Decentralized finance (DeFi) noticed a report influx from centralized exchanges as crypto customers flocked to self-custody solutions following the FTX collapse. Over 100,000 Bitcoin (BTC) left crypto exchanges so buyers may keep away from third-party custody. True to the “not your keys, not your cash” mantra of Bitcoin, DeFi solves a wide selection of issues related to centralized entities.
Nonetheless, a number of reviews point out DeFi is just not a fail-safe setting, as high-profile protocol exploits like Wormhole, Nomad and Ronin made headlines in 2022 for the flawed causes.
Supply: Token Terminal
DeFi exploiters significantly goal cross-chain bridges. In reality, cross-chain bridge exploits account for more than half of all DeFi exploits since September 2020, with roughly $2.5 billion misplaced to those assaults. A Chainalysis report reveals that token bridge assaults accounted for over 69% of the full quantity of crypto stolen in 2022, a transparent indication that bridge exploits are on the rise.
Why do cross-chain bridges fail?
For the reason that DeFi ecosystem contains a number of blockchains, transferring digital property from one community to a different requires specifically designed protocols that work throughout completely different blockchains. Often called cross-chain bridges or token bridges, these protocols lock customers’ deposited tokens from one chain right into a contract, then subject the equal quantity of property to the identical consumer within the receiving community.
For instance, because the Bitcoin blockchain is just not instantly appropriate with the Ethereum (ETH) blockchain, the DeFi ecosystem depends on workarounds like wrapped Bitcoin and token bridges to faucet into the liquidity obtainable within the Bitcoin ecosystem.
Most bridge protocols use central storage to again property on the receiving blockchain, making a goal spot for hackers. The shortage of developer experience in comparison with the advanced nature of making a bridge that works throughout a number of networks causes safety vulnerabilities, making cross-chain bridges the biggest assault floor of the DeFi area.
Learn how to make DeFi extra strong
To make DeFi extra resilient to exploits, a brand new strategy removes this weak hyperlink between blockchains. Mintlayer is a layer-2 blockchain on the Bitcoin community that goals to attach its sidechain to the Bitcoin neighborhood with as little friction as attainable. Customers can construct any kind of present DeFi software on Mintlayer with out compromising the core fundamentals of safety and decentralization that the Bitcoin neighborhood is constructed on.
Mintlayer goals to remove token bridges, the biggest assault floor of DeFi, which prices customers billions of {dollars} yearly. As an alternative of wrapped tokens, customers can alternate their BTC for tokens on the Mintlayer blockchain by way of atomic swaps. By not requiring any form of cross-chain bridges, wrapped tokens or pegging mechanism to make use of Bitcoin on its blockchain, Mintlayer eliminates the dangers related to bridges and third-party custody.
Talking concerning the launch of the Mintlayer blockchain, Mintlayer co-founder Enrico Rubboli mentioned that it took over 18 months of exhausting work. He added:
“Mintlayer is dwelling for initiatives prepared to construct on prime of Bitcoin. We’re thrilled by the standard and quantity of responses relating to potential initiatives. Folks need the performance of DeFi, however don’t wish to compromise the safety and ideas of Bitcoin.”
To allow customers entry to their BTC natively on the go, Mintlayer launched a cellular Bitcoin pockets, obtainable on each Google Play and the App Retailer.
DeFi ecosystem specializing in Bitcoin
Apart from technical growth, the staff launched the Mintlayer Ecosystem Fund with the purpose of constructing a Bitcoin-centric DeFi ecosystem. Initiatives can be a part of incubator applications, accelerator applications and apply for grants, or apply for direct funding by way of the fund.
The collapse of main centralized organizations like Celsius, Terraform Labs and FTX triggered an exodus from centralized exchanges to decentralized finance and self-custody options in 2022.
If the DeFi ecosystem desires to maintain this new consumer base, it wants to resolve ongoing points related to the direct interplay between customers and blockchains, beginning with safety — its most important facet. Coming again full circle, the reply could lie in making the trail from Bitcoin to make use of in monetary purposes as brief and straight as attainable, with Mintlayer.
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