Unveiling the Cross-Chain Process: When you perform a cross-chain transaction, are the assets really transferred?
Cross-chain bridges have never been just intermediaries for asset transfers; perhaps we have always overlooked their true value in a multi-chain ecosystem.Author: 0x76@BlockBeats, Block Rhythm
As more new public chains come online, the demand for users to transfer assets across chains is also growing. This trend has led to a surge in various cross-chain bridge projects, resulting in a sharp increase in the number of assets minted through these bridges.
With the broader use of cross-chain assets, the related issues are also increasing. For example, how do we assess the security of a cross-chain asset? Is USDC in certain new public chains the same as USDC on Ethereum? Why do some platforms have different formats of stablecoins like ceUSDC, anyUSDC, madUSDC, and even USDC.e, while other platforms only have one USDC? After a cross-chain bridge is attacked, how can I determine if the cross-chain assets I hold are affected?
With these questions in mind, this article will start from the fundamental cross-chain logic and outline the entire process of cross-chain asset minting, so that readers can better assess the true risks of cross-chain assets and choose the cross-chain tools that suit them best.
Therefore, at the very beginning of the article, let's briefly discuss how assets are defined.
How to Define an Asset?
There are mainly two ways to define an asset: one is through physical properties, such as the tangible gold and precious metal currency commonly used in ancient societies. However, in modern society, whether it is currency or financial assets like stocks and bonds, the method of definition has largely moved away from physical attributes to a more abstract model defined by accounting ledgers.
For example, the bank deposits we use in our daily lives are defined by the balance sheet of a country's banking system. As long as your account balance is recorded in the bank's report, your deposit must exist.
Similarly, cryptocurrencies like Bitcoin are also defined by accounting ledgers. The only difference is that Bitcoin uses a more centralized ledger registration model (not a mistake, it is more centralized). All Bitcoin is recorded by a single unique ledger, and there is only one version in the world (longest chain consensus). This unified and immutable accounting ledger is what we refer to as the blockchain.
The decentralization of blockchain often mentioned by people is actually reflected in the broader community participation in the recording and custody of the ledger. However, in terms of the number of ledgers involved in defining assets, blockchain is undoubtedly a more centralized and efficient (no need for frequent reconciliation among multiple accounting entities) ledger registration method compared to traditional banking ledger systems.
Can Assets Really Cross Chains?
As mentioned above, each blockchain is actually an independent accounting ledger that can define its own native assets. However, at times, people hope that assets can detach from the original ledger that defines them and circulate freely across different accounting systems.
For example, cross-border remittances (across different banking system ledgers), issuing stablecoins (from bank ledgers to blockchain ledgers), or depositing into trading platforms (from blockchain ledgers to trading platform ledgers), etc. All these operations of transferring assets across ledgers constitute a broad definition of cross-chain.
But the problem is, since the existence of an asset is determined by the original ledger that defines it, theoretically, no asset can exist independently of its original ledger. In other words, true cross-chain asset transfer cannot occur in a meaningful sense.
Just as physical gold cannot actually "dive" into your bank account, Bitcoin also cannot exist independently of the blockchain that defines it. Therefore, what people often refer to as asset cross-chain is not the asset itself that is crossing chains, but rather the value represented by the asset.
Thus, asset cross-chain is essentially a value transfer process that crosses different accounting systems. However, for convenience of expression, we will still refer to this process of value transfer across ledgers as "asset cross-chain" in the following text.
The next question is, how can we transfer value across different accounting systems?
Two Basic Models of Asset Cross-Chain
1. Lock-and-Mint Model
The lock-and-mint model is the most basic model for asset cross-chain. As early as the era of metal currency, people used the lock-and-mint model by locking gold in a gold shop while minting and issuing more portable redeemable certificates (which later evolved into paper money) for daily transactions.
In this process, the gold shop acts as the cross-chain bridge, the safe in the gold shop is equivalent to the smart contract that locks assets on the outgoing chain, and the paper money is the cross-chain asset issued by the cross-chain bridge on the new chain.
Similarly, in real blockchain cross-chain activities, the same lock-and-mint logic is still used. The cross-chain bridge locks assets on the original chain and issues redeemable certificates of the original chain assets, which are the cross-chain assets, on the incoming chain, thus completing the cross-chain transfer of asset value.
Locking the original asset on Chain A and issuing redeemable certificates of the original asset on Chain B
Currently, all existing cross-chain (cross-ledger) assets are essentially redeemable certificates of original assets issued by different cross-chain intermediaries. This includes the balance you deposit into trading platforms, foreign exchange holdings in USD across countries, Bitcoin-pegged coins traded on various public chain platforms, and even WETH received by locking ETH, all of which belong to the broad category of cross-chain assets.
The only drawback of this model is that cross-chain intermediaries using this model often struggle to meet user demands in terms of efficiency and cost. Therefore, these cross-chain bridges often only connect a few public chains (e.g., Ethereum to new chains) to introduce mainstream cross-chain assets to the new chain. These cross-chain bridges are often supported or directly developed by the new chain's official team, hence they are commonly referred to as official bridges.
However, for ordinary users, improving cross-chain transaction efficiency and reducing costs are their primary concerns. Thus, third-party bridges using a bi-directional liquidity pool model have emerged.
2. Bi-Directional Liquidity Pool Model
The bi-directional liquidity pool model is not difficult to understand. Since the main efficiency bottleneck of official bridges comes from the lock-and-mint process, as long as this mechanism can be bypassed, the efficiency of cross-chain transactions can be greatly improved.
