The Cross-Chain Bottleneck Is DeFi’s Final Frontier, But Can We Fix It?  – Coincu

Decentralized finance has come a very long way in a short space of time, yet its growth remains constrained by a growing problem around blockchain fragmentations. The challenge is that DeFi applications are increasingly spread out across a sprawling blockchain landscape made up of numerous independent networks, each with their own unique characteristics and consensus mechanisms. 

Blockchain bridges have emerged as the primary solution to this problem. They are ingenious applications that enable interoperability between independent networks, and they have become a cornerstone of the DeFi industry. But unfortunately they haven’t yet managed to solve blockchain’s fragmentation problem. So why is that? 

Bridges Are Broken

The challenge is that, while blockchain bridges might be innovative and ingenious, they’re also incredibly intricate things, and that makes them a huge pain in the ass to use. Let’s forget the very real security considerations for a moment and consider why else they’re so problematic for users. 

For one thing, it’s not only smart contract vulnerabilities that can potentially be exploited by hackers that users need to worry about. Not only can your funds be stolen at any moment, but you can also mess things up yourself due to the complexity of using them. While bridges are meant to simplify how we swap assets from one chain to another, their navigation leaves a lot to be desired. 

The experience of using bridges can only be described as “clunky and slow”, involving numerous manual steps. Imagine you want to send USDC on Base to a dApp on Plume Network using the Plume Portal bridge. The process involves first bridging the USDC on Base to Plume, then sitting and waiting for confirmation. Once that’s done, the user must manually swap the USDC for pUSD on Plume, which necessitates have some tokens to pay the Plume gas fees. Then they’ve got to find the dApp vault the wish to deposit their pUSD into, approve that transaction and pay gas fees again. 

Bridges have other problems too. They’re heavily reliant on liquidity pools that provide the funds to facilitate user’s swaps across chains, and these introduce risks such as slippage. Essentially, this refers to when the price of an asset changes between the time the swap is first initiated and the time it goes through. This is a common problem for all DeFi users, but the extended time it takes for cross-chain swaps to complete can often exacerbate this problem, meaning users can lose quite a lot of value by the time their funds arrive. 

We can add to this the costs. Blockchain bridge swaps can be quite a bit more expensive than regular intra-chain transactions, because each of the extra validation and communication steps incurs an additional fee, adding to the costs of the overall transaction. Moreover, some bridges impose their own fees, such as charging a percentage of the amount that’s swapped. When the user also suffers from slippage, they can end up taking quite a hit. 

We can also add the latency challenges of bridges. Because of the additional communication and validation steps, users inevitably have to wait much longer than normal for their transactions to be processed. For instance, sending ETH to BNB Chain requires the transaction to be validated on Ethereum, communicated to the bridge, validated by the bridge, communicated to BNB Chain and validated for a third time. That’s six steps, all of which take time, causing lots of frustrating delays for time-sensitive DeFi transactions. This is worsened by the fact that many bridges struggle with throughput, and can only handle a limited number of transactions per second, creating congestion – and higher fees for users. 

With so many headaches and frustrations involved with blockchain bridges, it’s no wonder that DeFi fragmentation continues to be a major problem. Rather than endure these hassles, most DeFi users just stick to one chain, which is why liquidity continues to be heavily siloed, and why many dApps don’t bother trying to expand to other blockchains. 

This fragmentation is an existential challenge for DeFi. So long as it remains a collection of separate islands, DeFi will struggle to fulfil its promise of creating a global, permissionless financial ecosystem for the masses. That’s why solving blockchain’s interoperability problem is such a critical evolutionary step. By smashing fragmentation, the industry can finally transcend its niche status and expand to become a truly global financial infrastructure. 

Bridging The Bridge

Bridges are still a great solution to blockchain’s interoperability and very few people are suggesting we replace them, namely because there exists no feasible alternative. But that doesn’t stop us from “bridging” the complexities of the bridge to eliminate the hassles of crossing from one side to the other. 

That’s the goal of Enso and Stargate’s new Cross-Chain DeFi Widget, which is a plug-and-play shortcut that can be embedded into any DeFi application, allowing protocols to instantly accept one-click deposits from any other blockchain.   

The beauty of the widget is that it provides a one-click experience for end users, aggregating all of the complex steps and operations they normally endure into a single transaction that feels no different to sending funds on a traditional banking application. Simply select the token you want to swap, choose the target protocol on the other blockchain and click “confirm”. With that, the widget will seek out and execute the most optimal route on both the source and destination network, bridging the funds, making the swap and finally depositing the funds where the user wants them. 

It’s a pretty beautiful experience for dApp developers too. Built in React, the widget can be embedded into any dApp frontend just by pasting a few lines of code, enabling super-simple cross-chain routing with the ability to customize which chains, input/output tokens and protocols and vaults they want to accept. 

How Is This Possible?  

The secret sauce behind Enso’s widget is the Route API, which is able to instantly identify the most optimal execution path for the source asset and chain, to the target DeFi protocol on the destination network, taking into account the available liquidity and fees. Users have the ability to define their slippage tolerance and output requirements, or simply ignore them. 

Essentially, the Route API lays out the entire transaction path, including the original approval, the swap via a DEX or aggregator, the bridge transfer and then the final swap or contract call, abstracting all of these details from the end user. 

The actual cross-chain transaction is executed using Stargate’s bridge, handling steps including asset locking, liquidity provisioning, cross-chain message parsing and atomic guarantees, while layering in optional slippage protection if the user desires. Once the asset lands on the destination chain, Stargate then deposit it directly into the target protocol. 

There are built-in protections too. First, Enso does its best to verify all of the destination calls to try and ensure the route is valid and can be executed. But if any step along the transaction route fails, such as a destination call revert, an execution error, or it cannot meet the user’s slippage tolerance, the entire thing can unwind itself, returning the user’s funds to the source wallet. 

DeFi’s Final Frontier

Enso’s Cross-Chain DeFi Widget is a blockchain bridge that’s quite unlike any you’ve ever seen before. It enables any asset on any source chain to be deposited into any protocol on any destination chain, with a single click. It’s like the impossible has suddenly been made possible, and it has tremendous implications for the broader DeFi landscape. 

With no fragmentation, DeFi becomes simpler, more accessible and less expensive, with lower risk for users. The ability to seamlessly swap assets across diverse protocols and tap into the entire ecosystem’s liquidity opens the doors to a fresh wave of innovation and capital efficiency, with more opportunities and fewer headaches for everyone involved. 

The unification of DeFi is finally in reach, and it’s a truly exciting development. With questions around blockchain scalability seemingly answered with the emergence of Layer-2 networks, interoperability was the final piece in the puzzle. Now we’ve solved it, everything is in place for DeFi to fulfill its potential and give the world a more efficient, accessible and inclusive financial ecosystem.