Thread by @0xJunior

@Ronin_Network is now on the top of crypto hack leaderboard at 625M. The new emerging narrative is bridges but it will take some time and pain until we get it right. Let's look at bridge tech and different designs. MEGA THREAD! 🧵👇

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https://twitter.com/chainalysis/status/1508871975300739082

1/Blockchain bridges work just as bridges in a physical world just instead of connecting two physical locations they connect two blockchains. Bridges facilitate communication between blockchains through the transfer of information and assets.

2/Interoperability drives innovation. More specifically:
- Greater productivity and utility for existing cryptoassets
- Greater product capabilities for existing protocols
- Unlocking new features and use cases for users and developers

3/There are several components which apply to most bridge designs:
- Monitoring: There is usually an actor, either an “oracle”, “validator”, or “relayer”, that monitors state on the source chain

4/ - Message passing/Relaying: After an actor picks up an event, it needs to transmit information from the source chain to the destination chain

5/- Consensus: In some models, consensus is required between the actors monitoring the source chain in order to relay that information to the destination chain.

6/- Signing: Actors need to cryptographically sign, either individually or as part of a threshold signature scheme, information sent to the destination chain

7/ Now that we have covered specific components of bridge designs, let's look at roughly four different types of bridges, each having their own benefits and drawbacks:

8/
1. Asset-specific bridges are the ones with sole purpose of providing access to a specific asset from a different chain. These assets are often "wrapped" assets fully collateralized by the underlying, either in a custodial or non-custodial manner.

9/ These bridges are very easy to implement and enjoy the liquidity flywheel, but they have limited functionality and need to be re-implemented on each chain (for example wBTC)

10/
2. Chain-specific are bridges which usually support simple operations around locking and unlocking tokens on the source chain and minting any wrapped asset on the destination chain.

11/ Because of their limited complexity they are usually faster but not as easily scalable to the broader ecosystem. (#Polygon's PoS bridge - llows users to transfer assets from Ethereum to Polygon and vice versa, but is limited to those two chains)

12/
3. Aplication-specific: These are applications which provide access to two or more blockchains, but solely for use within that application. Instead of having entire application on each blockchain, it usually has lighter, modular “adapters” on each of those blockchains.

13/ A blockchain that implements an adapter gets access to all other ones it is connected to, so it achieves network effect. Downside: hard to extend functionality to other applications.

14/ For example #compound and #THORChain which are building separate blockchains specifically for cross-chain lending and exchange, respectively.

15/
4. Generalized: a protocol specifically designed for transferring information across multiple blockchains. This design has strong network effects because of its complexity - a single integration for a project gives it access to the entire ecosystem within the bridge.

16/ The downside about this one is that some designs usually trade off security and decentralization to get this scaling effect, which could have complex unintended consequences for the ecosystem. (#IBC used to send messages between two heterogeneous chains).

17/ Here is a nice visual by @dberenzon:

18/ If we continue, we can also categorize bridges based on the mechanism that is used to validate the cross-chain transactions:

19/
1. External validators and Federations: This is usually group of validators that monitor the "mailbox" address on the source chain and, upon consensus, perform an action on the destination chain.

20/
2. Light clients and Relays: Actors monitor events on the source chain and generate cryptographic inclusion proofs about past events that were recorded on that chain.

21/This is a relatively safe bridge design because it guarantees trustless valid delivery without placing trust in intermediary entities, it's also resource intensive because developers must build a new smart contract on destination chain that parses state proofs from sourcechain

22/
3. Liquidity networks: peer-to-peer network where each node acts as a “router” that holds an “inventory” of assets of both the source and destination chain. These networks usually leverage the security of the underlying blockchain.

23/Through the use of locking and dispute mechanisms, users are guaranteed that routers cannot run away with user funds (example @ConnextNetwork).

24/This type of bridge is likely best suited for cross-chain asset transfer because the assets provided by routers are native to the destination chain rather than derivative assets, which are not fully fungible with each other.

25/Once more a great image by @dberenzon:

26/Its all not so black and white either we have hybrid models Gravity, Interlay, and tBTC since they all have light clients in one direction and validators in another.

27/We can also evaluate bridge design by these factors:
- Security: Trust & liveness assumptions, tolerance for malicious actors, the safety of user funds, and reflexivity.

28/- Speed: Latency to complete a transaction, as well as finality guarantees. There is often a tradeoff between speed and security.

29/- Connectivity: Selections of destination chains for both users and developers, as well as different levels of difficulty for integrating an additional destination chain.

30/ - Capital efficiency: Economics around capital required to secure the system and transaction costs to transfer assets.
- Statefulness: Ability to transfer specific assets, more complex state, and /or execute cross-chain contract calls.

31/Lastly we can roughly categorize security on a spectrum:
- Trust-less: The bridge’s security is equal to that of the underlying blockchain(s) it is bridging

32/- Insured: Malicious actors are able to steal user funds, but it is likely unprofitable for them to do so because they are required to post collateral and get slashed in the case of error or misbehavior.If user funds are lost, they will be reimbursed through slashed collateral

33/- Bonded: Similar to the insured model (i.e. actors have economic skin-in-the-game), except that users do not recover funds in case of error or misbehavior because the slashed collateral is likely burned

34/- Trusted: Actors do not post collateral and users do not recover funds in case of system failure or malicious activity, so users are mainly relying on the reputation of the bridge operator.

35/Nicely done although probably missing some:

36/Although bridges unlock innovation we are still at the early stage which poses huge risks as we have seen recently @Ronin_Network and what the potential economic magnitude of these attacks is.

37/The best bridges will be the most secure, interconnected, fast, capital-efficient, cost-effective, and censorship-resistant. Although we will not have one ideal bridge probably, but we will have specialized bridges that will be best fit for specific applications

38/ Thank you for reading I hope it will help you decide which bridges to use and why. Please like and share. Here are the sources:
1.ethereum.org/en/bridges/
2.Thanks @arjunnchand: lifi.notion.site/Blockchain-Bri…
3.All around great bridge 101 props @dberenzon: medium.com/1kxnetwork/blo…