The adoption of public permissionless blockchains by regulated finance is fraught with challenges. A commonly proposed solution is a multi-chain future, bridging DeFi ecosystems with private, permissioned chains tailored for individual traditional finance (TradFi) use cases. But what would these bridges look like for regulated finance?

Consider Alice and Bob, two investors in digital assets active on Chains A and B respectively. Alice holds Asset A on Chain A, while Bob holds Asset B on Chain B. They agree to an over-the-counter trade to swap these assets and wish to execute this with minimal risk.

Asset Bridges in Crypto

In the cryptocurrency context, Chain A could be Ethereum and Chain B Solana, with Assets A and B being Eth and Sol respectively. To facilitate this trade, Alice or Bob would use a bridge, such as Portal (formerly Wormhole), to transfer their asset to the opposite chain to execute the swap, and possibly revert it post-trade. Essentially, the bridge changes the venue for the asset—hold it on Chain A, move it to Chain B to access another service or liquidity pool, and then move it back.

Asset Bridges in TradFi?

The same model is conceivable for TradFi. Bank A might operate a bond issuance platform on private Chain A, and Bank B might handle cash equivalents on private Chain B. All Alice and Bob need to do is bridge their trade to a mutual chain for an atomic swap. This could mean Alice moving the bond to Chain B, Bob moving the cash to Chain A, or both moving their assets to a third, independent Chain C. In any scenario, at least one asset must leave its home chain.

This transition appears technically feasible, mirroring the crypto example. However, this overlooks why Banks A and B use private chains: to meet regulatory and legal controls over their assets. Circumventing these controls changes the fundamental nature of the assets, as emphasized by the BIS’s SCO60 paper. The only way banks can maintain these controls is by operating their private chains—hence, they cannot replicate the model used by Circle to bridge USDC between Ethereum and Solana without losing essential control. Neither Bank A nor Bank B can operate the bridge Alice or Bob need in this scenario.

Consequently, a third party must operate any bridge between Chains A and B—or C. This introduces a new counterparty and associated risks, transforming the bridged asset into a third-party issued claim to the original asset. This becomes painfully clear whenever a bridge is compromised, and its escrowed funds disappear. Such a setup and scenario are untenable in regulated finance and offers little risk mitigation benefit over traditional, centrally cleared trades. So a third party operating an asset bridge is also not really an option in TradFi.

Message Bridges have little to offer

When discussing DLT interoperability in regulated finance, I usually focus on the necessity for atomic smart contract calls to unleash the composability that gives blockchain its value. I argue that bridges recover only messaging-level interoperability—a capability that has existed between independent computer systems since the dawn of the internet. If this were sufficient to construct guaranteed consistent real-time financial markets, we would have done so over the past 30 years.

To make this concrete, let’s assume Alice and Bob can send authenticated messages between chains A and B. How do they execute their trade? There are well known protocols like Hashed Time Lock Contracts (HTLCs) to do this with fairly low risk (assuming high timeouts and availability of all systems). But such protocols are highly bespoke per use-case and there are few examples beyond this simplest of use-cases which is one asset for another.

Conclusion

The asset bridges that drive DeFi - Portal (formerly Wormhole), Polygon Bridge and AggLayer, Axelar, etc - fundamentally change the nature of the involved assets and negate all the safeguards and controls that resulted in private app chains in the first place. Thus, bridges in TradFi are limited to transferring messages only in the style of Avalanche Warp Messaging, Cosmos’s IBC, ChainLink’s CCIP, Polkadot’s XCM, or similar. But messaging offers nothing new and is insufficient to empower the financial infrastructure of the future.

In a multi-chain future with private app chains connected using bridges, blockchain will merely create new silos in regulated finance, continuing the industry's trend of proofs of concept based on empty promises from public chain ecosystems.

What’s needed are platforms like Canton that support protocol-level atomic smart contract calls across independently controlled applications. That doesn’t mean I believe Canton Network is “the one network to rule them all”. I expect crypto and bridges are here to stay. But I believe that bridges have specific, narrow use in connecting ecosystems - Ethereum to Solana, or Canton Network to Ethereum - not a way of clawing back DeFi like interoperability between apps across private networks.