In recent months, so-called token bridges have become increasingly popular in DeFi space. Well-known token bridges are, for example, Multichain (MULTI), Allbridge (ABR), THORChain (THOR), Synapse (SYN) or Wormhole. They enable tokens to be freely transferrable between different blockchains. The big advantage for many investors is that they can transfer their digital assets between a variety of blockchains without intermediaries. On the one hand, they can save on transaction costs. On the other hand, this opens up a multitude of possibilities for them to use different DeFi protocols to earn interest.
For example, they can move their tokens between different blockchain networks at lightning speed to conduct arbitrage trading. In addition, the token bridges make it possible to exploit even more effectively short-term liquidity mining programs that are held on different blockchains in order to generate profits. For example, with USDT Lending on Aave (ETH Mainchain) just once a year Earn 2.1 percent interest while USDT Lending on Polygon investors thanks to liquidity mining rewards annually at the moment earns 10 percent.
Token bridges thus make the DeFi space a lot more efficient, as they offer investors the opportunity to move between blockchain networks with theoretically infinitely many income opportunities. The big disadvantage, however, is that many token bridges currently still have significant security deficiencies. Again and again it happened in the past that they were victims of hacker attacks. For example, THORChain has been hacked multiple times and Poly Network made headlines around the world when a white hat hacker stole over $600 million.
DeFi hacker stole almost 320 million US dollars
Recently, there was another hack last Wednesday. The Token Bridge Wormhole lost around 320 million US dollars. This incident comes as little surprise to ETH inventor Vitalik Buterin. in one Reddit post just a few weeks ago, the ETH mastermind warned the DeFi community about the significant security risks of token bridges. In a made-up scenario, he described the vulnerabilities that token bridges would have and how they could be exploited by malicious actors. The Wormhole case has shown once again how real the risks of token bridges still are.
The well-known DeFi expert “ChainLinkGod” still expects token bridges to play a crucial role.
Given that it’s going to happen regardless, the goal shouldn’t be to avoid cross-chain, but have protections in place.
Buterin also believes in a multichain future, but expect it anyway that there are still some hacks ahead of us this year.