DeFi Developers Must Make Strategic Decisions When Choosing Their Bridges

Exploring the Importance of Bridges in the Defi Space

Last year, KyberSwap faced a significant hack resulting in a loss of $47 million and a major blow to its protocol. The hacker then made an unusual demand for control, which was rightfully declined. Instead, the hacker began moving the stolen funds to Ethereum using the Synapse protocol.

Despite the setback, KyberSwap managed to survive by downsizing its workforce and rebuilding. The value locked dropped by a considerable 68 percent, showcasing the need for enhanced security in the defi space.

Defi hacks have decreased in 2023, indicating progress in security measures. This positive trend is backed by data from Chainalysis, highlighting a 64 percent drop in value lost and a 7.5 percent reduction in median loss per hack.

The value lost in defi hacks | Source: Chainalysis

Bridges play a vital role in enabling cross-chain capabilities and fostering innovation within the defi space. They allow for the creation of new financial products, scalability improvements, enhanced privacy features, and effective risk management.

However, despite the advancements, blockchain interoperability remains a challenge. The security vulnerabilities associated with bridges pose a risk, especially in unregulated environments. Hackers exploit smart contract vulnerabilities and protocols, making security a top concern for developers and users.

Choosing between trusted and trustless bridges depends on specific use cases and preferences. While trusted bridges offer simplicity and compliance, trustless bridges prioritize decentralization and security despite their smart contract vulnerabilities.

With security risks prevalent, compliance layers are crucial in mitigating potential threats in defi protocols. Compliance ensures user assets are protected from malicious parties and enhances overall security.

As the defi space continues to evolve, compliance measures will become more vital to protect against emerging threats and safeguard the industry’s integrity. Developers must prioritize compliance standards when engaging in cross-chain transactions to ensure the safety of all participants.

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