Centralization is the antithesis of DeFi.

DeFi has grown from its COVID-era heyday into a multi-network ecosystem spanning beyond Ethereum to encompass the likes of Solana and Avalanche. It has even started connecting to the liquidity of Bitcoin through various means. 

As the DeFi world grows, however, the stakes rise, and it becomes more and more important to focus on a secure ecosystem, with provisions against central points of failure and exploits.

Over the years, many of these high-profile hacks and exploits highlight the fact that centralization remains the Achilles heel of DeFi. With more value accruing on platforms that span across networks, it is imperative that the industry adopt, secure, and decentralized practices that minimize vulnerabilities and maximize utility.

Confined to Ethereum, DeFi platforms shared the network’s security model, and the fear of exploits centered around the secure implementation of bug-free smart contracts to manage assets. As the seeds of DeFi spread to other networks, however, the desire of traders to bridge assets to potentially greener, less fee-ladened pastures, began to see the emergence of cross-chain protocols.

But with these protocols came new risks. Bridging gives trades access to cross-network asset compatibility, but also introduces vulnerabilities absent of single-chain ecosystems. A reliance on centralized custody, sparsely populated validator pools, or poorly designed smart contracts creates a fertile ground for exploits.

Over A Billion In Assets Lost

Over the last 5 years as DeFi supremacy emerged onchain, the rise of cross-chain protocols saw both opportunities and significant vulnerabilities. High-profile hacks have repeatedly occurred, giving an ever present reminder of the systemic risks that come with solutions that emphasize control over decentralization:

Polynetwork Exploit—In August 2021, attackers exploited the Poly Network’s smart contracts for $610 million in various cryptocurrencies by manipulating a function that allowed them to forge messages and drain funds. The vulnerability allowed hackers to transfer assets across numerous chains, including Ethereum, Binance Smart Chain, and Polygon to their own wallets.

Wormhole Exploit—In February 2022, the Wormhole bridge to Ethereum and Solana experienced an attack where the actor was able to make off with $326 million in ETH. To do so, they bypassed signature verification and minted 120,000 wrapped ETH (wETH) on Solana without locking an equivalent amount on Ethereum. Since the smart contract failed to verify the signature the hacker essentially minted the new wETH out of thin air, which drained the bridge of liquidity.

Ronin Bridge Hack—The Ronin Bridge of the Axie Infinity ecosystem was compromised to the tune of $552 million when a hacker accessed private keys for five of the nine validator nodes that managed the bridge. The attack was achieved via social engineering and phishing. With a majority of validators under their command, the hackers forged withdrawals without challenge. 

Harmony’s Horizon Bridge Hack—In June 2022 Harmony’s Horizon Bridge was hacked for $100 million. Insecure private key storage of network validators allowed an attacker to access them, and sign unauthorized transactions draining numerous assets including ETH, WBTC, and USDC from multiple chains.

Nomad Bridge Exploit—In August 2022, a misconfiguration of Nomad’s smart contract gave anyone the ability to withdraw funds by spoofing transactions. A bug in the contract’s initialization logic mistakenly marked all transactions as valid. As one of the most chaotic DeFi breaches, numerous individuals were able to take advantage of this exploit, simultaneously draining the bridge of liquidity by simply copying and pasting the exploited contract data to replicate the error.

Hemi’s Answer To Secure DeFi

With hundreds and millions of dollars lost to centralization-related failures, Hemi takes a drastically different approach to how assets live and move, within a DeFi ecosystem. Hemi leverages sovereign tunnels, that use heavily audited smart contracts and eliminates reliance on centralized custodians, validator-driven protocols, or other insecure bridging mechanisms. Hemi provides this within a decentralized framework, built to accommodate secure, accessible cross-chain asset transfer.

Hemi’s native features support the future of DeFi:

Protocol-Level Awareness—The Hemi Virtual Machine (hVM) integrates a full Bitcoin node within an EVM-based environment. The facilitates a direct, protocol-level awareness between Bitcoin and Ethereum on the network, removing the need for intermediaries or external validators. Assets remain securely anchored to their native chain, with trust-minimized interactions within DeFi ecosystems.

Proof-of-Proof Consensus—Hemi employs a novel hybrid consensus mechanism that combines Proof-of-Stake (PoS) and Bitcoin’s Proof-of-Work (PoW) for maximum efficiency and security. Initially, transactions are validated on Hemi via PoS, for fast, energy efficient processing. The validated transactions are then grouped and hashed into bundles and committed to Bitcoin by Proof-of-Proof (PoP) miners. Once PoP miners confirm these bundles on Bitcoin, the Hemi network achieves a state of superfinality.

No Central Points of Failure—Hemi’s architecture decentralizes each step of the process, from asset transfer to computational logic. This helps Hemi mitigate exploits, without a central component that can be compromised to put user funds at risk.

A Safer Future For DeFi

By addressing the fundamental flaws in centralized bridged asset management, Hemi provides a solution that prioritizes user access and network integrity. DeFi participants gain the benefit of a multi-network ecosystem plugged directly into Bitcoin, with the computational flexibility of an EVM-based chain. While DeFi grows, and with billions in assets riding on the networks supporting the ecosystem, Hemi is creating a safer, secure, and trust-minimized home for Web3 to remain resilient.