Therefore, these third-party bridges choose to set up liquidity pools on both sides in advance, one side gathering a large amount of original assets from the original chain, and the other side gathering cross-chain assets that have already been issued by the official bridge.
When users perform cross-chain transactions through third-party bridges, they only need to deposit original assets on one side and directly withdraw the cross-chain assets that have been pre-minted by the official bridge on the other side, thus completing the cross-chain process instantly. As long as the amounts transferred out and in by this third-party bridge are roughly equal during operation, this model can operate stably.
The only limitation is that the bi-directional liquidity pool model requires the use of cross-chain assets already issued by the official bridge, so it can only be deployed after the official bridge is established.
What Factors Affect the Security of Cross-Chain Assets?
As mentioned above, cross-chain assets are redeemable certificates of original assets issued by cross-chain bridges. Each time an asset goes through a lock-and-mint process, the risk associated with it increases.
Taking anyUSDC currently issued on Moonbeam as an example, the asset's issuance goes through three stages:
The U.S. banking system issues USD;
The stablecoin issuer Circle locks USD and issues USDC on Ethereum;
The cross-chain bridge Anyswap (now Multichain) locks USDC on Ethereum and issues anyUSDC on the new chain;
Therefore, the security of anyUSDC is equal to the product of the security of these three entities, which can be expressed in the formula as follows:
Security (anyUSDC) = Security (USD) * Security (Circle) * Security (Anyswap)
This means that if any one of these three encounters a problem, such as the U.S. banking system collapsing, Circle running away with funds, or Anyswap being attacked, it will directly affect the intrinsic value of anyUSDC. Thus, the more lock-and-mint processes an asset goes through (the more prefixes and suffixes in its name), the higher the risk it carries.
Therefore, the cross-chain bridge, as the initial issuer of cross-chain assets, becomes the core node that determines the security of cross-chain assets.
Currently, there are mainly two types of attacks on cross-chain bridges. Using the gold shop as an example, one is when the gold locked in the shop is directly stolen (the attack mode of PolyNetwork), and the other is when the redeemable certificates issued by the shop are forged by hackers, allowing them to redeem gold from the vault ahead of others (the attack mode of Wormhole).
However, regardless of the method, the security of an asset is almost entirely determined by its issuer. For cross-chain assets, what determines their security is the cross-chain bridge that issues them.
How Can a New Chain Better Issue Cross-Chain Assets?
With the necessary knowledge supplemented, we can better understand how the chaotic state of cross-chain assets in many new public chains arises.
First, let's take a look at the types of cross-chain assets included in the trading platform Zenlink on Moonbeam.
It can be seen that in this new public chain Moonbeam, there are at least three different cross-chain bridges as the original issuers of cross-chain assets. Taking USDC as an example, three different cross-chain assets have been independently issued by three bridges: ceUSDC, anyUSDC, and madUSDC.
Zenlink's official team has not designated a single official bridge but has accepted all standard cross-chain assets for users to choose freely. At the same time, since no cross-chain asset has achieved an absolute dominant position in Moonbeam, other third-party bridges have also begun to adopt the lock-and-mint model to issue their own cross-chain assets.
This open and competitive approach, while more in line with the spirit of blockchain, undoubtedly leads to significant liquidity fragmentation issues for a newly established DEX, resulting in a less user-friendly experience.
However, unlike Zenlink, StellaSwap and Beamswap, which are also deployed on Moonbeam, default to only one type of USDC in their trading interfaces.
After testing, we found that this USDC is not the stablecoin directly issued by Circle. The asset it corresponds to is actually anyUSDC displayed in Zenlink. In other words, although there is no native USDC on Moonbeam, the project team has directly renamed anyUSDC to a more memorable name in the front end to fill the gap.
This approach, while unifying liquidity, does not align with the spirit of decentralization. Especially renaming anyUSDC to USDC in the front end creates an illusion for users that this is the stablecoin directly issued by Circle, leading them to overlook the risks that the Anyswap (now Multichain) cross-chain bridge may pose to the security of their assets.
Therefore, in the initial issuance of cross-chain assets, whether to artificially choose a single cross-chain bridge as the issuing entity or to allow free competition among different cross-chain assets is indeed a dilemma. Just as there are various versions of Bitcoin-pegged coins on Ethereum, as long as no bridge achieves a monopolistic position in the market for issuing cross-chain assets, this chaos and fragmentation will continue to exist.
Nevertheless, it is essential for each project team to maintain the integrity of cross-chain asset names and avoid misleading users, whether intentionally or unintentionally.
In conclusion, let's summarize the core content of this article:
Cross-chain bridges built using the lock-and-mint model are important issuers of assets in the blockchain world. Similar to Tether, which issues USDT, they are not merely channels but significant issuers of cross-chain assets. If these bridges are breached, the assets they issue may instantly become worthless, making the security of these bridges crucial.
Cross-chain bridges built using the bi-directional liquidity pool model do not merely operate as simple channel businesses but rather as liquidity relief businesses. The security of their liquidity pools generally does not directly affect users using the cross-chain bridge, but if the liquidity pool is stolen, it will directly cause losses to LPs.
The current chaotic state of cross-chain assets largely stems from the arbitrary simplification of naming cross-chain assets. Besides StellaSwap directly renaming anyUSDC to USDC in the front end, similar examples include ETH displayed in Near, which is actually simplified from nETH (where n represents the official Rainbow Bridge). Additionally, ATOM obtained through different paths in the Cosmos ecosystem is essentially not the same thing.
So do not be easily misled by asset names; maintaining attention to the security of cross-chain asset issuers may become an essential task for all crypto investors in the future.
