Examining Bridging Behavior Using On-Chain Analytics - TOKEN2049 London 2022

hi guys uh good to be here um so today just didn't really want to pitch anything here I just wanted to share some data that we've been seeing uh lately around how users and on-chain behavior on Bridges uh has been occurring of late uh especially in recent times it's been very interesting in light of recent events to see some of the flows on chain across multiple uh layer ones and Layer Two blockchains and see some of the trends in terms of how users are actually using uh cross-chain Bridges so uh you know the the title of this presentation is to take a view over the bridge but the reality of the situation is it's pretty hard to do that because today's ecosystem is pretty diverse and very broad we have a lot of different Bridges there's a lot of different chains as well there's over a hundred different active blockchains now um and over five different Bridges uh that have over several billion dollars locked um some of the biggest ones obviously here are between the major blockchains eth uh BSC polygon Avalanche Etc as you can see here but the reality of the situation is uh even in the past month even with the decline in you know dramatic decline in crypto asset prices we've seen over four billion dollars of value flow through some of the major Bridges which is a pretty significant number and it really proves that uh you know these kind of highways are what run our industry and underpin the underlying blockchains that are uh are the foundation of this space and when we look at Bridges you know it's it's kind of a huge space that's really broadened out over the past year and a half um and there are many different ways of segmenting them but one of the biggest things that we look for is is really security uh because just for context here for people who aren't really too familiar with what Bridges do the function of a bridge is to move liquidity primarily across different blockchains and uh when they do so usually they lock some sort of funds on one side of the of the bridge and then release other funds on the other side of the bridge and some of these bridges are single asset Bridges like rap Bitcoin is a big example the polygon POS bridge and another another big example just for one chain and then they're multi-asset multi-chain bridges that have multiple chains and multiple assets as well but but one of the biggest things that we look for here is in the trusted column here are we actually trusting some third party or middleman out when you're depositing funds in a bridge it's a big trust assumption that you have to really evaluate uh when we're using a bridge and because effectively you're locking funds in a bridge to actually use it and when you lock funds you're effectively trusting both sides to work properly in order for the bridge to be reliable right um and these this kind of trust assumption not a lot of people question um when using Bridges uh because it's it's kind of implicit with a lot of these Bridges even though they're on chain you're still trusting that both assets on both sides of the bridge are secure and there's a lot of auditing involved in actually making sure that this is the case and the reality of this is is proven here really when we look at even 2022 uh some of the top exploits of the year you know have been Bridge related right uh over 1.2 billion dollars just this year alone has been stolen as a result of bridge related exploits which is a pretty staggering number and when we look into each of these cases of course some of them are due to multi-sig thefts and things of that nature but a lot of them are due to kind of flaws in these trust assumptions that we have with Bridges when we're trusting assets and we're locking Assets in these Bridges um and so related to Bridges what are the kind of metrics and Trends we've been seeing this is a great chart for my friend Elias where uh we look at the kind of total value locked across all the different types of bridges that we have in the ecosystem and we look at Value locked as an as a metric because it basically implies the trust that users have given these Bridges when you lock value in a bridge you're transacting in that Ridge and you're trusting that bridge with your funds to move funds across that bridge right and so this chart is a real really good Testament to how much trust users have in these Bridges and how much utility they're deriving from them and one of the biggest trends that we can see here uh is uh the kind of the pink layer which is polygon Bridges and then the uh the kind of the purple blue kind of layer which is now the arbitrine bridges are really the ones that have had staying power especially in recent times as volumes and total value locked has declined pretty significantly we've seen polygon especially have pretty significant staying power um in terms of usage traffic and uh value locked in terms of the funds that remain locked in the bridge uh which is something that was a key takeaway um the other really interesting Trend that we've been seeing is the kind of phenomenon of airdrop Hunters which is uh pretty recent Trend over the past few months in fact uh specifically with arbitrary with optimism you can see these little spikes here uh in the chart which is a pretty interesting phenomenon and the reason these spikes happen when we really looked into it was actually smart contract based programs that generated addresses to programmatically interact with these Bridges with the hopes of potentially getting an airdrop of some sort right for folks here who are on crypto Twitter you know there's plenty of threads now of how to get an airdrop for XYZ chain right I'm sure you've seen a plenty of these uh but what's been interesting is to actually see this play out on chain uh there are actually hundreds of thousands of addresses when you see these spikes here uh you know goes above 200 000 on a given day just to transact with a specific chain with a specific bridge and you see these incidents are very uh sparse in between and one of the interesting things we did was actually look at some of the Twitter activity around that whenever these one of these long threads were being published these this kind of activity did tend to tick up which is a pretty interesting Trend that we noticed and while arbitrary and optimism have been largely programmatically driven where there's a smart contract that generates addresses a recent Trend we've been seeing with newer chains has been genuine individual addresses retail addresses potentially that aren't really connected with each other that are not programmatically generated genuinely interacting with these Bridges you can see the uptick in in traffic in depositors in the ZK sync bridge for example just over the course of October and early November it's been a pretty huge uptick largely because of you know obviously anticipation around the potential launch of their token but also same with starknet you can see this big uptick towards November and when we see the address composition of these interactions they're actually pretty disparate they're not actually generated by a single smart contract as is the case is arbitrum they're very disparate they have their source of their funds is disparate which is a very interesting Trend which basically signifies that there's genuine retail interest obviously the numbers are quite lower here it's like 5K to 2K but uh pretty genuine interest uh in interacting with these ecosystems and it's probably a trend that will start to monitor