people are becoming reluctant to trade on CEXs.

So, since the cross-chain market looks promising, why no sign of booming?

There are two underlying reasons. One is widely used centralized MPC technology in bridges; and the other one is wrong positioning.

Reason One: Centralized MPC technology cannot gain long-term trust.

Almost all cross-chain solutions in the market are a kind of third-party custodial bridge which is governed by a MPC or multi-sig (multi-signature) wallet. The idea of MPC can be dated back to the 1970s, long before blockchain era, and is considered one of the most secure ways of guaranteeing security over a fund pool, for example in the banking industry. Yet it is not a trustless decentralized mechanism, and has serious security problems. One obvious example is if the majority number of the custodians (usually a group of people designated by the project team) seek to steal the assets, they simply can – as they have enough keys. Or should a portion of the key holders required in the transaction elect to collude and steal funds, it would be impossible to verify who of the pool was responsible for the attack. Because of the systematic risks embedded in MPC or multi-sig, billions of dollars of digital assets have been stolen when crossing bridges since 2021.

MPC or multi-sig technology is commonly used by CEX to safeguard users’ assets. But why is CEX  more secure than MPC cross-chain bridges? Because trades happening on CEX are, in nature, data  exchanges marked on a centralized database, not actual asset flows. However, transfers on MPC cross-chain bridges are actual cryptocurrencies flowing from one side to the other. When under attacks, CEX still has ways to stop the hackers from taking away the stolen assets such as the use of cold wallets, identity verification and extra KYC for the withdrawal. On the contrary, there is no remedy for cross-chain bridges when under similar attacks. Because of this, the largest MPC cross- chain bridge Multichain, also known as Anyswap, started to conduct manual review to cross-chain transfers, and as a result, people are abandoning it.

Good news is, there is a new player entering the market recently called the MAP Protocol. MAP  Protocol is, by far, the only cross-chain interoperability protocol that is truly decentralized empowered by consensus and immutability of an underlying blockchain (MAP Chain). MAP Protocol empowers developers to build cross-chain Defi applications on it which help to achieve dynamic liquidity migration across multiple blockchains. MAP Protocol is revolutionizing the existing MPC-dominated cross-chain bridge market.

Reason Two: For a rather long period of time, cross-chain solutions had been wrongly positioned as a bridge, or a tool. Instead, it should be a cross-chain interoperability solution.

Defi users are the target audience of cross-chain solutions. For example, Alice discovers a Defi project on Chain B offering a higher APY. But all her assets are on Chain A. Now Alice has to (Step 1) swap her tokens to a multi-chain compatible cryptocurrency such as USDC. Next (Step 2), transfering the USDC from Chain A to Chain B using a cross-chain bridge. Then, swaping the USDC back to the target token. Finally, participating in the Defi project.

Or, Alice could go down the old path of making several paid transactions on CEX. Both ways are highly inefficient and may cost a fortune. Decentralization is not an excuse for CEX to step in.

Let’s briefly review the development of public chains in the past years.

⧫ Before 2017, Ethereum dominated the market, Dapps started to deploy on Ethereum. Ethereum became Layer-1.

⧫ 2017-2021, Layer-2 appeared as an third-party integration that can be used in conjunction with Ethereum to improve its scalability and efficiency. In addition, more public chains have been launched to challenge Ethereum, and Dapps started to explore possibilities on different chains.

⧫ Nowadays, Dapps are deployed on multiple chains and as a result, users also own digital assets on multiple chains, and they desperately need a secure and efficient cross-chain solution. Not just a bridge, but an interoperability protocol.

With real digital assets transferring 24-7, there should be a dedicated network capable of providing a comprehensive environment to serve the need. MAP Protocol aims to transfer any contract-level data across multiple chains, and create possibility for cross-chain swap, cross-chain lending and other DeFi products to achieve interoperability among the blockchain universe.

Next time when Alice wants to make a transfer, she will only have to do two things:
– Step 1: Send her token on Chain A to the cross-chain protocol with her requirements.
– Step 2: Alice receives the designated token on Chain B and participates in the Defi project there. The cross-chain protocol will do all the magic: safeguard the assets, transmit messages, conduct verification, provide liquidity, utilize asset vault, swap cryptocurrencies etc… MAP Protocol is truly connecting the value of the blockchain universe.

Also, there is also a common misunderstanding about TVL figures of cross-chain projects. Simply playing with TVL numbers is just a game and is totally misleading!

Of course, stable and high TVL is a very important reference when users evaluate mainnet infrastructure and Defi projects. However, it is absolutely not the same way with cross-chain projects. The essence of cross-chain projects are to solve the liquidity issue, not a reserve issue. What’s the point of having a cross-chain project act like a central bank? The key standard to evaluate a cross-chain project should be the asset usage rate in asset vault, not how big the vault is. One project called cBridge by Celer, for instance, the daily asset usage rate was surprisingly lower than 10% in their $480m vaults. The transaction volume should be times more than the value staked in vaults ! Some projects have walked away from the real function of the cross-chain bridge and turned the project into another capital pool game, attracting users to stake their tokens with high APY.

To conclude, existing cross-chain bridges cannot stand the test of users and time. Only the cross- chain with blockchain-level of security can survive. With more and more Dapps and cross-chain swap projects’ participation, the cross-chain interoperability protocol will soon thrive. At that time, we will not only see the collapse of 99% of cross-chain bridges, but also the fall of centralized exchanges.