Cross-chain bridges. Detailed analysis

How to earn on bridges. Types of cross-chain bridges. Why are they useful, and what are their risks.

I was analysing bridges as investment opportunities, so I started with general research. Now I want to share it with you.

My company helps crypto projects with:

1. designing attractive for investors tokenomics and business model;
2. deploying token and creating DAO;
3. creating a community for the project;
4. designing and launching an NFT collection;
5. fundraising;
6. creating liquidity for the token on exchanges by our market maker.

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1. What problem do the Bridges solve?

1.1 P2P (OTC)

1.2 CEX

1.3 DEX

2. Cross-chain bridges

2.1 Why bridges are important

2.2 There are 3 types of bridges

3. There are 5 types of cross-chain transactions

3.1 Lock-and-release

3.2 Lock-and-mint

3.3 Burn-and-release

3.4 Burn-and-mint

3.5 Trade

4. Technical risks

4.1 Hacks and asset leakage

4.2 Denial of service

5. Financial risks

6. How to earn with bridges

There are three ways to trade crypto:

1. Person to Person (P2P) or over-the-counter (OTC): when securities are traded directly from two counterparties without using any exchange. They can find each other on different platforms, forums, chats, etc.
2. Centralised exchange (CEX): when securities and funds are deposited to an exchange’s accounts and traded via this platform, usually with an order book.
3. Decentralised exchanges (DEX): this is a platform for P2P exchange when one of the counterparties provides liquidity for trading pairs so that other users can trade them.

P2P (OTC)

It is evident to common sense. People search for other people to buy and sell their assets. In the classical market, it is used to trade vast amounts of securities. For instance, Elon Musk is trying to buy Twitter Public Policy. He could go directly to the exchange and buy shares there, but in this case, he will not get the best price as well as he could not buy that amount of shares.

Also, if the securities do not trade on exchanges, people can search for the buyer in the OTC. Usually, they can search on different platforms, forums, chats, etc.

So, everyone can find someone else who would like to make a transaction directly from wallet to wallet. But there is a significant risk of fraud, which the exchanges solve.

CEX

Centralised exchanges are regulated, officially established companies where securities can be traded in a standardised, fast and secure way. CEX mitigates counterparty risk because it acts as a clearinghouse that ensures that every transaction will be completed by both — the seller and the buyer.

Every client deposits their assets into exchanges’ accounts, and from that moment, the exchange holds these assets on the client’s behalf. Technically, it can do everything from that moment: it can freeze assets, set withdrawal limits, use those assets for its purposes and many more.

All the assets from the blockchains are deposited in the exchange’s wallets, and when its clients trade their…