Wrapped assets are a liability. They introduce custodial risk, fragment liquidity, and create a systemic attack surface, as seen in the Wormhole and Nomad exploits. The industry's $2.5B+ in bridge hacks is a direct tax on this flawed architecture.
the-state-of-web3-education-and-onboarding
Blog
The Future of Bridging: A World Without Wrapped Assets
Wrapped tokens are a temporary, insecure hack. Native cross-chain asset movement, powered by generalized messaging protocols, eliminates custodial risk and redefines interoperability. This analysis breaks down the technical shift and its implications for protocol architects.
introduction
THE UNWRAPPING
Introduction
The current bridging model is a security and liquidity trap, and its successor is already being built.
The future is intent-based. Protocols like UniswapX and CowSwap demonstrate that users should declare a desired outcome, not a specific path. This shifts the execution risk to a competitive network of solvers, eliminating the need for canonical wrapped tokens on the destination chain.
Bridges become solvers. Infrastructure like Across and LayerZero is evolving from simple asset-minters into generalized intent-fulfillment layers. Their role transitions from being the trusted custodian to being the fastest, cheapest executor in a permissionless auction.
Evidence: The Across bridge already settles over 50% of its volume via a relayer model that uses native assets on-chain, bypassing mint/burn cycles. This is the blueprint for a post-wrapped world.
key-trends
THE END OF AN ERA
Executive Summary
Wrapped assets are a security and liquidity liability. The next generation of interoperability moves value natively.
01
The $100B+ Custodial Risk
Wrapped assets like WBTC and WETH are centralized points of failure, requiring trust in a single custodian. A single exploit can collapse the entire bridge's TVL.
- Counterparty Risk: Relies on a single entity's multisig or MPC.
- Liquidity Fragmentation: Creates synthetic, non-native liquidity pools across chains.
$100B+
TVL at Risk
1
Single Point of Failure
02
Intent-Based Architectures (UniswapX, Across)
Users express a desired outcome ("intent") and a network of solvers competes to fulfill it atomically, eliminating the need for a wrapped intermediary asset.
- Native Asset Flow: User's USDC on Arbitrum is swapped directly for native ETH on Base.
- Competitive Routing: Solvers optimize for cost and speed, driving efficiency.
-50%
Cost Reduced
~500ms
Solver Latency
03
Universal Liquidity Layers (LayerZero, Chainlink CCIP)
Protocols abstract liquidity into a shared network layer, enabling any asset to be used as collateral anywhere. This turns liquidity from a per-bridge problem into a global resource.
- Composability: A single liquidity deposit can secure multiple cross-chain applications.
- Capital Efficiency: Drastically reduces the idle capital required for bridging.
10x
Capital Efficiency
Omnichain
Application Scope
04
The Atomic Settlement Mandate
The future is atomic cross-chain transactions (AXC) verified by light clients or zero-knowledge proofs. This eliminates the bridging window where funds are vulnerable.
- Trust Minimization: State is verified, not assumed, via cryptographic proofs.
- Finality = Settlement: No more waiting for challenge periods or optimistic assumptions.
0s
Vulnerability Window
ZK
Verification Standard
thesis-statement
THE ARCHITECTURAL FLAW
The Core Argument: Wrapping Was Always a Hack
Wrapped assets are a temporary, insecure abstraction that introduces systemic risk and user friction.
Wrapped assets are custodial risk. They require a trusted third party to hold the canonical asset, creating a single point of failure. The collapse of Multichain proves this model is fragile. Every wrapped BTC or ETH is an IOU, not the asset itself.
The bridge dictates liquidity. Protocols like Stargate and LayerZero lock value in their own pools, fragmenting capital. This creates winner-take-all markets where bridge operators, not users, control asset availability and pricing.
Native cross-chain transfers are the endgame. Projects like Chainlink CCIP and Axelar enable programmable token transfers where the canonical asset moves. This eliminates the wrapping middleman and its associated attack surface.
Evidence: Over $2B was lost in the Multichain hack, directly exposing the custodial risk of the wrapped asset model. This failure accelerated development of intent-based and native solutions like Across and Circle's CCTP.
THE FUTURE OF BRIDGING
Wrapped vs. Native: A Security & UX Breakdown
A direct comparison of asset representation models, analyzing the trade-offs between security, user experience, and composability for cross-chain interactions.
| Feature / Metric | Wrapped Assets (e.g., WBTC, WETH) | Native Bridging (e.g., LayerZero OFT, Axelar GMP) | Intent-Based (e.g., UniswapX, Across) |
|---|---|---|---|
Trust Assumption | Custodian or Multi-Sig (1-of-N) | Decentralized Validator Set (M-of-N) | Solver Network (Economic Security) |
Settlement Finality | Governed by Source Chain | Governed by Bridging Protocol | Governed by Destination Chain |
User Steps for Transfer | 3+ (Bridge, Wrap/Unwrap, Swap) | 1-2 (Direct Bridge Tx) | 1 (Sign Intent) |
Typical Fee Premium | 0.3% - 1% + Gas | 0.1% - 0.5% + Msg Fee | ~0.1% (Solver Competition) |
Composability Risk | High (Multiple Contract Layers) | Medium (Single Bridge Contract) | Low (Direct Settlement) |
Liquidity Fragmentation | High (Pools per chain) | Medium (Locked in Bridge) | None (Source Chain Liquidity) |
Protocol Revenue Model | Minting/Burning Fees | Cross-Chain Message Fees | Solver Bids & MEV Capture |
deep-dive
THE MECHANISM
How Native Bridging Actually Works: Burning Messages, Not Minting IOUs
Native bridging eliminates wrapped assets by using a burn-and-mint model secured by the destination chain's validators.
