Bridged Tokens at Risk: The Consequences of a Hacked Crypto Bridge

The security of bridged tokens is a major concern in the crypto space. Bridging doesn't literally move the same token from one blockchain to another. Instead, the original asset is locked on the source chain, while a corresponding wrapped or bridged token is minted on the destination chain. This structure introduces smart-contract, counterparty, and systemic risks, as warned by Ethereum's official bridge documentation.

If the bridge gets hacked, the bridged token can lose its backing. Imagine a bridge holds 10,000 ETH on Ethereum and issues 10,000 wrapped ETH tokens on another blockchain. Normally, 10,000 wrapped ETH equals 10,000 ETH in bridge reserves. However, if an attacker drains 6,000 ETH from the bridge contract, 10,000 wrapped tokens still exist, while only 4,000 ETH remain available to redeem them. The wrapped asset is now undercollateralized, and market participants may start selling it below the price of native ETH.

Hackers can also create tokens from nothing by exploiting the minting mechanism. Chainlink describes this as an 'infinite mint' problem, where the token supply increases without a matching increase in reserves. The attacker can then sell those tokens on decentralized exchanges or use them as collateral elsewhere.