What is cross-chain liquidity

Cross-chain liquidity defines the cross-border transfer of assets and access to or usage of cross-chain constructed assets across distinct blockchains. During regular blockchain applications, assets and their DeFi protocols get siloed by chains, making them incapable of directly interacting with each other. However, the strength of cross-chain liquidity lies in immovability and interoperability of tokens-across-chain-that thus results in an enhanced, inclusive financial ecosystem.

The technologies such as bridges and protocols for interoperability enable the transfer of assets across networks without needing a centralized entity. Some of the most favored candidates are Polkadot (DOT), Cosmos (ATOM), and ThorChain (RUNE). For example, ThorChain was capable of transferring tokens between chains, including Bitcoin, Ethereum, and Binance Smart Chain, for a full decentralized liquidity pool offering while negating the need for wrapped tokens.

Cross-chain systems provide different DEXs, lending institutions, and yield-farming programs with more flexibility and greater efficiencies by increasing access to liquidity. Fragmentation is minimized for most traders and investors because they will have their liquidity available for access and deployment at different chains simultaneously.

Cross-chain liquidity remains as the foundation of most emerging and perhaps needed future collaboration among blockchain efficiencies. Building such interoperability will define how DeFi will operate on a global scale. This eventually means that as interoperability solutions mature, cross-chain liquidity will feature heavily in the evolution of a decentralized financial ecosystem that is more connected and efficient.

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~ Nesaty