Blockchains can be likened to virtual islands or separate ecosystems that were initially designed with limited ability to directly interact with one another. This design choice has historically hindered users from freely transferring assets across different blockchain platforms.
To address this limitation and enable the seamless movement of funds between chains, blockchain bridges have emerged as a solution. These bridges facilitate cross-chain compatibility, simplifying the process of transferring digital assets between diverse chains and allowing users to conveniently move their funds without being restricted to a single blockchain.
Bridges have a wide range of use cases beyond asset transfers. They can also enable decentralized applications (DApps) to simultaneously utilize resources or functions from multiple blockchains, resulting in more complex executions.
Let’s take a closer look at how a bridge to Solana, a popular blockchain platform, works. A user can employ a bridge to transfer a digital asset across blockchains. For example, if a user wants to move Binance USD (BUSD) from the BNB Chain to Solana or vice versa, the bridge will facilitate this transfer. The specific mechanism for completing the transfer may vary depending on the bridge, but it typically involves a lock-and-mint system.
This means that the assets are locked on the source chain, and an equivalent value of the asset is minted as a wrapped version on the destination chain. The circulating supply of the original asset remains unaffected, but a wrapped version of the asset is created on the destination chain, which has its own supply metrics.
In the reverse process, known as burning and minting, the wrapped asset is burned (destroyed), and the locked token is minted (released), returning it to circulation on the native blockchain.
There are several bridges to Solana, but the most popular ones in terms of total value locked are Portal (previously known as Wormhole) and Allbridge.
Let’s delve into the process of bridging using the decentralized bridge platform, Portal.
Step 1: Select the blockchains
The user must choose the source blockchain (the chain the assets are coming from) and the target blockchain (Solana).
[Image]
Step 2: Connect the wallet
The user needs to connect their Web3 wallet to the bridge by clicking the “Connect” button. A prompt will appear, allowing the user to select from various supported wallet providers and connect it to the bridge.
Step 3: Select an asset to transfer
Once the wallet is connected to the bridge, the user must choose an asset from the “Select a Token” drop-down menu. They can select from the list of supported assets or search for the specific asset they want to transfer. The interface usually displays the balance for the selected asset, helping the user identify the correct token. The user then enters the amount they wish to transfer.
[Image]
Step 4: Connect the Solana wallet
Clicking the “Connect” button displays a range of supported Solana wallets, from which the user can select an option.
[Image]
Click on the relevant option and follow the prompts in the wallet to connect it to the bridge.
Step 5: Create associated token account
Once the origin and target wallets are linked, the user must create a token account in the Solana wallet by clicking the “Create associated token account” button. This account is where the user will receive the tokens. If the user already has an associated token account, they can proceed to the next step.
Step 6: Bridge the funds
The user must approve the token transfer through the bridge interface and confirm the transaction in the connected wallet. They can send assets to the bridge by clicking the “Transfer” button.
Step 7: Redeem the funds
After the funds have been successfully bridged, the user can use the “Redeem” button to claim the tokens from the bridge using their Solana wallet.
[Image]
The process for bridging on a centralized bridge platform, such as using the OKX crypto exchange, is slightly different.
Step 1: Transfer the funds to the wallet
The user needs to transfer the funds they want to bridge to their OKX wallet and then navigate to the “Bridge” section.
[Image]
Step 2: Connect wallet
Clicking “Connect wallet” prompts the user to scan a QR code to link their OKX wallet. Users can select “OKX wallet extension” to add a wallet extension to their browser or choose “Other” if they are using a different wallet, such as MetaMask. They need to enter their OKX wallet password and confirm to establish the connection between the OKX wallet and OKX Swap.
[Image]
Once the wallet is connected to OKX Swap, the user can proceed to bridge Tether (USDT) to Solana.
Step 3: Complete the process
The user selects the source blockchain and destination wallet (Solana) and chooses the tokens they want to bridge in both the source and destination chains. The interface displays the exact amount of tokens the user will receive. Clicking “Swap across chains” and confirming the transaction completes the transfer via the bridge.
Now that we understand the process of bridging, let’s explore some important terminologies and fee structures associated with bridges.
Slippage refers to the difference between the expected price of a transaction and the actual executed price. Minimum slippage is advantageous for users. If there is no flexibility regarding slippage and the price changes, the transaction will be aborted, and the user will lose the network fee. Leaving some slippage becomes important when liquidity in the pool is limited.
In the context of asset bridging, a trading route typically refers to the path an asset takes during a swap or bridge transaction, which may involve multiple steps or platforms. It’s important to note that on centralized exchanges, swaps function as decentralized finance (DeFi) aggregators rather than bridges.
Network fee refers to the cost of using the blockchain network to facilitate bridging. The fee structure is multilayered, encompassing source network fees, destination network fees, bridge fees, and conversion fees. Source network fees are paid to the source network for transferring an asset, while destination network fees are charged by the destination network (Solana) for transactions from the bridge to the wallet. Bridge fees are levied by the bridges operating beneath the swaps on centralized platforms, and conversion fees are the additional amount users must pay when switching between virtual assets during the bridging process.
Transaction time in bridges depends on three variables: source network confirmation time, bridge processing time, and destination network confirmation time. For example, when the source network is Ethereum, the confirmation time depends on the amount of gas used. Solana is known for its quick processing, and funds should reach the wallet in seconds. The efficiency of the bridge being used also factors into the bridging time.
Blockchain bridges come with risks, including centralization, operational risks, and smart contract bugs or flaws. Some bridges rely on a centralized authority to facilitate the transfer of digital assets, which goes against the decentralized nature of the blockchain ecosystem. Bridges are also susceptible to downtime or maintenance, like any other software. Reputable bridges are designed to handle such situations and resolve them over time. If a transaction gets stuck due to inadequate gas, the funds will return to the user’s wallet.
Unfortunately, there have been instances of hacks via blockchain bridges that highlight vulnerabilities in these platforms. For example, the Poly Network hack in August 2021 resulted in the theft of nearly $600 million due to a flaw in Poly Network’s smart contracts. However, the majority of the funds were eventually returned. Other notable hacks include the Wormhole Network hack, the Ronin Network hack, the Harmony’s Horizon Bridge hack, and the Multichain exploit.
To mitigate the risk of malicious actors withdrawing funds from their wallets, users should conduct thorough due diligence before selecting a bridge. It is also advisable to use a separate wallet specifically for bridge transactions rather than using a wallet with significant holdings.