Cross-Chain Decentralized Exchanges

Many different cryptocurrencies are based on blockchain technology and have recently risen to prominence in the market. blockchain is designed in such a way that direct trading of cryptocurrency or assets between traders is not possible. There are certain exchanges for it and these platforms also monitor the security and transfer of funds or assets made by users via banks into various crypto wallets. Trading cryptocurrency requires the involvement of a third party. Blockchain allows untrusted users on the platform to trade cryptocurrency. The sheer number of crypto exchange platforms and blockchains makes cryptocurrency trading difficult.

What are Decentralized Exchanges?

The largest crypto firms are cryptocurrency exchanges, and similarly, the largest decentralized organizations are decentralized exchanges also known as ‘DEX’. Crypto Decentralized Exchanges are blockchain-based apps that handle large-scale trading of crypto assets and currencies among all platform users. These apps do not use the traditional approach of acting as a stockbroker between buyers and sellers; instead, they rely entirely on automated algorithms that are also smart contracts.

Decentralized apps are created and deployed on various blockchain platforms. The apps' codes are written on blockchain networks, and these apps analyze through various algorithms and trigger different outputs based on the input provided by the users. Because Ethereum is the second most popular blockchain network, the majority of decentralized apps and smart contracts are built on it.

The primary goal of decentralized exchange platforms is to reduce the number of intermediaries between sellers and buyers so that they can connect directly with each other and trade smoothly. The platform never owns the assets of its users; instead, the assets and cryptocurrency are always the property of the users and are kept in their wallets.

There are liquidity pools that contain various crypto assets that are sourced by investors to get the transaction in exchange for the assets from the pool's other users. These assets are awaiting clearance in the exchange platform to fulfill user buy or sell orders. The traders are matched based on the prices and volume of the assets that they require.

What is a cross-chain or cross-chain bridge?

As the name implies, cross-chain enables the exchange of information, cryptocurrencies, NFTs, or crypto-assets from one blockchain platform to another. The cross-chain bridges make it easier for the data and tokens to flow which would have been otherwise not possible on different blockchains. These bridges act as an exchange between different exchanges globally for cryptocurrency.

Exchanges between different blockchains are possible without a cross-chain bridge, but they are difficult, time-consuming, and expensive. If exchanges are carried out without the use of cross-chain bridges, the cryptocurrency must be converted into the local currency, for which fees are usually levied on each transaction. The cryptocurrency is then converted once more, and a fee is added at this point. As a result, it is a time-consuming method. Meanwhile, the cross-chain bridge allows for exchanges between blockchains without first converting them into fiat currency. It is possible to exchange not only cryptocurrency but also other assets such as NFTs and smart contracts from one blockchain to another.

Why is Cross-Chain Becoming Popular for Blockchain Projects?

Cross-chain bridges function similarly to foreign currency exchanges, but for blockchain-based assets. It allows users to exchange cryptocurrency, NFTs, information, and other assets between blockchain platforms. Cross-chain is becoming popular for blockchain projects because it allows users to easily convert one asset into another. They use smart contracts to help you move information from one chain to another. The users can connect more than one blockchain with cross-chain bridges to make digital currencies interchangeable. It can also be said that it allows the swap between different crypto assets.

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Benefits of Cross-Chain Features on Exchanges and Other Crypto Projects

There are a number of benefits of cross-chain features on the blockchain technology including:

  • Interoperability
    • Cross-chain bridges solved one of the biggest problems of the users in the blockchain industry. It allows interoperability which means that the traders can trade different digital assets to other blockchains without sacrificing the host network. It provides a single platform where you can deal with different cryptocurrencies and transact them on different blockchains. The hassle of managing different wallets at the same time is removed due to this feature of cross-chain bridges.
    • Cross-chain bridges solved one of the biggest problems of the users in the blockchain industry. It allows interoperability which means that the traders can trade different digital assets to other blockchains without sacrificing the host network. It provides a single platform where you can deal with different cryptocurrencies and transact them on different blockchains. The hassle of managing different wallets at the same time is removed due to this feature of cross-chain bridges.
  • Cross Collateral
    • Cross collateral is a feature of these bridges which allows exchanging one digital asset with the other by the developed centralized ecosystem.
  • Low Trading Risk
    • The cross chain trading allows the users to hold their token completely at all times. The private keys of the tokens or digital assets are always in the hold of the users. This feature eliminates security breaches or any other risks involved.
  • Simplifying Trading
    • One of the most important and useful features of the cross-chain features is that they allow the users to hold all their assets in a single wallet instead of having separate wallets on every blockchain network. It reduces the time and liquidity risks with faster transaction time.
  • Decentralized Crypto Trading
    • The exchanges on the cross-chain are done in a decentralized manner, without any involvement of a third party. The users can seamlessly exchange digital assets without any interoperability issues.

