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Prominent figures within the crypto ecosystem are bolstering their defenses in response to mounting apprehensions regarding the condition of Multichain, a significant platform facilitating asset transfers across various blockchains.

In the aftermath of apparent technical glitches hindering certain users' token withdrawals from the protocol, rampant rumors about the safety of Multichain and the fate of its team are circulating in the absence of any official communication from the platform. The situation has been further exacerbated by a lone tweet attributing some cross-chain disruptions to "force majeure," intensifying the widespread speculation that something is awry.

The lack of factual information available is compelling an increasing number of entities to proactively manage risk, regardless of the actual state of Multichain. Their reactions are underscoring the extensive potential for harm that crypto bridges entail, extending far beyond the widely acknowledged risk of being hacked by North Korea.

The complexity of the situation is heightened by Multichain's significant position among bridges. According to data from Messari and DeFiLlama, it ranks as the third-largest bridging protocol in terms of transfer volume and total value locked.

Similar to other bridges, Multichain employs a mint-and-lock mechanism to facilitate asset transfers across its network of 92 blockchains. To illustrate, let's consider the scenario where a holder of USDC stablecoin bridges their assets from Ethereum to Fantom using Multichain. In this process, the USDC token is initially locked within a smart contract on Ethereum and subsequently reissued on Fantom as a "wrapped" token known as anyUSDC. This mechanism ensures seamless interoperability between the two blockchain networks.

Despite being "bridged" assets reliant on external bridges for their value, Multichain's anyUSDC and other wrapped USDC tokens have emerged as dominant players in Fantom's stablecoin market, accounting for a substantial 50% share, as reported by DeFiLlama. It is worth noting that unlike "native" tokens issued directly by Circle on the chain, all USDC tokens on Fantom are dependent on bridges to preserve their value. Nonetheless, these bridged assets have managed to establish a strong presence and hold their ground in the market.

This arrangement functions effectively as long as the bridge remains operational. However, during the peak of Multichain's challenges this week, the bridge failed, causing wrapped USDC tokens on Fantom to lose their value relative to the US dollar. Several arbitrage traders informed CoinDesk that they managed to purchase wrapped USDC tokens at a 30% discount amidst the turmoil surrounding Multichain. It's worth noting that Multichain is responsible for 80% of the stablecoins on the Fantom network.

Binance, the largest cryptocurrency exchange in the world, raised concerns about non-native assets in a recent tweet, emphasizing the importance for traders to “remember to check you trust the issuer behind stablecoins you hold.”

Despite some outflows to other chains, the Fantom ecosystem's strong dependence on Multichain has not yet caused market participants to flee in large numbers. According to data from terminal-builder Parsec, overall figures such as total value locked have remained relatively stable.

"The multichain bridge is fully operational and safe with Fantom. Whatever is happening internally with multichain has no impact on the bridged assets on Fantom," Michael Kong, CEO of the Fantom Foundation, told CoinDesk.

This chart shows anyUSDC transfers from Fantom (blue) and other chains into Arbitrum over the last 10 days.
The uptick corresponds with the swirling rumors. (Parsec)

Squid Router, a bridging protocol developed on Axelar, experienced a significant increase in activity during the Multichain frenzy. Unlike Multichain, Squid Router utilizes swaps instead of wrapped tokens to transfer value across different chains. According to sources familiar with the matter, bridge transactions on Axelar itself witnessed a sixfold surge during this period.

Multichain's approach to wrapping assets for bridging purposes has raised concerns among players beyond the stablecoin markets. In response, Binance announced on Thursday that it would temporarily halt deposits for 10 Multichain-bridged tokens “while we await clarity from the Multichain team.”.

Yesterday, the Bridging aggregation service Li.Fi implemented proactive measures and temporarily restricted access to Multichain.

In the midst of these events, the namesake asset MULTI of Multichain has experienced a significant decline. At the time of the press, it was trading at $3.8, marking a 54% decrease from its pre-crisis value.

Source Coindesk