The Benefits of a Cross-chain DEX
Decentralized exchanges (DEXs) of the first generation offered an alternative to centralized exchanges (CEXs), allowing token trades with low costs.
However, order books were still necessary, and liquidity issues continued. By employing liquidity pools rather than order books, the automated market maker (AMM) approach was able to solve this problem. AMMs incentivize liquidity providers to establish token pools and collect fees from traders who execute swaps.
However, the market remains fragmented, with various DEXs still lacking liquidity as compared to their CEX equivalents. As a result, DEX aggregators have been developed to tackle the problem by pooling dispersed liquidity onto a single platform.
Nevertheless, because most DEX aggregators are ERC20-based and can only connect to Ethereum liquidity pools, multi-chain accessibility is restricted. Startups also struggle to keep up in terms of trade volumes when compared to centralized rivals.
To access a full variety of tokens, DeFi traders have had to return to numerous or aggregated CEX platforms, negating the point of permissionless DeFi in the first place.
Cross-chain DEX aggregators are already appearing, enabling a wide range of token types, therefore expanding the accessible market and improving liquidity and trade volumes.
How a Cross-Chain DEX Works
Cross-chain DEX aggregators build on the work of previous DEXs and aggregators, leveraging innovative multi-chain network architectures like EmiSwap to pool liquidity from several blockchains. Cross-chain aggregators take use of the interoperability provided by this linked blockchain architecture, bringing more liquidity and asset diversity to the decentralized finance sector.
Intelligent algorithms are used by cross-chain DEX aggregators to determine the optimal pathways to fulfill trade requests across multiple blockchain ecosystems. Aggregators may now execute orders at the best price across various protocols, allowing users to rapidly switch between tokens on other networks that are currently underused in DeFi.
On Polkadot, Solana, Binance Smart Chain, Kucoin, Polygon, and many more smart contract networks and layer-twos, several cross-chain DEX aggregators are presently being built. One of them being EmiSwap.
Decentralized finance offers a viable alternative to depending on centralized infrastructure by allowing users to function freely in a permissionless environment. With the rise of cross-chain DEX aggregators, DeFi is one step closer to achieving that aim.
Importance of Blockchain Interoperability
The ability of multiple blockchain networks to connect and integrate will determine the viability of blockchain technology. As a result, blockchain interoperability refers to the notion of multiple blockchains communicating with one another to facilitate information exchange.
The ability to see and access information across several blockchain systems is known as interoperability. For example, if someone sends data to another blockchain, shouldn’t the receiver be able to read, interpret, and react to it with minimal effort? However, at the present, this is not feasible since information cannot be shared across the Bitcoin and Ethereum blockchains.
Cross-Chain technology aims to address all of these issues by improving blockchain interoperability. Emerging projects are gradually adopting the concept as they work to develop platforms that can interact with one another without the use of a third party.
Interoperability on the blockchain should go a long way toward eliminating intermediaries or third parties, which are synonymous with centralized systems. The capacity of multiple decentralized networks to connect with one other without the use of intermediaries should help to create completely decentralized systems.
EmiSwap is currently developing the EmiBridge, a bridge between blockchains! Stay tuned for the official launch: