Bridged Asset

These are third-party issued tokens that represent a claim on an asset from another chain. They are not natively issued or directly backed by the original protocol, creating a different trust model.

• Mechanism: A bridging service or DAO holds the collateral and issues a new token standard (e.g., anyBTC, multichain.xyz assets) on the destination chain.
• Trust Assumption: Relies on the custody and solvency of the bridge operator, not the native protocol.
• Risk Profile: Higher counterparty risk compared to canonical assets, as seen in bridge hacks or insolvencies.

The most bridged asset class due to their role as the primary medium of exchange and collateral in DeFi.

• Major Examples: USDC, USDT, DAI.
• Challenges: Supply fragmentation occurs when multiple, non-interoperable bridged versions exist (e.g., USDC on Polygon can be native USDC or bridged USDC.e).
• Importance: A deep, canonical stablecoin bridge is often the first major infrastructure deployed to a new Layer 2 or alternative Layer 1.

Bridged asset security is paramount, as bridges are high-value targets. Models include:

• Custodial/Multi-sig: Relies on a trusted set of signers (e.g., WBTC).
• Federated: A committee validates transfers (common in early bridges).
• Optimistic: Uses a fraud-proof window where transfers can be challenged.
• Light Client/ZK: Uses cryptographic proofs for verification (e.g., zkBridge). Historical Note: Major exploits like the Ronin Bridge ($625M) and Wormhole ($326M) highlight the systemic risk.

Bridge security is fundamentally defined by its custody model. Custodial bridges rely on a trusted third party or federation to hold the locked assets, creating a central point of failure. Non-custodial bridges use decentralized mechanisms like multi-party computation (MPC) or light client relays, but these can still be vulnerable to consensus-level attacks on the underlying chains. The choice determines who controls the canonical reserve of the original asset.

Most bridges depend on an external set of validators or oracles to attest to events (like deposits) on the source chain. This creates critical attack surfaces:

• Collusion: A malicious supermajority can mint unlimited bridged tokens without backing.
• Liveness Failure: If validators go offline, assets can be stuck.
• Software Bugs: Flaws in the relayer software can be exploited. Historic bridge hacks, like the Wormhole and Ronin incidents, often stemmed from compromising these external verifiers.

The smart contracts governing the bridge on both the source and destination chains are high-value targets. Vulnerabilities can include:

• Reentrancy attacks on mint/burn functions.
• Logic errors in upgradeable proxy contracts.
• Signature verification flaws for validator attestations. Each additional chain a bridge supports multiplies its attack surface, as contracts must be deployed and secured on every connected network.

A bridged asset's value is contingent on the 1:1 redeemability of the canonical asset held in reserve. Risks include:

• Peg Breakdown: If confidence in the bridge is lost, the bridged token may trade at a discount (de-peg), as seen during major hacks.
• Liquidity Fragmentation: Bridged versions (e.g., USDC.e) may have less liquidity than the native asset, impacting slippage and stability.
• Wrapped Token Proliferation: Multiple bridges creating different wrapped versions of the same asset (e.g., WBTC, renBTC) can confuse users and dilute security scrutiny.

Bridge operations often have centralized points of control that contradict decentralization ideals:

• Pause Functions: Many bridge contracts have admin-controlled emergency pause functions, which can be used to freeze user funds.
• Upgrade Keys: Multisig upgrade authority, if compromised, can lead to a complete takeover.
• Blocklist Authority: Some bridges maintain the ability to censor specific addresses from using the bridge, introducing regulatory and single-point risks.

Bridged assets create interconnected risk across the DeFi ecosystem:

• Protocol Contagion: A major bridge hack can destabilize dozens of protocols using its assets as collateral, potentially triggering cascading liquidations.
• Oracle Manipulation: An attacker could exploit a bridge flaw to mint fake assets and use them to manipulate oracle prices on a destination chain.
• Cross-Chain MEV: The latency in cross-chain message passing can create new opportunities for Miner/Maximal Extractable Value, potentially harming end-users.

The official, protocol-endorsed bridge for moving assets between a Layer 1 blockchain and its Layer 2 or appchain. It is typically the most secure and trust-minimized option, as it uses the underlying chain's native messaging system (e.g., Optimism's L1<>L2 bridge).

• Characteristics: Maintains a 1:1 mint/burn relationship with the original asset.
• Security: Inherits the security of the parent chain's consensus.
• Example: The official Arbitrum bridge for transferring ETH from Ethereum to Arbitrum One.

The most common bridging mechanism for wrapped assets. In a lock-and-mint model, the original asset is locked in a smart contract on the source chain, and an equivalent wrapped token is minted on the destination chain. To return, the wrapped token is burned on the destination, unlocking the original on the source.

• Process: Source: Lock → Destination: Mint. Destination: Burn → Source: Unlock.
• Custody: Relies on a custodian (can be multi-sig, decentralized network, or protocol).

A bridge model that uses pooled liquidity rather than minting new tokens. Users swap an asset on one chain for a representation of it on another chain via a liquidity pool (e.g., a Stargate pool for USDC).

• Mechanism: Relies on liquidity providers (LPs) on both chains.
• Speed: Often faster than lock-and-mint as it's a swap, not a minting event.
• Risk Profile: Subject to bridge liquidity risk and slippage, rather than custodian risk.

A tokenized representation of a native asset on a non-native blockchain. While all bridged assets are wrapped, not all wrapped tokens use a bridge (e.g., wETH is a simple smart contract wrapper on Ethereum). Bridged wrappers like wBTC involve a cross-chain custodial process.

• Key Difference: A bridged asset implies a cross-chain origin. A wrapped token describes the on-chain representation.
• Standard: Typically conforms to the destination chain's token standard (ERC-20, SPL, etc.).

The original, base-layer cryptocurrency of a blockchain, such as ETH on Ethereum, SOL on Solana, or AVAX on Avalanche. It is used to pay for transaction fees (gas) and is often the settlement asset for the ecosystem.

• Contrast with Bridged Asset: A bridged representation of ETH on another chain (e.g., ETH on Arbitrum) is a derivative, not the native asset of that chain.
• Security: Possesses the highest security guarantee within its native chain.

The underlying communication protocol that enables bridges to operate. It is the system that relays proof of an event (e.g., a deposit) from the source chain to the destination chain.

• Types: Includes validated (e.g., LayerZero, Axelar, IBC), optimistically assumed (Optimism/Cannon), and externally verified (Multi-sig committees).
• Critical Role: The security of a bridged asset is fundamentally the security of its cross-chain messaging layer.