AllianceBridge helps DeFi to overcome the limits of a fragmented blockchain space

6 min readJun 2, 2021

One of the biggest challenges blockchain technology is facing today is related to the interoperability between blockchain systems. Blockchains are inherently siloed, which means that there are no built-in mechanisms that allow for different blockchains to connect to each other. A blockchain is, in essence, a self-contained system. This limits the potential reach of blockchain applications, as it leaves them tied to a particular blockchain. For example, Bitcoin holders do not have a readily available way to use their BTC in DeFi dApps running on Ethereum.

Of course, this problem goes beyond any particular chain and affects the entire blockchain space, hindering its potential. In order for the technology to become ubiquitous, having an efficient way to facilitate communication between separate blockchain systems is key.

So, as we set out to redefine decentralized finance (DeFi), we knew that we needed to find a way to overcome this challenge. In order for AllianceBlock’s DeFi offerings to reach their full potential, they needed to support multiple blockchain networks. That’s why we identified building a blockchain bridge as a key component of our project.

Today, we’re happy to announce the release of the Testnet of the AllianceBridge. Our bridge allows us to support major blockchain networks including Ethereum, Binance Smart Chain, Avalanche and Polygon. At the same time its unique infrastructure ensures faster and safer performance, while remaining more decentralized than the industry standard. It also vastly increases the utility of our DeFi products and use cases of our ALBT token.

So what exactly sets AllianceBridge apart from similar products on the market? To answer that question we first need to understand the general idea behind blockchain bridges.

Blockchain bridges 101

One commonly-used method for solving the interoperability problem is to build a blockchain bridge. This is an ingenious technical infrastructure spread over different networks that allows for any two blockchains to ‘talk’ to each other. With the help of a bridge, any two blockchains can connect and exchange all kinds of information, such as transaction data, smart contract calls and so on.

Blockchain bridges come in different shapes and forms, but typically fall into two broad categories — centralized and decentralized bridges. In centralized bridges a single entity is tasked with verifying whether the information that’s being transferred is correct. One major drawback of this approach is that it involves trusting the central entity that acts as a mediator.

Decentralized bridges, on the other hand, are in line with the trustless nature of blockchain technology. These are decentralized networks consisting of many bridge operators that utilize some sort of consensus mechanism to reach agreement on whether a piece of information is valid. AllianceBridge falls into the decentralized category, but uses a novel method for ensuring consensus. But before we delve into the specifics of how we ensure consensus, let’s take a closer look at the operations that make decentralized bridges work.

"AllianceBridge will increase the reach and utility of DeFi by extending across some of the most promising blockchains today"

Test it out yourself at: https://www.sbox.alliancebridge.io/

Locking and minting

Bridges are used for a variety of purposes, as they can connect parent chains to their sidechains, as well as independent blockchains. One of the primary uses of bridges is for ‘transferring’ crypto assets from their native blockchain to be used in applications running on a different network. For example, a bridge can enable Bitcoins (BTC) to be used in DeFi applications running on Ethereum. This functionality is enabled by a process that involves the locking and minting of tokens.

Because actual asset transfers between blockchains are impossible, these two operations are utilized to achieve the same effect. The first operation involves using smart contracts or other means to lock the tokens a user wants to transfer from their native chain to a target chain. Then an equivalent amount of so-called wrapped tokens are minted on the target chain and can then be used in dApps native for that chain.

The wrapped tokens continue to exist on the receiving blockchain until the user decides to redeem them. At that point, the wrapped tokens are burned, while the original tokens are unlocked on their native chain.

The process described above practically ensures that the same tokens cannot be used on two chains simultaneously, which achieves the same effect as if they have been transferred from one chain to another.

AllianceBridge — Faster, safer and more decentralized than any other bridge

Following a productive collaboration with LimeChain, a leader in DeFi blockchain development, we’ve been able to build a powerful solution to serve the specific needs of our DeFi project and benefit the industry at large. AllianceBridge is a decentralized bridge that has its own EVM-compatible network of bridge operators. Unlike similar systems that rely on some sort of a built-in consensus mechanism, our bridge leverages Hedera Hashgraph’s robust consensus service offering, which is powered by the DLT protocol’s innovative gossip-about-gossip consensus algorithm.

The Hedera Consensus Service (HCS) allows for blockchain applications and permissioned networks to submit messages to the Hedera public ledger for proper timestamping and ordering. Using HCS we are able to achieve consensus without the need to maintain constant synchronization between bridge operators. Because of this we are able to achieve significant performance optimizations, which makes our bridge faster and even more decentralized than the industry standard. What’s more, with HCS acting as an additional layer of trust, our bridge becomes more reliable and secure.

The AllianceBridge is set to support Ethereum, Binance Smart Chain, Avalanche and Polygon — four blockchain networks with robust capabilities when it comes to supporting smart contract and dApp development. Connecting to these chains will cost a service fee paid in AllianceBlock’s native token, ALBT.

Another characteristic of the AllianceBridge is that the operators will be able to vote on implementing changes to the bridge, such as changing the service fee and accepting new bridge operators.

The bridge’s core functionalities such as lock/unlock, mint and service fee distributribution are handled through smart contracts based on the Diamond standard. This standard allows a contract to use the external functions of other contracts as its own. The ability to use multiple external contracts, or facets, makes diamond contracts and the systems that utilize them very flexible and easily upgradable. The Diamond standard also allows us to write smart contracts in a modular and gas-efficient way.

Additional utility for our ALBT token

The AllianceBridge is part of our larger vision for the development of the DeFi space. Recently, we launched our liquidity-mining-as-a-service (LMaaS) offering, which seeks to make it easier for new projects to enter the DeFi market, while providing users with a one-stop-shop for participating in liquidity mining and staking campaigns.

We expect the AllianceBridge to vastly increase the utility of our DeFi offerings by extending their reach to some of the most promising blockchains today. It will also create even more use cases for our ALBT token, which is already poised to be the lifeblood of the AllianceBlock DeFi ecosystem. With the introduction of AllianceBridge, ALBT will become the fuel that enables interoperability between some of the most prominent blockchains in the world.

Most importantly, we expect the AllianceBridge to enable many new users to benefit from a range of powerful and innovative DeFi products while affording them the flexibility to choose the blockchain platform they want to engage with.

About AllianceBlock

AllianceBlock is building the first globally compliant decentralized capital market. The AllianceBlock Protocol is a decentralized, blockchain-agnostic layer 2 that automates the process of converting any digital or crypto asset into a bankable product.

Incubated by three of Europe’s most prestigious incubators: Station F, L39, and Kickstart Innovation in Zurich, and led by a heavily experienced team of ex-JP Morgan, Barclays, BNP Paribas, Goldman Sachs bankers, and quants, AllianceBlock is on the path to disrupt the traditional markets with its state-of-the-art and globally compliant decentralized capital market.