Crypto needs interoperability. We need it to reduce UX complexity, enhance scaling efforts, and create a more globalized blockchain ecosystem where better data availability and composability fuel the evolution of the decentralized web.
With so much to be gained, the number of bridges that have been built is little surprise. But many of these have attracted the negative spotlight lately, and with good reason. So, here are a few thoughts on security and the future of cross-chain.
Cross-chain bridges: security incidents
In total, Chainalysis estimates that over $2 billion in digital assets have been stolen from bridges in 2022 alone. Looking at the top five or even the top ten biggest hacks in web3, we see numerous bridges on the list.
Many of the worst incidents, like Ronin, Harmony, Poly, and others, followed a multisig security model. When analyzed, a common root cause for these hacks was identified — the compromise of one or more keys of the multisig.
Therefore, it’s not unreasonable to conclude that multisig bridges are centralized, bad, and insecure. And to make web3 better, we must abandon this model and focus on making bridges trustless.
It’s often said that trustless bridges are the future, and this is, to some extent, true. But the devil is in the details. The truth is that we haven’t reached the bottom of the issue(s) or found all the “enemies” yet. Trustless bridges (e.g., light client-based) are a great model, but they come with some drawbacks that we need to consider.
For example, they are not as extensible as externally verified bridges — bridges based on an honest majority assumption, where m of n participant(s) control the validation scheme. This type of bridge can be easily extended to any EVM chain, but that is not the case for light client-based ones.
Additionally, the (trustless) Nomad bridge was compromised not long ago, losing $190m worth of assets in the process. This was due to a newly introduced smart contract bug. Although the Nomad incident featured many whitehats returning money, it proved that even trustless bridges are not immune to compromise.
What do all these hacks have in common?
The synthetic asset (“synths”) model.
All the above bridges locked a large number of assets on one side of the bridge and minted a synthetic on the other side. These assets are not “native” to an ecosystem and are more of an IOU in the sense that the synthetic is backed by the locked value on the originating chain.
What’s the problem with that model?
If the bridge that “secures” these IOUs is compromised, you’ve got big problems. And there are many ways this can occur, e.g., minting indefinitely or draining the original assets from the originating chain.
Synthetic asset hacks
Synthetic asset hacks equal ecosystem contamination.
Before its hack, the Nomad bridge had created synthetic assets for Moonbeam, EVMOS, and Milkomeda networks. After the hack, the synths on these networks became unbacked and had a considerable impact on the ecosystem.
EVMOS TVL dropped from 7.5m to 1.3m on Aug 2 (the day of the Nomad hack)
Another example is the Wormhole incident. After the hack, $120k of ETH was stolen from the originating chain making the WETH synthetics minted on the Solana network unbacked and valueless. Luckily for the Solana ecosystem, Jump Trading replaced the stolen funds.
Before blaming the synthetic asset model for all the evil in crypto, let’s acknowledge that WBTC is also a synthetic asset.
BTC is locked and secured by a centralized entity (BitGo), and WBTC is minted as its ERC-20 representation on the Ethereum network. At the time of writing, BitGo secures $6b worth of bitcoin. So it’s clear that the community puts a lot of trust in them and their security practices.
- Security is not binary. Bridge designs have trade-offs. There are no “secure bridges” and “not secure bridges” by design.
- Trustless ≠ secure. Open source ≠ secure. The security practices of most web3 projects still need work.
Two models for the future
To minimize the use of synthetic assets going forward, we have two different approaches based on the two models that seem the most likely to prevail.
In a rollup-centric world, where 10s or even 100s of rollups will be deployed as L2s on top of Ethereum, an asset is deployed once on L1, which gives, by default, interoperability with all rollups.
In a multi-chain world, an asset has to be natively deployed on every supported chain. Generalized message passing interoperability protocols (like Sygma) will connect all the contracts on these chains via messages. The token contracts will be deployed and owned by the protocol, not the bridge. Therefore the tokens on all chains will be considered canonical and not synthetics. This approach takes some power away from bridges and reduces the exposure of protocols to them.
General message passing relies on a distributed validator set for security and a decentralized protocol that handles routing and translation. In practice, when a user wants to transfer one asset from chain one to chain two, a burn function will be called on the contract on chain one, and a mint function will be called on chain two.
This model has significant improvements in terms of security, standardization, and user experience. Is this approach the holy grail and 100% secure? No. To some extent, there is still exposure to messaging risk.
Messaging risk refers to a situation where the interoperability protocol is compromised, and the messages sent are fraudulent. This can cause damage under certain circumstances before contracts are paused.
However, the key difference between this and the wrapped asset model is that, in this case, one exploit cannot be immediately applied to all the protocols. In other words, one transaction cannot immediately drain millions of dollars.
Sygma is a community-driven interoperability project. Sygma makes it possible to deploy cross-chain with minimal effort and realize new use cases via its versatile, modular protocol. With Sygma, developers can leverage a secure cross-chain communication layer to extend their applications across EVM, Substrate, and beyond.
Sygma Builders Program🛠️
We’ve launched a builder program to provide technical support and monetary incentives for builders. Full details can be found 👉here.