Layer by Layer Issue 37: Harmony, BNB Chain, and Polkadot

Over the past year, cross-chain bridges have emerged out of necessity amidst the growth of user activity on layer 1 (L1) blockchains aside from Ethereum. Due to the lack of interoperability between tokens minted on different chains, bridges serve an important role in allowing the transfer of value between chains. While protocols such as Cosmos and Polkadot aim to streamline this value transfer between sovereign chains within their own network via generalized communication standards (i.e. IBC and XCM), most cross-chain transfers today are still performed through cross-chain bridges.

For example, the Avalanche bridge has seen transfer volumes of about $241 million in the past week between Ethereum and Avalanche alone, while IBC transfers totaled about $85 million over the same period. The majority of cross-chain bridges utilize a form of lock-and-mint mechanism, whereby bridged assets are locked in a smart contract on the source chain, and an equal amount are minted as “wrapped” assets on the destination chain. This way, the circulating supply of bridged tokens remains the same across chains after bridging, and wrapped assets are effectively backed by the locked assets on the source chain. When users send wrapped assets back to the source chain, these wrapped assets are typically burnt on the destination chain and the underlying assets in the bridge contract are unlocked. For a more detailed discussion of the various types of bridges in use today and their underlying mechanisms, see here.