Native bridging is a state transition. A user locks or burns an asset on the source chain, and a message proves this event to the destination chain's consensus layer, which then mints the native representation.
This model eliminates third-party risk. Unlike wrapped assets from bridges like Multichain or Stargate, which are IOUs, native assets are direct liabilities of the destination chain's validator set.
The canonical example is Arbitrum's Nitro. When bridging ETH to Arbitrum, you burn ETH on L1. Arbitrum's validators read this burn proof and mint an identical amount of native ETH on L2, backed by L1 finality.
The standard is ERC-7683. This emerging standard for cross-chain intents formalizes the burn-mint flow, creating a universal framework that protocols like Across and Chainlink CCIP are adopting.
protocol-spotlight
THE FUTURE OF BRIDGING
Protocol Architectures: Mapping the Native Frontier
The era of custodial risk and fragmented liquidity from wrapped assets is ending. Native bridging is the new paradigm.
01
The Problem: The Wrapped Asset Trap
Wrapped assets create systemic risk and liquidity silos. Each bridge mints its own version (wBTC, wETH), fragmenting liquidity and introducing custodial or cryptographic failure points. This leads to:
- $2B+ in bridge hacks since 2021
- Inefficient capital allocation across chains
- Poor user experience with multiple token addresses
$2B+
Exploited
10+
Variants per Asset
02
The Solution: Native Liquidity Pools
Protocols like LayerZero and Axelar enable cross-chain messaging to lock/mint assets natively. The canonical asset stays on its origin chain, while a messaging layer proves ownership elsewhere.
- Eliminates bridge-specific wrapped tokens
- Unifies liquidity around a single canonical asset
- Enables native yields and governance
50+
Chains Supported
~3s
Finality
03
The Evolution: Intent-Based Swaps
Frameworks like UniswapX and CowSwap abstract the bridge entirely. Users submit an intent ("swap X for Y on Arbitrum"), and a solver network finds the optimal route across DEXs and bridges.
- User gets native destination assets directly
- Solver competition optimizes for cost and speed
- Removes bridging as a conscious user step
-90%
User Steps
Best Execution
Guarantee
04
The Endgame: Universal Liquidity Layers
Networks like Chainlink CCIP and Circle CCTP aim to become the standardized settlement layer for cross-chain value. They provide a secure, institutional-grade primitive for moving native assets.
- Programmable token transfers with arbitrary data
- Standardized security model audited by major institutions
- Foundation for cross-chain DeFi and RWA pipelines
Institutional
Grade
Native USDC
Use Case
counter-argument
THE LIQUIDITY ILLUSION
The Rebuttal: "But Wrapped Assets Have More Liquidity"
Wrapped asset liquidity is a temporary, fragmented advantage that native bridging is actively eroding.
Liquidity is a lagging indicator. It follows user demand and developer activity, not the other way around. The liquidity moat for wrapped assets like WETH is a historical artifact of first-mover advantage, not a permanent structural benefit.
Intent-based architectures bypass liquidity silos. Protocols like UniswapX and CowSwap source liquidity across chains without requiring pre-deposited pools. This intent-centric model fragments the value of any single wrapped asset pool.
Native bridging is liquidity-agnostic. A canonical bridge like Arbitrum's or Optimism's doesn't need a deep liquidity pool; it mints and burns tokens based on cryptographic proofs. The security of the rollup, not a pool depth, guarantees the asset.
Evidence: The Stablecoin Shift. Major issuers like Circle (USDC) and Tether (USDT) are aggressively deploying native multi-chain versions, directly cannibalizing the wrapped market. This migration proves liquidity follows the canonical asset.
risk-analysis
THE FUTURE OF BRIDGING
The New Risk Surface: It's About Validation, Not Custody
The next evolution in cross-chain interoperability moves beyond custodial models, shifting systemic risk from asset custody to the security of the validation mechanism.
01
The Problem: Wrapped Assets Are Systemic Risk
Custodial bridges like Multichain and Wormhole (pre-attack) concentrate $10B+ TVL in single points of failure. The risk isn't the user's wallet; it's the bridge's multisig or validator set.\n- Single Point of Failure: Compromise the bridge vault, drain all assets.\n- Protocol Risk: De-pegging events and frozen withdrawals destroy composability.
$2B+
Bridge Hacks (2022)
1
Key Compromise
02
The Solution: Native Asset Bridges
Protocols like LayerZero and Axelar enable direct transfers without minting/burning synthetic tokens. The asset exists natively on the destination chain, secured by the underlying validation network.\n- No Custody Risk: Assets are never held in a centralized vault.\n- Enhanced Composability: Native assets integrate seamlessly with DeFi primitives like Aave and Compound.
