Examining Cross-Chain Liquidity

If you’ve tried to withdraw a mainstream coin/token from a CEX recently you may have been baffled with the abundance of chains/networks proposed for withdrawal. This is a clear indication of economic mass growing over multiple chains. There is a new trend in DeFi where more and more projects go cross chain to offer new capabilities or escape high fees. Meanwhile, since communication across chains is inherently intermittent, overall liquidity starts to look more fragmented. As a result, cross-chain liquidity solutions become more important than ever. Although centralized solutions continue to dominate the space, more decentralized designs are starting to emerge.

Centralized Off-Chain

As sad as it may sound, the first generation of cross-chain liquidity solutions is still the winner by a long shot. Yes, you’ve guessed it. I’m talking about centralized exchanges. Exchanges run nodes on multiple networks in order to hold custody upon request of users and record trades as IOUs in central databases off chain. Today, more than 172 B USD