Opinion: Kadan Stadelmann, Chief Technology Officer of the Komodo Platform

Crypto wasn’t destroyed by regulators or some mysterious conspiracy. The industry did this to itself. He handed over control of cross-chain liquidity to a handful of intermediaries he called “bridges,” wrapped assets in clever paperwork, and pretended it was decentralization.

Every time one of these house of cards collapses, billions are lost and the rest of the industry shrugs as if these were isolated incidents rather than warning sirens sounding throughout the ecosystem.

The fall of Multichain was a mess. The Ronin hack was one of the largest cryptocurrency heists in history. To date, over $2.8 billion has been leaked through bridge exploits, representing approximately 40% of all funds stolen on Web3.

These are not freak accidents; are the predictable result of trusting centralized bottlenecks and calling them “innovations.”

The closed asset system is a frail illusion

Packaged assets were sold as a way to connect fragmented ecosystems. In practice, they concentrated risk across a few validators, custodians, or multisig groups. To maintain consistency, bridges rely on intermediary chains, external consensus layers, or a miniature number of operators.

This is not decentralized and is even something that Vitalik Buterin has discussed extensively. It’s centralized infrastructure wearing a mask. One breach, one broken key, one exploit in the validator kit, and the entire system can implode. The assumptions surrounding trust are huge, but most people barely understand them.

The consequences reverberate far beyond the bridge itself. When one of these systems fails, it doesn’t just affect a single token. Credit markets are filling up, liquidity is drying up, and entire decentralized finance (DeFi) ecosystems are losing their backbone by the day.

Consider the extent to which DeFi relies on wrapped Bitcoin (BTC), wrapped Ether (ETH), or wrapped stablecoins on foreign networks. These wrapped assets are treated as real assets. Protocols are built on them. Behind the scenes, these are IOUs supported by a frail group of actors who have shown time and time again that they can fail.

The situation is made worse by the fact that the industry saw this coming and did nothing about it. We ignored the warning signs after every exploit. Instead of fixing the fundamental problem, we doubled down. We built higher on quicksand. Investors and venture capital projects have directed more liquidity into bridges. Exchanges listed more wrapped assets. The designers preferred speed and fluidity over resistance. It was easier to pretend the problem didn’t exist than to rethink the infrastructure from scratch. Everyone was celebrating volume milestones while structural rot was spreading underneath.

Native trading is the infrastructure that cryptocurrencies should have built from the beginning

Native commerce has always been here. This is not a marketing slogan. It refers to the transfer of real assets directly between users, wallet to wallet, in their chains of origin, without wrapped representations or custodial intermediaries.

This approach is not without limitations. Native swaps and nuclear swap systems have historically faced challenges related to liquidity depth, asset coverage and user experience, which is why bridge-based designs have proliferated in the first place. These limitations remain real, but they do not negate the systemic risks arising from the concentration of cross-chain trust in a miniature number of operators.

No wrapped IOUs, no pools, no intermediaries. When a swap fails, the funds are returned to the users, not to the custodian, which may disappear tomorrow.

Atomic swaps and time-limited contracts with hashing have been around for years, but it has been challenging to build a user experience around them. Instead of doing the difficult work, the industry was chasing shiny packaging. The bridges seemed speedy and newfangled, and the narrative drowned out the reality.

Related: There is a radical need to update blockchain security protocols

Consider a scenario where a major bridge holding billions in assets collapses during peak market conditions. Liquidity supporting dozens of DeFi protocols is disappearing by the day. Markets dependent on BTC freeze. Lending protocols threaten cascading liquidation. Traders are rushing to loosen their exposure.

Fear spreads faster than any hack. We’ve seen a similar version before. When FTX went under, the contagion spread to every corner of the industry. Bridges have the same potential – maybe even worse, because they are so deeply embedded in cross-chain fluidity. One or two major bridge failures at the wrong time can create a liquidity crisis on par with FTX.

Regulators are circling and institutions are taking notice. If the industry continues to outsource trusts to a few multisigs and sets of validators, regulators will step in with solutions that are not consistent with cryptocurrency values. Or worse, users and institutions will lose faith altogether. The damage will not only be financial; it would be reputational. DeFi would seem like a gimmick built on duct tape, and mainstream trust would evaporate.

This industry will not survive without a return to first principles

The ethos that built this space was not about speed at any cost. It was about removing middlemen, trusting code instead of maintainers, and building systems that didn’t rely on a few operators to always behave perfectly. This ethos has been pushed aside in favor of convenience. Native trading and minimum trust protocols are not optional upgrades; they are a path back to the foundation on which cryptocurrency was intended to be built.

The next bull run won’t be defined by which Memecoin pumps the hardest or which Layer 2 provides the most flashy incentives; this will be determined by credibility. Users, institutions and regulators are watching this closely. They have seen bridge break-ins, they have seen bridge collapses, and they will not accept another cycle built on the same infrastructure. The industry has a choice. Pretend the packaged assets are “good enough”, ignore the failure points, and wait for the next black swan to force a reckoning. Or you can rebuild your business now with true, low-trust infrastructure that won’t explode under pressure.

The clock is ticking. The problem with the bridge is not some distant risk. It is here, it is embedded and it is growing. One more major exploit could set the entire industry back years. If builders don’t take this seriously, the market will, and the consequences won’t be pretty.

Opinion: Kadan Stadelmann, Chief Technology Officer of the Komodo Platform.

This opinion article represents the author’s expert opinion and may not reflect the views of Cointelegraph.com. This content has been editorially reviewed for clarity and relevance. Cointelegraph remains committed to limpid reporting and the highest journalistic standards. We encourage readers to conduct their own research before taking any action with the company.