Decentralized Finance (DeFi) grew quickly from its starting point on the Ethereum blockchain, a burgeoning multi-chain ecosystem. Through multi-chain implementations, DeFi bridges have become critical infrastructure, allowing users to move assets and data freely between different blockchain networks. These bridges are not only conduits of transportation, they facilitate socioeconomic opportunities. They enable cross-chain lending and borrowing and mint omnichain non-fungible tokens (NFTs), linking the current fragmented DeFi ecosystem together. The creation of DeFi bridges has introduced hugely impactful security burdens. High-profile exploits have revealed the dangerous lack of protections built into these systems. It is no secret that the DeFi space is maturing quickly. To operate safely in this new complicated ecosystem, participants need to be aware of the dangers and the answers surrounding cross-chain bridges.

This article is an in-depth look at the importance, development and future of DeFi bridges within the multi-chain ecosystem. Part two dives into the built-in security threats they present and discusses prominent crashes that have undermined user trust. It evaluates different bridging techniques, including LayerZero, Stargate, Across Protocol, and cross-chain aggregators like Jumper Exchange and Bungee Exchange. You’ll come away with an understanding of their mechanisms and trade-offs.

The Vital Role of DeFi Bridges

DeFi bridges have become the linchpin of multi-chain DeFi ecosystem. They enable users to smoothly transfer assets and information across various blockchain networks. This functionality is crucial for several reasons.

First, DeFi bridges allow for cross-chain lending and borrowing. Users can deposit their collateral on one blockchain, like Ethereum and borrow assets on another blockchain, like Arbitrum. They democratize omnichain NFTs and ease their creation. You could purchase these NFTs on one blockchain using the native token from a second blockchain.

The ability to move assets and data seamlessly across chains provides unique opportunities and unlimited potential for DeFi applications. It leads to increased interoperability and composability across the portfolio. Without DeFi bridges, the multi-chain DeFi landscape would be a collection of isolated islands, limiting the potential for innovation and growth.

High-Profile Bridge Exploits and Security Concerns

Yet this building block of DeFi has repeatedly turned into low-hanging fruit for hackers. Despite their growing popularity, the very nature of their operation—cross-chain locking and unlocking of assets—introduces vulnerabilities by design. Unfortunately, multiple high-profile exploits have proven the seriousness of these dangers, leading to hundreds of millions of dollars lost by users as a result.

The largest of these by far was probably the Wormhole hack in mid-February of 2022. Attackers abused a vulnerability with the Solana-Ethereum bridge to steal $320 million worth of assets from the blockchain. The hack rattled faith in the entire cross-chain ecosystem, showing how a single hack could lead to catastrophic, unforeseen losses.

Adding to these worries was the Multichain collapse in May 2023. Following the arrest of protocol CEO Zhaojun within China, the protocol was hit with an enormous $125 million hack in July 2023. This breach resulted in the loss of hundreds of millions in user funds. We are beginning to see the fallout from this incident, which highlighted the dangers of both centralized control and regulatory uncertainty within the DeFi space. Other notable exploits include THORChain's $7.6 million exploit in 2021, where users were eventually reimbursed, and Socket Protocol's $3.3 million hack in January 2024, caused by an "infinite approvals" bug. Incidents like these highlight the ongoing security risks for DeFi bridges.

These attacks serve to underscore the risks that are part of any bridge technology. Security Audit Cross-chain communication is complicated and fraught with technical challenges. This complexity, combined with the high value of assets locked in these protocols, act like a magnet to malicious actors. The industry is doing everything it can to proactively protect against security — and we’re under threat every day.

Bridging Solutions and Their Mechanisms

Even with the risks, the demand for cross-chain functionality isn’t going anywhere. A number of bridging solutions have come to market, each taking their own stances on security versus efficiency. Recognizing the mechanisms behind these solutions will be key for anyone looking to safely traverse the cross-chain ecosystem.

LayerZero, for instance, uses an innovative technique for cross-chain communication. Instead, it puts faith in a decentralized group of independent actors, including an Oracle and a Relayer, to confirm the validity of transactions. The Oracle supplies block header information, and the Relayer submits transaction inclusion proofs. Our deep belief is that this system will decrease trust assumptions by decentralizing verification to the public at large. Stargate, a bridge originally deployed on the LayerZero technology, uses this infrastructure to provide seamless cross-chain transactions and efficient token transfers.

Wormhole, another major bridge, relies on a network of 19 “Guardians” to review and approve transactions. With these Guardians, usually node operators or validators from other blockchains, attesting to the validity of these cross-chain messages. Although this is a helpful shift towards decentralization, it still depends on the trustworthiness of the Guardian network.

Across protocol takes a different approach, specifically targeting the EVM-compatible blockchains. It enables users to transfer tokens between Ethereum mainnet and Layer 2 networks quickly and affordably. The protocol has major industry support, having recently raised $7.9 million in round led by Coinbase Ventures and Blockchain Capital.

Cross-Chain Aggregators: Simplifying the Bridging Experience

Besides the individual bridges, cross-chain aggregators have come up to make the bridging experience easier. These centralized platforms sort liquidity from across the other bridges. This allows users to easily find and compare the best rates and routes for their cross-chain transfers.

Jumper Exchange – the first exchange not originating from Ethereum and built upon the LI.FI protocol – connects over 25 blockchains. It pools liquidity through multiple bridges so individuals can see the best rates and speed of execution. Bungee Exchange – which is built on Socket Protocol – currently supports more than 10 blockchains. These aggregators take the pain out of the cross-chain process, making it much easier and more accessible to a far larger audience.

By aggregating liquidity and routing orders through multiple bridges, these platforms are able to provide users with better prices, more efficiency, and a better user experience overall. Though aggregators can’t be faulted for this, it should be clarified that aggregators assume the security risk of the underlying bridges that they use. Users should absolutely continue to be careful and do their homework on the bridges an aggregator connects to through their network.

Evaluating Security Trade-offs

As such, users should be careful to weigh the security trade-offs when deciding on a DeFi bridge. No bridge can ever be completely risk-free, and every proposed solution comes with its unique vulnerabilities.

Centralized bridges rely on a trusted third party to manage the flow of assets. This reliance puts them under a huge threat from hacks and censorship. Decentralized bridges spread control to more parties to increase resilience against bad actors. They tend to be slower and more complicated to use.

Bridges like Wormhole, which depend on external validators, are only as trustworthy as the custodians of those external validators. If a majority of validators got hacked, the bridge would still be exposed to attack.

Bridges that adopt the latest cryptographic protocols can offer higher security guarantees. The problem is that these techniques may not be as tried and true as the primary methods.

In the end, the best bridge for each user will come down to that user’s personal risk tolerance and value for time and convenience. Users need to do their own due diligence on the security mitigations of each bridge and accept their own trade-offs.

Best Practices for Secure Cross-Chain Transactions

As DeFi bridges bring a high level of inherent risk, it is advisable for users to take best practice measures to safeguard against possible exploits.

First, travelers need to do more pre-trip planning when it comes to bridge usage. Knowing the security mechanisms, the team of the project, and previous incidents is very important. Secondly, users should diversify their bridge usage. Depending on just one bridge raises the chance of facing a targeted vulnerability.

Third, users can avoid losing funds by bridging only small amounts at a time. This significantly lowers the possible damages in light of an exploit. Fourth, users need to be vigilant about new security threats and vulnerabilities. Following security audits, industry news, and community discussions can help users stay ahead of potential risks. Users need to be on the lookout for cross-chain aggregators to find the lowest rates and optimal routes. First, let’s make sure those improved bridges are truly safe before we cross them.