Risks of Cross-Chain Exchanges and Blockchain Projects

Cross-chain exchanges and blockchain projects are revolutionary but there are still some vulnerabilities in it which can be exploited. Some of them are discussed below:

Technical Vulnerabilities

Cross-chain exchanges are built on smart contracts and the security of some exchanges lies in smart contracts and not on blockchain technology depending on the platform. Bridges using poorly written code of the smart contracts from the developers are vulnerable and can be exploited.

Risk in Censorship

There is always a chance of online fraud. Most of the public blockchains fulfill their promises until the tokens are live on their native networks. The users that are using the bridges want a trustworthy platform that will burn the wrapped tokens and send the original coins to their blockchain.

Choosing the Right Cross-Chain Bridge

As time passes by, visionaries and analysts both commonly believe that the future will be more interconnected and decentralized than ever before. There is a high increase in the number of people that are beginning to use cryptocurrencies for their transactions hence it can be understood that the number of people choosing cross-chain bridges will only increase purely because it is the most hassle free way for exchanges in between block chains. Hence it is important for users to realize what factors need to be considered when choosing a cross-chain bridge. Many factors can be taken into account but the ones that matter the most are:

  • Best User Experience
    For beginners that are learning everyday about cryptocurrencies, block chain platforms, NFTs etc, it is important that they are introduced to the most user friendly cross-chain bridge so that they can easily adapt, understand and work and become stable users bringing in more people to the platform.
  • Supported Blockchain Networks
    It is important to understand that firstly, the bridge that is being chosen should support the Cryptocurrency token that the user wants to work on and should also support a high number of blockchain networks solely because if the user should decide to operate on multiple blockchain networks, they should be supported.
  • Fees Variation
    Different networks have different fees that users have to pay on cross-chain bridges and these fees are very volatile and varying everyday, hence users should opt for cross-chain bridges where the fee varies the least so that long term transactions become easier to assume, allowing decisions to be taken with more surety.
  • High End Security
    Cross-chain bridges are high up on the target list of hackers since the difficulty level of hacking bridges is low compared to the amount of money that can be stolen after the hack is completed. One such example is of the Wormhole bridge that was hacked earlier in February of 2022 and suffered a huge loss of 120,000 wrapped Ethereum tokens which were estimated to be about $320 million at the time of the attack. It is important to note that because such thefts are on the rise, it is much more secure to choose a bridge that has a high-end security with daily updates in regards to the development and code of the bridge so that it is very difficult to find loopholes for hackers.

Most Used Cross-Chain Bridges

Below stated are the most used and talk about cross-chain bridges that you can use for your exchanges:

  • Binance Bridge or Binance Bridge 2.0
    is amongst the top 10 as it has a huge set of options for bridging the everyday growing list of cryptocurrencies. The Binance Bridge 2.0 is the updated version that introduces a new and a more efficient way to bridge listed and selected unlisted tokens from Ethereum to BNB Smart Chain as BTokens which was not allowed in the previous version. Tokens that are not listed in the Binance exchange can also be bridged enabling the user to experience the decentralized BNB Chain Ecosystem. What makes it even more special is the fact that all of this can be done without the involvement or requirement to build any third-party wallets. BTokens are pegged on a 1-to-1 basis to your underlying asset and can be redeemed to your original asset anytime you want. This ensures that there will be no more wastage of time in swaps, no more high fees for these exchanges and no more long waits for the completion of your transactions. The bridge is protected by high-security standards and lastly gives its users direct access to the world of DeFi on the BNB Smart Chain, hence it is a brilliant bridge choice.
    The supported blockchain networks by the Binance Bridge are Ethereum, Solana, Tron and BNB Chain.
  • Celer cBridge
    This bridge is in contract with the Turn-key DeFi builder Encentive hence it allows its users instant transfer of tokens across Ethereum, Arbitrum, Polygon, BNB Smart Chain and many more. Anyone is allowed to provide liquidity on cBridge, stake in cBridge’s supporting pillars to share transaction fee earnings as the bridge is entirely trust-free and non-custodial, this means that crossing any cBridge node is made smooth, efficient and safe. Also, as the Encentive ecosystem grows, innovative models of shared liquidity bonded across all DEXs that will be deployed on Encentive, shall give early stage projects on the bridge a strong foundation for growth. Lastly, it is important to consider this bridge is that it supports a wide variety of block-chain networks apart from the most common ones such as Astar, Avalanche, Gnosis Chain and many more.
  • Umbria Narni Bridge
    This bridge uses a novel liquidity-provision protocol enabling its users to transfer crypto funds between chains at a very small fractional cost compared to its other alternatives. Not only this but Narni also allows its users to stake their crypto assets to the bridge ensuring that the users get a high ‘return on capital employed’ or ROCE on their crypto. A native feature known as ‘Pool & Earn’ allows the liquidity providers to earn fees every time another participant bridges that specific asset between networks. The ‘Connect Portal’ feature allows users to easily connect their metamask wallets to any EVM compatible chain allowing easy configuration of the wallets with the click of a button compared to the manual alternative. On top of all this, Narni completely eliminates any barriers to entry for engaging with DeFi applications and NFTs. Lastly, Narni is also known for supporting a vast number of blockchain networks such as Immutable X, Cardano and Solana to name just a few.
  • Multichain Bridge or Anyswap
    The option tends to be unique due to a broad spectrum of factors some of which include that it allows or facilitates bridging for both the users and the projects by allowing projects to issue tokens across chains. Unlike other bridges, Multichain does not only offer a 1-to-1 cross chain bridge, but it also has a trustworthy and highly appreciated system that allows access liquidity across blockchains. Multichain is offering greater than 2000 bridges just for crypto tokens and NFTs to thousands of DeFi protocols and projects some of which include Curve Finance and SushiSwap. Because Multichain is backed up and funded by the most trusted leaders and Venture Capital companies or VC Firms, it makes it far more easily trustable for an unnamed bridging service compared to its competitors. The Multichain bridge also is a prominent competitor because of the large number of blockchain networks it supports which are over 42 in number, including both EVMs and non-EVMs. Lastly, Multichain increases interoperability making it a lot easier to move or switch in between DApps and the blockchain technology system.
  • Synapse Bridge
    This bridge can be understood as a cross-chain layer network that allows bridging between user’s crypto assets and multiple blockchains which in return, allows the users to earn yield and swap assets. This also gives motion to frictionless cross-chain interoperability. Along with this, users can also avail generalized messaging because the Synapse bridge decentralized and permissionless transactions in between layer-1 blockchains, sidechains and layer-2 block chains. The bridge is highly popular amongst users because its possibility of providing liquidity to the bridge allows any user to earn part of the transaction fees that is paid to the bridge to move assets across chains. Synapse also supports nUSD stablecoin that becomes the basis to swapping assets over blockchains.

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The Future of Cross-Chain in Crypto

With the continuous growth of blockchain technology with new updates of more capabilities every time, the future of blockchain technology and cross-chain bridges is predicted to be very bright. Cross-chain technology is a growing technology that addresses the issues in the crypto industry and keeps bringing the solution to those problems.

The future of cross-chain technology has a long way to go but it is not that easy, since there are a lot of challenges and huddles. The need for interoperability in cross-chain technology should not be limited just to the safe transfer of tokens but also to the safe and secure transfer of confidential data.

Build Your Cross Chain Exchange With Us

The future of blockchain technology is cross-chain exchanges and we provide the services of cross-chain bridge development through smart contracts that allow users to send different tokens in different blockchains. If you want to build a platform where you can cater to a lot of users to exchange their tokens then you will need to know about the cross-chain bridges. Get in touch with us and start building a robust decentralized application that any user can use from all over the world especially on chains with lower gas costs.

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