even more and more as uh as newer and newer change launched how are their Bridges being used because that's kind of the major way of how users can shuttle funds into these new blockchains with with each new blockchain that comes up the primary way of getting funds into it is via a bridge right so uh well on-chain bridges are one big aspect the other big trend of course is centralized exchanges being used as Bridges so as is often the case you know over the past year and a half for example binance has been a huge route to get into and out of binance smart chain rather than using an on-chained Bridge you can just get in and out of finance and withdraw our deposit to the binance smart chain right which is a popular route we've been seeing uh likewise uh as of a few days ago FTX used to be the same uh with Solana right uh which is a big pathway very often uh Traverse Corridor um and while we can't actually see what goes on inside the centralized exchanges and follow the kind of funds all the way through like we can on chain um one of the biggest things that we've been seeing is identical amounts being sent into an essentialized exchange and also we're drawn onto these bridges of course we have no way of knowing whether it's the same person or not but uh the amounts kind of signify that similar amounts of value are generally being used to flow through these centralized exchanges and come out on the other side to these various blockchains which is a pretty interesting Trend and especially I want to highlight over the past two days we've been seeing quite a lot of this happen uh across many different centralized exchanges with the volatility that we've been seeing which has been supremely interesting to see uh especially at certain chains for example Solana experienced some down time some transaction congestion folks are trying to get funds out out of different exchanges using different blockchains so it was almost the inverse of this where different blockchains were used to shuttle funds out of different exchanges so for example if say I as a user wanted to get funds out of a certain exchange but I couldn't use Solana I would actually use for example Finance smart chain or TRX as is the case today to get funds out uh and then eventually transfer it back into mainnet ethereum or another blockchain of my choice so the inverse was actually observed today in pretty significant volumes several billion dollars of volume happen in that inverse route today which was extremely interesting to see as well so um yeah so this is kind of the state of bridges today some of the metrics that we're seeing obviously a lot of traction flows through these Bridges now and the key things we'll be looking out for is whether this inverse Trend continues and especially with centralized exchanges and being kind of a risk key central point of failure more and more traffic whether that flows through bridges on chain Bridges and how their trust guarantees are actually enforced because if they're not they're just another central point of failure right so uh that's kind of what we're looking forward to here this is a visual from back in the day uh from 2017 looking at internal transactions on ethereum but it's actually kind of similar today in terms of internal transactions amongst Bridge contracts where there's so many different tokens and different uh layers where you have to transact especially when we're talking about Roll-Ups as well when we're actually moving value across these ecosystems how complicated is the transactional graph going to get and how much of it will we actually be able to follow and understand and so that's kind of the the big trends that we're looking at and a bit about bridge and bridges and Bridge Analytics thanks that was awesome how's things your wealth yeah great thanks so much for doing this coming in on The Late Shift I know what that was like hey that was really interesting about the reversal that you saw with regards to flow that inverse on the bridges yeah that's really interesting I mean from a perspective of coinbase uh when we have Market movements like this I mean how do you guys approach your day um is there internal meetings you have conversations I mean at your side of stuff you know how do you deal with the day like today and a day like yesterday yeah it's an exciting day obviously a lot of movements happening um from my perspective I can only speak from my perspective it's uh the on-chain side of things has been extremely active yeah um we've seen tremendous amounts of volume move on chain yeah especially on Bridges uh to and from exchanges and then to and from chains as people try to move liquidity and in times of Market volatility like this some chains are actually a little more reliable uh than others in terms of actually performing and holding up under the stress yeah that's interesting to see that yeah so that's one thing we've been monitoring and did you see any did you see any ultimate flaws with any of the chains I mean you said Solana was down for a period of time yeah not necessarily damage just congested a little bit which was the same which happened to the mainland ethereum uh several of the Roll-Ups it's just whether users could get their transactions through in times of Crisis listen when we're talking about congestion and for the ogs in the house if you're ever into buying a crypto kitties when Benny was doing cryptokitties I believe that brought down the ethereum yeah things have moved on since then a little right yep yep definitely and so uh certainly at Swissport we've seen a lot of inflows in the last kind of 48 hours you've probably seen that on the coinbase side of stuff I mean how do you think this is going to affect and I've asked a lot of the speakers here today how do you think it's going to actually affect the industry how it's going to affect the space you know and the kind of medium medium term uh I I think it really calls into uh attention the the kind of importance of on-chain infrastructure and trustless infrastructure really because we're trusting these exchanges in opaque institutions that we don't have transparency over into uh with with funds and that's the beauty of on-chain dynamics of D5 right with Bridges we can see exactly how the funds are stored of course you have to do the work of auditing the code but once you do that it's it's transparent which is the beauty of on-chain systems well you know when you look at what happened with three hours capital and the liquidations and also the Celsius to broccol actually defy platforms like your compounds your IVs your makers all performed exactly like they should have there was no issues whatsoever I haven't seen in the last two days because they're pretty much locked me here for the last two days you know it's almost been like slavery here for me do you know that it's like hey go into that stage don't leave don't know what anything that's going on in crypto it's kind of actually being quite liberating yeah it's the only thing that I've known what's going on is from people like like you for sure but really and I hope this is the case this particular time um that defy platforms have done exactly what they should have done and coda's law and hopefully they have gone to that law yeah 100 I mean to your point even uh the infamous elevator research paid back their defy loan first we could all see that on chain oh really yesterday before you know oh I haven't learned that I gotta check it out Sid you're an absolute gent man you killed it thanks very much big round of applause for Sid