Cross pollination, or in this case cross-chain technology, seems to be the next big thing in decentralised finance (DeFi). It is understood that the implementation of DeFi in cross-chain technology can enable financial transactions in a peer-to-peer manner without intermediaries.
Insights provided by LeewayHertz, a Web3.0-based software development company, mentioned that Web3.-based blockchain projects such as Polygon have been designed to facilitate cross-chain interoperability between non-interoperable blockchain networks through parachains and their native bridges. “The use of cross-chain technology in DeFi holds the potential to be a game changer as it brings interoperability to the platform. It makes it possible to transfer digital assets. However, its adoption is still limited. It brings the option to ensure greater participation and flexibility which can be an advantage,” Prashant Kumar, founder, weTrade, a cryptocurrency platform, told FE Blockchain.
As per inputs from market-based research, DeFi-based market applications can expand and gain stability through cross-chain technology. This is because liquidity potential is distributed among different blockchain ecosystems. As stated by Panther Protocol, a DeFi-based software company, DeFi-oriented cross-chain technology can help users complete cross-chain token swaps, deposit liquidity, collect and repay loans, farm new tokens, and help transfer assets across all networks.
“Users can utlise a particular DeFi application which suits them according to their needs, as each blockchain has it own advantages, security, speed, and costs. Along with reduction in the transitioning speed between two particular blockchains, cross-chain technology can help users stake their assets across various protocols, become validators, and earn staking rewards from each protocol,” Arjun Khazanchi, co-founder and chief legal and strategy officer, Rooba.Finance, a digital asset management platform, highlighted.
Reportedly, organisations such as Aave, Yearn.Finance, Abracadabra, Compound, among others, have started to make use of DeFi-backed cross-chain technology. It is believed that protocols such as Solana, Avalanche, and Fantom, make use of different techniques to utilise a consensus mechanism specifically for DeFi and to compete with the throughput offered by traditional finance. DeHive is considered to be the first cryptocurrency asset manager that was created to work in cross-chain.
Moreover, experts suggest the importance of solving security vulnerabilities in the base layer to implement cross-chain solutions, since cross-chain bridges have reportedly been hacked in the past. It could also be the starting point for cross-chain DeFi’s flourishment. As mentioned by Hackernoon, a technology publishing platform, cross-chain communication platforms in the DeFi landscape is expected to accelerate development and adoption process, with an aim to create financial networks backed by blockchains.
“Cross-chain platforms enable data interchange by ensuring communication across closed systems. By utilising cross-chain bridges and communication channels, users could theoretically move value between other networks using token bridges. I believe DeFi can benefit from its interoperability as it may enable communication across other blockchain networks,” P Lalitha Surya Kumari, professor and associate dean, research and development, KL Deemed to be University, an education institution, mentioned.
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