Blockchain bridges are a key component of a multichain ecosystem
Blockchain bridges are a key component of a multichain ecosystem. From just a year ago, the total value locked (TVL) in Ethereum bridges has nearly doubled from $6.75B to $12.4B.
At its peak in November 2021, TVL was $26B. Since then, it was relatively stable for 4 months until April, when it began to decline.
During that 4 month period there were 2 major security breaches involving Ethereum bridges: the $326M Wormhole exploit on Feb 2 and the $625M Ronin exploit on March 28.
In both cases, however, the exploit didn’t disrupt overall bridge use: TVL on other bridges wasn’t impacted in the immediate aftermath:
So then what has caused the more recent decline in TVL? A large part of it is from the broader bear market in crypto asset prices. The chart below shows TVL along with the broader crypto market as a whole, measured by Chainlink’s Total Market Cap index:
TVL in Ethereum bridges actually remained relatively stable despite the broader market downturn which started back in November 2021. Another way to view this relationship between TVL and overall market is by looking at the ratio of TVL / Market Cap:
As a percentage of the total market cap, TVL actually peaked in Q1 2022, when 1.3% of all crypto capital was locked in Ethereum bridges. The recent drop in TVL brought the ratio back to levels seen last year, around 1%.
One factor keeping TVL relatively stable during market fluctuations is the composition of the locked assets: over 45% are stablecoins. Because their value remains constant, they “inflate” the TVL/MktCap ratio if the market declines.
The recent decline in TVL could simply be a delayed removal of this “excess value” that remained after the market sell-off.
In summary: as the multi-chain ecosystem grows, so will the total value locked in bridges, which is a double-edged sword: more funds locked means more cross-chain transactions can be facilitated, but it also means even bigger honeypots for potential exploits.
This makes the role of core contributors like Jump and guardians that much more critical to the crypto ecosystem.