50+
Chains Supported
~30s
Finality Time
03
The Paradigm: Intents & Solver Networks
Systems like UniswapX, CowSwap, and Across separate the declaration of intent from execution. Users specify a desired outcome ("swap X for Y on Arbitrum"), and a decentralized solver network competes to fulfill it optimally.\n- User Sovereignty: No need to grant asset approvals to a bridge contract.\n- Optimized Execution: Solvers leverage liquidity across CEXs, DEXs, and bridges for best price.
-20%
Avg. Cost
1000+
Active Solvers
04
The Validator: Light Clients & ZK Proofs
The ultimate trust minimization. Projects like Succinct Labs and Polygon zkEVM use zero-knowledge proofs to cryptographically verify state transitions from another chain. The security assumption reduces to the underlying L1 (e.g., Ethereum).\n- Mathematical Security: No social consensus or trusted committee.\n- Universal Interop: Enables secure communication between heterogenous chains.
~5 min
Proof Gen Time
99.99%
Security Uptime
05
The Trade-off: Liquidity Fragmentation
Native bridging fragments liquidity across chains. A native USDC pool on Arbitrum is separate from its Avalanche counterpart, reducing depth and increasing slippage compared to a unified wrapped asset.\n- Slippage Cost: Can be 2-5x higher for large swaps on nascent pools.\n- Capital Inefficiency: LPs must deploy capital per chain, not once globally.
$500M
Fragmented TVL
+300bps
Avg. Slippage
06
The Endgame: Shared Security Layers
The convergence point. Networks like EigenLayer and Cosmos Interchain Security allow chains to lease security from a larger validator set (e.g., Ethereum stakers). Cross-chain messages become as secure as intra-chain messages.\n- Economic Security: Backed by $50B+ in restaked ETH.\n- Unified Validation: A single, highly decentralized set validates multiple chains and their bridges.
$50B+
Restaked TVL
1M+
Validators
future-outlook
THE ENDGAME
The 24-Month Outlook: Wrapping as a Legacy Interface
Wrapped assets become a deprecated abstraction as native cross-chain liquidity and intent-based architectures dominate.
Wrapped assets become technical debt. They introduce custodial risk, fragmentation, and complexity that native solutions like LayerZero V2 and Circle's CCTP eliminate. The industry is standardizing on canonical bridges for core assets.
The future is intent-based routing. Protocols like UniswapX and CowSwap abstract liquidity sourcing, making the user's wrapped token balance irrelevant. The user expresses a desired outcome; the solver finds the optimal path across native pools.
Native yield-bearing assets win. Liquid staking tokens (LSTs) and restaking positions must maintain their composable yield across chains. Wrapped versions break this property, forcing protocols like EigenLayer and Lido to push for canonical, natively minted representations.
Evidence: The TVL in canonical bridges like Arbitrum's and Optimism's native bridges dwarfs most third-party wrappers. The success of Across Protocol's intents-based model, which minimizes wrapped asset reliance, demonstrates the demand shift.
takeaways
THE INTENT-CENTRIC SHIFT
TL;DR for Builders
The future of interoperability moves beyond canonical bridges and wrapped assets, focusing on user intent and atomic composability.
01
The Problem: Wrapped Assets Are Systemic Risk
Wrapped assets (e.g., wBTC, WETH) create custodial dependencies and liquidity fragmentation. Each bridge mints its own version, leading to over $2B+ in bridge hack losses and confusing user experiences.
- Security is only as strong as the weakest bridge
- Capital inefficiency from siloed liquidity pools
- No native composability with destination chain DeFi
$2B+
Bridge Hacks
10+
wBTC Variants
02
The Solution: Intents & Atomic Swaps
Protocols like UniswapX, CowSwap, and Across abstract the bridge. Users express an intent ("I want ETH on Arbitrum"), and a solver network finds the optimal path via atomic swaps, often using native assets.
- User gets destination-native assets directly
- Competitive liquidity sourcing from DEXs and bridges
- MEV protection via batch auctions and encryption
~500ms
Quote Latency
-30%
Avg. Cost
03
The Enabler: Universal Verification Layers
Infrastructure like LayerZero, Polymer, and Succinct provide generalized message passing. Instead of locking assets, they verify state proofs, enabling any arbitrary data transfer (tokens, NFTs, calls) between chains.
- Unified security model (e.g., optimistic, zk, TEE-based)
- Enables cross-chain smart contract calls
- Foundation for omnichain applications
50+
Chains Supported
<2s
Finality
04
The Endgame: Omnichain Smart Accounts
The final state is a user-owned account (e.g., ERC-4337 Account Abstraction) that exists across all chains simultaneously. Assets are location-agnostic; the account balance is a unified portfolio secured by a single signer.
- Single signer manages all chain interactions
- Automatic rebalancing via intents
- Eliminates manual bridging entirely
1
Unified Identity
0
Wrapped Tokens
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