Technical Loopholes: How Cross-Chain Bridge Attacks Are Costing DEXs Billions

Any hack attempt on public assets is based on wealth accumulation. The cross-chain bridges are the prime target for these attacks because they serve as crucial liquidity channels. If you are a novice in DEX and want to secure your investment, you need to learn the cross-chain bridges critical vulnerabilities.

Cross-chain bridges are the type of protocols that help users to transfer assets across networks. For example, you are interested in a cross-chain bridge to move Ethereum-based assets to the Binance Smart Chain. In this transaction, you have benefits in respect of fees and incentives. These bridges typically work through wrapped tokens, like operating with a smart contract that locks your token on one blockchain and issues an equivalent token on another. These transfers introduce risks because of the smart contracts, validators, and multi-signature schemes.

How Attacks Are Carried Out

1. Every cross-chain bridge relies on centralized smart contracts that ensure the lock of the assets before issuing wrapped tokens. If the contract logic has logical flaws, it will invite attackers to manipulate the participants and mint excess tokens or withdraw locked funds without proper authorization.
2. It is also possible a bridge uses a multi-signature validator system and requires approvals from multiple parties before being executed. If the attackers have access to validator keys, they can authorize fraudulent transactions, effectively stealing funds.
3. Oracles are most commonly used to verify asset values and transactions between blockchains. The fraudulent people feed the false data to these oracles and trick the bridge into issuing incorrect token amounts. As a result, they can drain the potential liquidity.
4. It is also possible the attackers tricked the smart contract to execute the recursive withdrawals before updating balances. Therefore, you need to ensure the proper reentrance protections and attackers are not repeatedly calling the withdrawal functions.
5. Sometimes bridges suffer from poor token issuance mechanisms, and attackers gain the advantage and mint an unlimited supply of wrapped assets without locking equivalent collateral. As a result, the bridges face devaluation and liquidity drain out.

What you should verify

1. Before entering your tokens in the bridge, perform the formal verification method.
2. You must ensure that a higher number of validators sign transactions.
3. The bridge regularly rotates and updates private keys to reduce exposure risk.
4. The bridge supports multi-oracle validation, requiring multiple sources to confirm transactions.
5. The time-lock mechanism is best to prevent immediate exploitation of newly minted tokens.
6. The Layer-2 roll-ups are better compared to traditional bridges to move assets.
7. The atomic swaps eliminate wrapped token risks.