Gas fees make cross-chain transactions very expensive, hindering the free flow of crypto assets. So it’s not surprising that cross-chain bridges have grown at an unprecedented rate—a TVL increase of 89% MoM in October—as DeFi transaction volume booms in the bull market.

However, did you know that cross-chain bridges solve other problems besides (what are essential) crypto transaction fees?

As multi-chain projects and interoperability become key components of the industry, DeFi investors need to understand how cross-chain bridges work.

This article will look into the nature of cross-chain bridges, specifically:

How does a cross-chain bridge work

Cross-chain bridges’ market performance

Problems addressed by cross-chain bridges

Selecting a cross-chain bridge

What is a cross-chain bridge?

A cross-chain bridge or a blockchain bridge enables the transfer of tokens assets, smart contract instructions or data between blockchains. Two chains may have different protocols, rules and governance models, but a cross-chain bridge connects these disparate blockchains together by interoperating securely.

A cross-chain bridge allows users to:

Deploy digital asset transactions fast and easy

Enjoy low operational difficulty

Take advantage of lower transfer fees on non-scalable blockchains

Implement dApps across multiple platforms

Here’s an example of how cross-chain assets are transferred with a bridge:

When a user needs to convert an asset such as an ERC20 A token on Ethernet into another asset such as BEP20 A token on the BSC chain via AnySwap, the ERC20 A will be locked on the source chain and then notify the bridge to generate the BEP20 A on the BSC chain before sending it to the user.

In this example, the entire operation of the cross-chain bridge takes about five to 20 minutes, with an approximate gas fee in the range of $10 to $20, depending on the pre-congestion conditions in Ether at the time.

How has Crosslink Bridge performed recently?

The market is currently dominated mostly by Layer 2 scale-out cross-chain bridges, which are mainly built on Ethereum for better interconnection and interoperability.

According to Footprint, the TVL of cross-chain bridges was $16.2 billion as of Oct. 26, an increase of over 72.25% in the last 30 days.. The four largest cross-chain bridges namely, Avalanche Bridge, Polygon Bridge, Arbitrum Bridge and Fantom Anyswap Bridge, account for 95.61% of the entire cross-chain bridge, with its highest monthly increase of 401.23% last month.

Data from CoinTofu Cross-ChainBridge tool, reveal that these four cross-chain bridges also have excellent user experience ratings.

The above chart shows that Optimism has had the most active deposits from the beginning of September to today, followed by Avalanche. Current transfer fees are as low as $0.25 (according to L2 Fees) and their transfer fees are variable, but with relatively small changes.

The main asset traded on cross-chain bridges is ETH (WETH), with total ETH lock-ups on the 15 cross-chain bridges valued at $6.882 billion as of Oct. 26. This represents approximately 42.6% of total lock-ups and the most used asset by investors, followed by WBTC and stablecoin USDC.

What problems do cross-chain bridges address?

Cross-chain bridges create growth across chains (reflected by Fantom and Avalanche prices—which hit gains of 12% and 18%, respectively, in the first week of November) that offer disparate asset interoperability, high level of security and better asset rendition.

Without a bridge, investors have to go through different exchanges and incur larger fees instead.

Cross-chain bridges also address the following:

Lower gas costs with increased transaction speeds

User assets can be freely interacted with for a high user experience

Improved productivity and usefulness of existing crypto assets

Higher security, better privacy

The use of cross-chain bridges is appropriate in the following scenarios:

Token transfers between Ether and a Layer 2 network, with assets inter...