In this blog, I will cover the basics of how you can passively earn bridging transaction fees by providing liquidity, staking, or running nodes on cross-chain bridge protocols.
With the advancement of blockchain technologies and the interoperability between different ecosystems, there is a growing method for earning passive income from bridging activities.
We will provide you with step-by-step guidance ensuring all bases are covered to make starting easy and rewarding.
What Is a Crypto Bridge?
A crypto bridge is a system that enables users to transfer digital assets or information between two distinct blockchain networks. Most blockchains function independently and use different technologies.
As such, bridges facilitate interoperability by locking assets on one chain while releasing equivalent tokens on another. This is important for decentralized finance (DeFi), where users may want to move assets like ETH from Ethereum to other chains such as BNB Smart Chain or Avalanche.
Bridges can be classified into several categories: centralized vs decentralized, custodial vs non-custodial, and each has its own set of security concerns and trade-offs. Crypto bridges are useful in increasing liquidity and utility across blockchain ecosystems.
How To Earn Bridging Transaction Fees
A well-known cross-chain bridge is Stargate Finance, Users are eligible to earn bridging transaction fees by participating as a liquidity provider (LP) on Stargate.
Select a Supported Chain & Asset:Go to Stargate’s application interface and select a chain/asset pair such as USDC on Arbitrum.
Yield Farming:You must contribute your selected asset into Stargate’s liquidity pool. This aids the bridge in executing cross-chain transfers.
Earn Stargate bridging Transaction Fees:Users who use bridges like Stagte, pay small fees which LPs get paid back some portion of these fees. Also, Stargate tends to incentivize LPs with STG tokens (its native token) as rewards.
Top Crypto Bridges That Share Fees
Synapse Protocol
Synapse bridges and AMMs support cross-chain bridging and Synapse supports over 15 blockchains such as Ethereum, Avalanche and BNB Chain with fast and secure transfers. Also, users can participate by becoming LPs in Synapse’s liquidity pools to earn fees.
LPs earn a portion of the transaction fees for every asset transfer across chains using Synapse. Staking SYN tokens grants governance rights with occasional protocol rewards so staked tokens are not lost.
While paying competitive APYs on swaps, Synapse supports stablecoin exchange rewards but poses risks like impermanent loss along with smart contract vulnerabilities for DeFi yield offering protocols.
Multichain
Multichain (previously known as Anyswap) is a cross-chain routing protocol that helps in bridging assets across numerous blockchains like Ethereum, Fantom, and Polygon. It enables users to offer liquidity for cross-chain asset pools, earning transaction fees from user swaps and transfers.
Liquidity providers earn fees along with MULTI tokens based on activity. Multichain is known for offering support to many wrapped tokens. Its recent governance issues and security concerns make participation risky.
When using the system, make sure to exercise caution while depositing assets. Depending on its leadership structure, protocol updates may be made that could change trust assumptions.—
LayerZero
Unlike standard asset bridges, LayerZero focuses on enabling cross-chain messaging and is an omnichain interoperability protocol. Some protocols built upon it, like Stargate Finance, allow users to earn bridging fees through tokenized contract leasing via providing liquidity or operating relayer/oracle services infrastructure.
Although LayerZero does not pay users directly for fees paid by builders through dApps LPs and Relayers can receive some fee payments. As an instance, Stargate pays fees to LPs supporting token bridging.
Tech savvy explorers may operate nodes in the communication layers of the chains to be compensated for providing work in maintaining the cross-chain operability Lighthouse calls this layer cross-layer-to-fetch operations. Participation models are projected to diversify with integrations as rewards will increase alongside LayerZero adoption.
Wormhole
Over 20 blockchains, including Ethereum, Solana, Aptos, and Cosmos-based chains are connected by Wormhole Cross-Chain Messaging Protocol.
It enables the construction of bridges, DeFi applications as well as NFT marketplaces. Recently, Wormhole added Wormhole Staking, which allows users to stake W tokens and earn a share of protocol profits including algorithms’ bridging fees.
Though models that allow direct fee-sharing are still in development stages, they’re likely to pay ecosystem grants or offer resources like staking rewards or governance participation.
Institutional investment is growing alongside adoption and integration with leading DeFi platforms supports competing protocols. As adoption increases, this protocol may devise formal frameworks for distributing revenue-sharing.
Best Practices and Risk Management
Research thoroughly before offering liquidity or operating nodes:
Look into a bridge’s team, audits, and community reputation prior to investing resources or serving as a validator/relayer.
Understanding historical exploits and security flaws of the bridge:
Research previous hack attempts, active weaknesses alongside responses to improve safety before interacting with the bridge.
Spread assets across multiple chains to reduce cross-chain risk exposure:
Limit your risks by avoiding concentration with single-point failures or breaches by distributing assets among several bridges and chains.
Future of Bridging and Revenue Opportunities
Growth of omnichain infrastructure: Omnichain protocols will consolidate blockchains, providing smoother asset transfers and expanding revenue opportunities through fee-earning across interconnected ecosystems.
AI tools proactive role on risk management on bridging liquidity: AI strategies will optimize the monitoring of risks and liquidity, automating complex bridging actions which boosts fee earnings for all.
Bridge implementations on layer two and rollups: Layer Two and rollover bridges will enhance cheaper transfer options increasing usage as well as new streams for providers to earn.
Conclusion
To sum up, leveraging bridging transaction fees allows for monetization of cross-chain activities. Earning steady income is a possibility while providing liquidity, running nodes, or staking tokens on reputable bridge protocols.
Meeting objectives still entails proper research and management of risks along with keeping track of new innovations like omnichain infrastructure and Layer-2 models. Adopting a sustainable strategy that starts small and diversifies will provide opportunity for growth as the ecosystem develops.
