DeFAI Must Solve The Cross-Chain Conundrum To Fulfil Its Potential

by
Alisa Davidson

Printed: April 24, 2025 at 10:22 am Up to date: April 24, 2025 at 10:52 am

by Ana

Edited and fact-checked:
April 24, 2025 at 10:22 am

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Blockchain is a extremely aggressive panorama, with dozens of Layer-1 networks taking part in host to rising ecosystems of decentralized finance purposes. 

The wealthy number of DeFi dApps throughout the main blockchain networks is extraordinarily encouraging for adherents of this different type of finance, however there’s one main concern that should be overcome – interoperability between blockchains. 

At the moment, every blockchain lives on a separate “island”, and the dApps constructing on them stay remoted from these on different networks. However with so many L1s rising from strength-to-strength, it’s clear there shall be no winner-takes-all. As an alternative, the long run is destined to develop into a multi-chain world, which necessitates the creation of extra environment friendly and safe cross-chain interoperability protocols to function connecting bridges to span these completely different islands. 

These cross-chain “bridges”, as they’re recognized in blockchain circles, are technical options that purpose to help interoperability between DeFi dApps residing on completely different networks, so a consumer can ship funds from a dApp on Ethereum to a different based mostly on Solana, for instance. They will allow a vastly improved expertise, with enhanced liquidity and extra refined investing methods for DeFi customers. 

The problem of cross-chain interoperability

As a result of every blockchain operates utilizing a unique consensus mechanism, they’re unable to straight validate the “state” of different decentralized networks or off-chain techniques, making it inconceivable to ship funds straight from one to a different. This connectivity limitation is sometimes called the “oracle downside”, and explains why it’s inconceivable to ship a token akin to SOL to a consumer with a Bitcoin pockets.

To allow blockchain interoperability, a cross-chain bridge wants to have the ability to learn and write knowledge in a number of codecs and interpret dozens of various consensus mechanisms directly. That is important to allow them to confirm key data, akin to whether or not a transaction has been finalized on a particular community. Additionally they must develop methods to obtain, validate, and execute cross-chain transactions, guaranteeing neither community is compromised. 

Cross-chain protocols should help varied capabilities, together with the flexibility to relay messages to and from completely different networks, switch belongings between them, and help “programmable token transfers”, so a consumer can take a supplementary motion on the goal blockchain, akin to depositing bridged funds right into a staking sensible contract, inside a single, easy transaction. 

As well as, blockchain interoperability techniques should additionally help knowledge oracles with a purpose to set off automated actions based mostly on occasions on different blockchains or off-chain techniques. Some institutional purchasers might want the flexibility to program their compliance insurance policies into cross-chain workflows or to have interaction in non-public cross-chain asset transfers. 

How does DeFi profit?

For DeFi customers, the foremost good thing about cross-chain protocols is that they permit the seamless stream of liquidity between completely different buying and selling platforms and dApps, making their interactions smoother. The truth that most L1s dwell on separate islands is an enormous obstacle to liquidity, and it doesn’t simply affect customers but additionally builders, limiting their alternatives for growth, development, and broader integration with the DeFi ecosystem. 

Cross-chain applied sciences purpose to beat these boundaries, linking the assorted islands of DeFi purposes and enabling extra refined monetary methods. 

Examples of this embrace multi-chain yield farming, the place buyers can transfer out and in of positions throughout a number of networks, versus solely inside one restricted ecosystem. On this approach, they will at all times deploy their belongings the place the returns are increased to maximise their yields. 

Cross-chain protocols additionally assist to consolidate liquidity throughout chains, making a unified liquidity pool that dApps can faucet into, bettering capital effectivity, decreasing slippage, and negating the necessity for centralized trade platforms. 

Buyers may use cross-chain bridges to have interaction in multi-chain lending, bettering the effectivity of mortgage issuance and collateralization throughout your entire ecosystem of DeFi lending protocols, increasing their attain. 

With DeFAI comes better urgency 

With the rise of so-called AI brokers in DeFi, referred to as “DeFAI”, we’re on the verge of a brand new period of automation in areas akin to yield farming. AI-powered brokers are designed to execute trades and maximize yields on DeFi protocols, and the flexibility to do that throughout a number of blockchains can dramatically enhance their effectiveness. 

Already, some early AI brokers perceive this nicely. Giza Protocol, the creator of a DeFAI agent referred to as ARMA, has already constructed the foundations of cross-chain interoperability. ARMA is designed to research crypto asset markets 24/7 with a purpose to perform refined yield-farming methods for buyers in a completely autonomous approach. 

With greater than $1 million in consumer funds beneath administration, Arma is targeted on USDC stablecoin liquidity swimming pools and consistently screens various DeFi protocols throughout Base and Mode Community, that are two Ethereum-based Layer-2 networks. In the end, it needs to attach ARMA to your entire blockchain ecosystem to extend the alternatives for its customers. 

Giza has acknowledged that safe, dependable, and high-speed blockchain bridge options are non-negotiable for the way forward for AI brokers. If its brokers can solely work throughout the confines of a single blockchain ecosystem, this can significantly hamper their skill to ship most returns for its customers. 

It may be argued that DeFAI is designed for the cross-chain world. As extra DeFi protocols emerge on extra blockchains, the cognitive calls for positioned on DeFi customers develop into exponentially tougher. These customers have to observe a number of protocols, asset costs, rates of interest, gasoline prices, and different technique variables across the clock, and the calls for develop into rather more acute once they’re working throughout a number of blockchains.

There’s merely no approach for people to take each single variable into consideration, and particularly not 24/7, however this deficiency is what results in suboptimal choices and missed alternatives, growing threat for customers. That’s the place AI brokers could make the most important distinction. 

Cross-chain is the highest precedence for DeFAI

Historically, cross-chain bridges have been a serious goal for cybercriminals. Their historical past is suffering from tales of safety breaches which have price crypto customers thousands and thousands of {dollars} in losses. Past the safety dangers, immediately’s bridges are nonetheless very inefficient, with excessive charges, runaway slippage, and delayed transaction instances. These challenges should all be solved, as a result of AI brokers can solely do what they do utilizing real-time knowledge to make split-second choices and capitalize on razer-thin value differentials. Any disruption will kneecap the benefits they supply. 

For AI brokers to understand their full potential, the DeFAI trade should develop extra strong cross-chain interoperability protocols. They want elevated resilience towards assaults mixed with extra environment friendly, lower-cost transactions. 

With extra optimum cross-chain capabilities, AI brokers will excel in multi-chain arbitrage methods by searching for and making the most of asset value variations throughout networks. They will enhance yields by instantly shifting funds in real-time to the community and protocol the place the returns are most advantageous, whereas factoring gasoline charges into their calculations. They may develop into vastly extra worthwhile, rising as the brand new commonplace for DeFi investing. 

However with out cross-chain, DeFAI shall be confined to remoted ecosystems, severely limiting its potential. That’s why blockchain interoperability is not simply an possibility. For DeFAI, it needs to be the primary precedence, and people who get it proper first would be the ones that give buyers the most important edge.

About The Writer

Alisa, a devoted journalist on the MPost, makes a speciality of cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a eager eye for rising developments and applied sciences, she delivers complete protection to tell and have interaction readers within the ever-evolving panorama of digital finance.

Extra articles

Alisa Davidson

Alisa, a devoted journalist on the MPost, makes a speciality of cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a eager eye for rising developments and applied sciences, she delivers complete protection to tell and have interaction readers within the ever-evolving panorama of digital finance.

Extra articles