The rise of Decentralized Finance (DeFi) has given us the freedom to access pretty much all financial services that were previously strictly regulated and gatekept. DeFi has become a lifesaver for millions of (previously unbanked) people. Today hopping your digital assets from one network to another has become a breeze with the help of cross-chain bridges. Any Web3 builder or project founder will inevitably need to use them at some point. Let’s take a look at how they work.
If you have never used a Cross-chain bridge, don’t worry. It’s not as complicated as it looks. Most bridges you will encounter can be categorized as:
- External validator bridge
- Liquidity bridge
- Light clients and relays
External Validator Bridge
This is by far the most common type of bridge that we see today. The idea is very simple: we use an external group of validators (for Proof of Stake consensus networks like ETH, SOL or BNB) to monitor one or more bridge addresses on the blockchain. Think of this address as a decentralized deposit box for your digital assets.
Once the validators confirm an input (the deposit of your tokens), they will “lock” the box and create an output in the form of fresh and shiny, newly minted tokens on another blockchain. Let’s say you deposit some $ETH through the Ethereum network. You will receive a “wrapped version” of $ETH (called $WETH) on the Binance network. Now you have the freedom to use your $WETH on the Binance network for any DeFi application that landed into your crosshairs.
This method of bridging is fast and extremely easy to use. Millions of people across the world are currently hopping from one network to another to satisfy their insatiable hunger for Decentralized Finance. So far so good, right? Well, not quite.
You see, it’s important to consider the risks of trusting a random small group of validators with such an important task as being a financial intermediary. Hacks and exploits have happened, and they will happen again.
What about the tokens? Let’s go back to the wrapped $ETH ($WETH) from our example. Although it can work well for lending, borrowing, providing liquidity and even yield farming, the truth is that it’s still a “derivative” version of the native $ETH token. In essence it’s not the real “native” asset. The support for these “derivative” tokens is not always the best - meaning not every DeFi Dapp will welcome these tokens with open arms.
Today Wormhole, PolyNetwork, Multichain and Synapse are the best examples of External Validator Bridges. In the future we will see many new alternatives rise up to replace this quite lucrative and “sizzling” industry.
Liquidity Bridges
Liquidity bridges work in a very different way. Instead of working with (questionable) external validators, we employ a set of decentralized nodes that hold a certain amount of tokens at any given time. Think of it like a “well-funded” liquidity pool on Uniswap. The only significant difference is that these “liquidity pools” are spread across many different blockchains.
Let’s use our $ETH from the previous example. Our input in this case will be a bridge on the Ethereum network ( $ETH/$BNB LP ). We sell our $ETH for $BNB on the Ethereum network itself. So far so good.
Here’s what happens on our “destination network” (Binance chain). The “liquidity pool” now simply issues fresh $BNB tokens on the corresponding network. And just like that, our bridging is completed.
You see, liquidity bridges use smart contracts to execute these complex transactions in real time. This completely eliminates the risk of questionable validators that in essence pose a very real 3rd party risk. What about the tokens?
Since we use native tokens on every single network, you won’t have to worry about derivatives like $WETH at all. Your new bridged token will be native to the new network - in our case $BNB on the Binance Chain.
The best examples of liquidity bridges today are Connext, Celer and Hop Protocol.
You may wonder, if these liquidity bridges are so much better than external validator bridges, why doesn’t everyone use them? The answer is liquidity. In order to have a fully functional liquidity bridge that can crank up to 11 (processing billions of dollars of transactions every day) we need very deep liquidity on all corresponding blockchains. To say that this is a gargantuan challenge would be an understatement. This is why we likely won’t see many new liquidity bridges competing with already existing alternatives.
Light Clients and Relays
The most misunderstood and complex types of cross-chain bridges are of course the light clients and relays. To understand them better it’s important to spend time learning about dedicated protocols like Cosmos IBC (Inter-Blockchain Communication protocol), the Polkadot Relay, the Avalanche AWM (Avalanche Warp Messaging) and Stargate. These heavyweight Web3 projects are doing gargantuan work on improving interblockchain communication, including bridging of native assets.
Every single second smart contracts, blockchain actors (programs) and oracles monitor the deposits on chain A and relay this data to chain B - ensuring a trustless and decentralized movement of digital assets. It sounds simple; however, there are many complex processes that happen under the hood.
First, there needs to be a consensus about the deposits and withdrawals from the bridge. Furthermore it’s important to rely on external data oracles (such as Chainlink) to make this complex machinery run as smoothly as possible. This takes a tremendous amount of computational power and time. So, why use it in the first place?
The answer is of course security. Having a native ability to communicate with several blockchains (all developed and running 100% “in-house”) allows projects like Polkadot, Cosmos and Avalanche to have the most amount of control and oversight, delivering a stable and predictable result every single time. In short, every time you use ight clients and relays, you can be 100% certain that your cross-chain bridging will be executed correctly and most of all safely.
Conclusion
No single bridge is perfect and due to the recent (April 2025) hacks and exploits, many DeFi users have developed a lingering nasty aftertaste from using cross-chain bridges altogether. Today not a single bridge is perfect and we still find ourselves in the wonderful world of tinkering and experimentation.
With the rapid development of Decentralized Finance will inevitably witness a rise of better bridges that can be easily integrated into more and more Web3 Dapps, protocols and ecosystems. Luckily today we have a plethora of bridges that can accommodate our every DeFi need and desire. As a Web3 builder it’s vital that you always do proper due diligence and conduct research on potentially interesting bridges. Nobody cancelled the rules of OPSEC just yet. When you use a cross-chain bridge, always spread your risks and opt to use multiple options at any given time.
