Cross-chain interoperability will drive the next wave of innovation in DeFi
If we’re placing bets on the next wave of innovation that will emerge from this market downturn, our money (and time) is on cross-chain interoperability infrastructure and the protocols and products it enables.
Cross-chain interoperability provides a way for developers and users to send messages, transfer tokens, and initiate actions across multiple blockchain networks. It will allow for the free flow of capital across networks and drive rapid optimization across the DeFi ecosystem.
Currently, cross-chain interoperability infrastructure is largely under development and we are beginning to see the first movers release products which aim to solve the challenges that DeFi has been facing for years.
Cross-chain interoperability will open up trade and drive efficiencies across the global DeFi ecosystem
Liquidity is currently fragmented across the DeFi ecosystem in what can be thought of as siloed, stagnant bags of money which are not being optimized.
Most of DeFi’s TVL resides on the Ethereum blockchain — of the $110 billion TVL, $72 billion or 65% sits on Ethereum, at the time of writing. Another $30 billion or 28% comprises the next 9 largest blockchains with the remaining 7% or so parked on over 100 other blockchains. The lack of free flow of capital across these blockchains creates many issues including pricing inefficiencies, yield inefficiencies, and a lack of compatibility with varying technological solutions which exist across various blockchains but are inaccessible to many dApps across DeFi.
Many blockchains have specific technical merits unique to their network. A few examples of this are Aleph Zero and Concordium. Aleph Zero is building an enterprise-grade blockchain with an impressive privacy framework. Use cases such as storage of healthcare data and other types of data where privacy is required create a strong need for privacy blockchains. Another is Concordium, which is building an ecosystem which is prepared to tackle regulated DeFi using KYC technologies for participants on-chain. All of these networks need to have the ability to interact in order to capitalize on their own specialities and advantages they are bringing to the table to solve complex problems.
One way to think of this is to imagine each blockchain as its own country, and within each country, there is little to no transportation such as airplanes, ships, and tractor-trailers. Some countries are quite large and produce high levels of commerce, exports, etc. while other smaller countries produce less economic output but are able to sustain their economy and people at scale. Without enough ships, airplanes and other ways to transport cargo, successfully export and do business with other countries, the global economy is not able to function as efficiently as it could if this core infrastructure were in place. Similarly, in DeFi, without the required cross-chain infrastructure in place, the global DeFi ecosystem is not able to operate as efficiently as it could. The role of cross-chain interoperability is to achieve critical mass where we can leverage the technical and community advantages that exist on each network, into higher-level behaviors and outcomes across the global DeFi ecosystem.
Arturo is the “killer app” for the interoperable DeFi world
Once cross-chain interoperability infrastructure is established, the magnitude of opportunities for investors and innovators will increase immensely. Going back to the analogy of each blockchain being a country, consider the opportunities that exist when markets that have previously been siloed open up for trade. The opportunities to transact are immense, especially for countries that have a unique value proposition.
Keeping up with price movements and executing trades within DeFi is already a cumbersome and time-consuming task. When blockchains and their protocols open up to each other, the transactions available to DeFi investors will increase by an order of magnitude. With Arturo’s state-of-the-art technology, we are able to offer automated solutions that help all corners of the DeFi ecosystem to work in harmony and allow investors to set up and execute trades without time-consuming monitoring and complex execution requirements.
As an example, currently, if a user wants to move money from Avalanche to Ethereum, there are multiple steps and approvals which need to take place at different times in order to complete a transfer from one network to another. The speed, security, and complexity of this process cause fragmentation of liquidity and users across DeFi.
What if there were a way to seamlessly set up and execute cross-chain workflows using a no-code Supertool such as Arturo?
Arturo’s will provide the user with the ability to complete swaps across blockchain networks, run trading algorithms across networks, and construct yield optimization strategies across networks without thinking about bridging.
For example, the user starts with a stablecoin such as USDC and wishes to efficiently create and stake LP tokens (this example is a pre-defined workflow created by a user for others to use through the Arturo platform). The user holds USDC on Avalanche and wants to create a liquidity pool tokens for JEWEL-AVAX and stake them on DeFi Kingdoms. At the time, JEWEL is trading lower on the Harmony Network or there is significantly more liquidity there. Arturo takes half of the user’s USDC, bridges it to Harmony, purchases JEWEL, bridges JEWEL back to Avalanche, adds liquidity to create LP tokens, and finally stakes those LP tokens on DeFi Kingdoms. This simple example of taking advantage of cross-chain liquidity and optimization shows how Arturo is going to revolutionize DeFi.
As the cross-chain interoperability infrastructure continues to be developed, there will be novel techniques which can be applied using Arturo. We will offer a broadened suite of workflow automation tools which allow users to achieve their DeFi goals without having to worry about which network they are operating on. User minds will be put at ease knowing that they will be receiving the best execution on all of their DeFi actions.
We might be in winter, but the future of DeFi is looking bright.