🔀Why is cross-chain important?
Last updated
Last updated
Some industry leaders are claiming that cross-chain is bad for crypto and multi-chain is better, while others are of the opinion that cross-chain is the future of DeFi and isolated multi-chain future goes against what crypto is all about.
But when you’re in the crypto space, advocating for the stifling of technology and developments isn’t really going to get you anywhere.
People, the power behind crypto, want options and the ability to swap or transfer cross-chain easily. So, that’s where the development is.
There are over 100 bridge and cross-chain swap projects in development right now, indicating that users want them and the space needs them.
Nobody wants to be locked into one blockchain with all their assets and liquidity just because that was the first one they chose to join. Sure, you could transfer your liquidity back to a centralized exchange to move it to another supported chain, but that takes time, resources, and trust in a centralized entity and third party — something that those involved with DeFi don’t want to do. CEXs also frequently halt withdrawals of particular tokens or networks based on what they deem to be an appropriate time, which is yet another downside to the current swapping process.
While blockchains are designed to operate independently from one another without interference or interaction from other chains, a vast number of them out there want the ability to interact with each other. While isolation allows each respective blockchain to have its own benefits, vision, governance, and economic system, it also causes problems, such as liquidity fragmentation between chains and the headache of bridging or swapping assets or tokens between them.
Users in DeFi want the choice to go wherever they want, with access to any blockchain they choose, the benefits of using whichever chain they prefer at that time, and the ability to transfer their assets easily and quickly for use on any other blockchain.
Cross-chain swaps and bridges are a necessity for the future of decentralized finance (DeFi), and are more needed and requested than ever before.
Over the last three years, crypto has seen an insane increase of capital and liquidity into new layer 1 and 2 chains, and a rise in the total value locked (TVL) migrating over to them.
In January of 2021, TVL on all chains was roughly $16 billion, and 97% of it was on Ethereum Layer 1. Just 12 months later, in January of 2022, TVL had skyrocketed to $180 billion USD with 45% of it being on non-ETH chains.
Again, this shows that users want options, unlike what they get in traditional finance. The point of DeFi is to not be limited like those traditional markets — users don’t want just one chain or financial market being the only option for them.
The entire point and goal of crypto is freedom and options, and this is why the future is moving to cross-chain.
Think of users like birds. They can be happy with where they make a nest, but they’re always flying around looking for new places to eat or maybe even make a new nest. Many of them even migrate for certain parts of the year based on their requirements and preferences. Similarly, crypto users may make a home on their chain of choice, but that doesn’t mean they don’t want to look around for alternatives, to see how they like it there.
Due to this migration of liquidity, it is becoming more and more necessary for users to rely on bridges to take advantage of the offerings of different blockchains. But bridges can be a pain!
