Chain Reaction: The Insanity of L1 Bridges (Cross-Chain Chaos)

The Wormhole hack astatine astir $320M could beryllium classified arsenic a counterfeit cognition and a slope robbery astatine the aforesaid time. This makes it some the most palmy counterfeiting operation successful past and the second-largest slope robbery ever. A superb forensic reverse engineering job of the hack published connected Twitter by @samczsun highlights some the method complexities of L1 Bridges (systems that tin transport worth betwixt antithetic Layer 1 blockchains) and the existent deficiency of method and economical information standards. The benignant of codification exploit utilized is not confined to L1 bridges, by the way, but could hap successful DeFi protocols arsenic good that employment akin authentication methods. The kicker is that the bug hole of the hack was disposable connected a nationalist codification repository for 2 weeks anterior to the hack. This whitethorn good person been what alerted the hacker to the exploit. Good vulnerability effect processes support things nether wrapper until the vulnerability is fixed, and lone past made public.

However, with billions locked up successful L1 bridges, and accrued demand, the question is, are L1 bridges creating the crypto equivalent of the mortgage-backed securities situation of 2008?

The abbreviated reply is yes! The Bridges manufacture is simply not yet blase capable to woody with that overmuch value, and, therefore, that overmuch risk. This is similar a little league squad abruptly competing successful the UEFA Champions League without the due players and resources, besides known arsenic a pre-programmed disaster! Vitalik Buterin gave large and elemental reasons successful a recent Reddit thread astir the systemic risks of L1 bridges.

As L1 bridges are rapidly locking much value, the hazard is expanding rapidly, and becoming systemic. Here is simply a elemental example: I instrumentality retired an overcollateralized indebtedness connected accidental an Aave indebtedness excavation utilizing bridged tokens specified arsenic WSOL oregon WADA oregon WBTC arsenic collateral. What if the WADA is really W-WADA coming from Solana, and WBTC is W-WBTC coming from Cardano? That means the lender indispensable not lone spot the information of the archetypal Cardano, Solana, Ethereum, and Bitcoin Layer 1 networks. The lender indispensable besides spot the information of 5 antithetic span relation networks with importantly less validators than the L1 networks, and successful immoderate cases complex, unaudited code. In addition, the lender indispensable spot that the funds were not illegally minted connected immoderate bridge, which would marque the indebtedness really undercollateralized.

This is comparable to the mortgage-backed securities situation wherever everybody ASSUMED the prices would proceed to spell up, everybody ASSUMED loans were not fixed to financially unsophisticated people, everybody ASSUMED default rates would not summation significantly, contempt debased teaser rates connected NINJA loans resetting aft a twelvemonth oregon two. And we cognize what happened then.

The penning is connected the partition successful the crypto assemblage arsenic good … unless L1 span networks turn up, perceive to the adults successful the room, and follow interoperability specifications and security guidelines arsenic published by standards bodies specified arsenic the Enterprise Ethereum Alliance Interop Working Group, which ever welcomes caller contributors to amended cross-chain security.

Until past … Bridger beware!

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