Every chain is an island: crypto’s liquidity crisis
Crypto has improved transaction throughput through new layer 1s and side networks, but liquidity fragmentation poses a significant challenge. Capital and users are scattered across multiple blockchains, leading to coordination issues. Each blockchain operates as a silo, complicating access to liquidity for traders and DeFi applications. Users face difficulties in switching networks and managing multiple wallets, resulting in thinner liquidity and higher trading costs. Bridges for moving capital are often exploited, hindering DeFi's growth. Solutions like crosschain aggregators exist but do not unify liquidity. Integrating bridging functions into blockchain infrastructure can alleviate fragmentation, allowing seamless access to liquidity. This approach ensures that new chains can connect to existing liquidity pools without user friction. The focus on interoperability at the base layer is essential for maintaining a cohesive ecosystem as more networks emerge. A unified liquidity model can enhance user experience and support the growth of decentralized applications.
