Decentralized finance (DeFi) faces significant pressure due to liquidity fragmentation across multiple blockchains. This article explores the challenges and potential solutions to improve interoperability in the DeFi space.
Fragmented Liquidity as DeFi's Core Issue
DeFi protocols rely on deep, composable liquidity. However, with the shift to multi-chain systems, this assumption is no longer true. Liquidity is spread across multiple layers and applications, such as Aave, which operates on 17 chains, and Pendle on 11. This leads to inefficiencies: thinner markets, higher slippage, and weaker incentives for users and protocols alike.
Causes of UX Friction in Multi-Chain DeFi
Much of the attention in multi-chain DeFi has focused on trivial user interaction aspects, such as switching wallets and acquiring gas tokens. However, the real issue lies in the lack of a unified execution layer. Users often encounter inconsistent interfaces, fragmented pricing, and uncertain outcomes, complicating the execution of cross-chain operations.
Intent-Based Infrastructure as a Solution for Interoperability
The ERC-7683 standard aims to simplify and unify users' interaction methods for cross-chain operations. This enables users to move liquidity between various ecosystems without needing to manage all complexities. Intent-based infrastructure allows users to define outcomes while execution specialists operate across ecosystems, preserving local strengths and ensuring global liquidity.
Given the rapidly changing environment of multi-chain DeFi, addressing the issue of composability at the infrastructure level is essential. Without this, DeFi risks failing to scale, facing a slow erosion of liquidity and incentives.
