Why Multi-Chain Protocols Are Better For DeFi — See Case Study
Ethereum remains the leading network for smart contracts regardless of the competition clouding the DeFi space. However, it has poorly accounted for its scalability crisis, most evident in the outrageous gas fees on many Ethereum-based protocols.
For this reason, many up-and-coming DeFi protocols — running on Ethereum or not — adopt features or smart contracts that seek to solve at least 2 out of the 3 scalability trilemma experienced in DeFi.
All these challenges faced in the DeFi space have led developers to develop a master plan that may end the situation from the root: multi-chain DeFi protocol.
Here, we learn the basics about multi-chain DeFi protocol and introduce you to CashFi (CFI), a multi-chain solution.
What is a multi-chain DeFi protocol?
A multi-chain DeFi protocol supports other blockchain networks alongside the native network on which it is built. For instance, Aave Protocol, a DEX and liquidity pool that supports about 7 blockchain network tokens and over 13 markets.
Aave is usually a full case study for what multi-chain protocols can offer. In a short span, it has amassed insane figures — becoming the second-largest DeFi protocol behind MakerDAO, according to DeFi Pulse, at the time of writing.
Multi-chain protocols do not have to bother competition in getting liquidity because users participate in the protocol without needing to swap their coins across bridges or spending discouraging fees in the process.
Here are some benefits that come with multi-chain DEX
One-way transaction model
You don’t have to switch between networks to do transactions. Multi-chain protocols provide a one-way transaction model capable of retaining investors or users.
For instance, compare a shop that offers varieties of products and one that offers just a product at a time. If all things remain equal, the store with robust options will keep customers longer than the latter because customers do not have to walk around to pick items they may need.
It gives room for more liquidity
Judging from the first point, the retention time among users, the more liquidity they provide because they will love to try out other options using alternative cryptocurrencies. The crypto market is volatile with uncertainties: one crypto could be falling and causing impermanent losses, and others could maintain positive feats. So a multi-chain protocol will likely attract liquidity faster than a normal protocol, especially in this present DeFi space with too much competition.
Lower transaction costs
Imagine trying to convert your crypto assets across bridges or swapping from normal bitcoin (BTC) or altcoin to wrapped cryptocurrencies on several platforms. Compounding the fees will show you the losses you could encounter doing crypto transactions across multiple networks.
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