Blockchain Bridges: Understanding the Significance and Use Cases of Synapse
Introduction
Despite the popularity and importance of blockchain interoperability, it can be a challenging concept to grasp, and not always clear why bridges such as Synapse are so vital to the blockchain industry as a whole.
While Synapse arose out of the necessity for improved bridging models, and has already bridged over $13B in funds, DeFi remains nascent and this will only grow.
This article covers:
Blockchain interoperability and bridges
The significance and use-cases of bridges
The Synapse Story
What is blockchain interoperability?
Blockchain networks, such as Ethereum, Avalanche, and Solana, are distributed ledgers that differ in various aspects, including their technologies, communities, and applications. As the industry evolves, the ability of these networks to communicate with one another becomes increasingly important. Blockchain interoperability refers to the ability of different blockchains to interact and exchange both data and cryptocurrency assets between themselves.
Blockchain interoperability offers a range of benefits, including:
Scalability: Network congestion can occur, causing bottlenecks and slow transactions. Interoperability allows workloads to be distributed across multiple networks, enhancing overall throughput and performance. For example, Layer-2 blockchains like Arbitrum are interoperable with Ethereum and are used to reduce congestion and fees.
Access: Some DeFi applications and cryptocurrency assets are exclusive to specific networks. Interoperability enables these applications and assets to be accessible across different networks, improving user experience and unifying fragmented liquidity. For example, BTC only exists on the Bitcoin network, but interoperability solutions allow users to purchase its equivalent on separate networks.
Innovation: Each blockchain community has its unique features and attributes. Facilitating collaboration between these communities fosters innovation, as they can work together to create new products and services.
While blockchains compatible with Ethereum may find it easier to communicate, it’s often challenging for others to seamlessly interact to achieve increased scalability, access, and innovation.
The primary means of facilitating this interaction is through blockchain bridges.
What are blockchain bridges?
Bridges allow blockchains to communicate with one another through an ERC-20 implementation of cross-chain messaging. This enables sharing of otherwise incompatible assets and information .
Bridges can be broadly categorized as either centralized or decentralized:
Centralized: trades are facilitated by centralized entities, most commonly centralized exchanges such as Coinbase or Binance, which accept tokens on Chain A (e.g. USDC on Ethereum) and issue desired tokens on Chain B (e.g. USDT on Arbitrum), by having a large inventory of various assets, and by being integrated with various networks.
Decentralized: Funds are bridged by smart contracts—computer code that executes instructions when specific conditions are met. For example, a decentralized exchange is smart contract code that swaps assets based on order submissions.
One common decentralized bridge model is lock-and-mint. A smart contract locks an asset on Chain A, and a corresponding smart contract issues the desired asset on Chain B. Tokens on Chain A are unlocked when the tokens on Chain B are redeemed. Other decentralized bridge architectures exist, such as burn-and-mint, where the tokens are destroyed rather than locked.
Centralized bridges require that users trust these exchanges with their funds, which has proved fatal during events such as the collapse of FTX. Every time that a centralized party has proven incapable, more users seek decentralized alternatives which is why decentralized bridges have been growing at an increasing rate which is only expected to continue.
Why is interoperability important?
Developers must choose which network to build their projects upon, and where they ultimately build is influenced by personal and strategic considerations such as:
Development language: Ethereum uses Solidity, Solana uses Rust, and Sui uses Move. Each language comes with tradeoffs, and it’s common that developers are only well-versed in one or two.
Speed & Cost: Ethereum’s block finality of ~12 seconds and gas fees that frequently spike mean that alternative networks are often more suitable for certain DeFi applications, such as high-frequency trading. For example, Solana is popular for gaming which necessitates quick transactions and low fees.
Network Effects: developers are more likely to build on networks that already have a strong user base, such as Ethereum.
The result is that certain products and assets are only on certain networks. There is a movement to deploy assets and applications across many networks (known as “multichain”) but this often requires significant engineering efforts and is not always possible.
So what can interoperability do?
Build New Projects: New and exciting projects can have trouble attracting volume without interoperability solutions. One example is the derivatives exchange GMX on Arbitrum and Avalanche. Without bridges such as Synapse, it would be much harder to bridge capital for these applications.
Aggregation: We briefly touched on yield aggregation earlier. Other aggregation use cases exist, such as sourcing liquidity to provide the best price for a given trade.
Cross-Chain Swaps: decentralized exchanges vary in their available assets, meaning that interoperability solutions can facilitate access to a wide range of assets while reducing user friction.
Reduced Costs: Ethereum gas fees are frequently above $30 per transaction. Efficient communication with other networks reduces reliance on Ethereum without losing communication with it, making DeFi more affordable for average users.
Synapse Origin Story
Synapse Protocol has its roots in the early days of the Binance Smart Chain (BSC) ecosystem, originating as a project called Nerve, which was a fork of the popular decentralized exchange Curve Finance. However, in the beginning, there were significant challenges when it came to getting people to use BSC, mainly due to slow and inefficient cross-chain bridges. These bridges connected to other popular networks such as Ethereum often took up to 24 hours to process transactions, creating significant friction for users who wanted to move their assets to BSC. Other bridging solutions quickly arose to help address this, but were still too slow and inefficient.
Thus Synapse was born, a bridge designed to bring funds to Nerve’s decentralized exchange. However, it became clear amidst an industry-wide need for better bridge infrastructure, that the potential of this product was much greater.
Synapse is now a decentralized exchange, as well as a bridge that connects 18+ networks. In the early days of DeFi, having the proper infrastructure in place is critical to ensuring the industry can properly scale, and Synapse plays a key role in this.
Conclusion
Blockchain interoperability is needed for the development and growth of the blockchain and cryptocurrency ecosystem, with bridges being a central player. They enable data and assets to move between blockchains, which improves scalability, access to DeFi products and assets, and innovation in the space.
Synapse has emerged as a leader in this space and has already supported over 1.5M bridge transactions and over $13.4B in volume. However, the space is early and there is much work to do.
There is a large need for fast and efficient bridges, and decentralized alternatives such as Synapse are rapidly gaining traction. Moving forward, the focus is on securely connecting even more blockchain networks, in order to provide much-needed infrastructure to properly scale DeFi.