Original author: Haotian

When DeFi was labeled as a matryoshka doll, Ethereum has actually entered its later years of consensus overload.

At this moment, to fight against the impact of new performance chains such as Solana, in addition to protecting DA legitimacy and continuously expanding the Rollup layer 2 camp, Ethereum actually has another way to go: through interoperability, releasing liquidity to the entire chain .

That’s right, instead of over-expanding the bubble and trapping it, it is better to divert some of the overloaded liquidity and allow these Old DeFi brands to extend their tentacles into the multi-chain environment, thereby creating a new “competitive barrier.”

@Entanglefi, who I want to share today, is working to solve the liquidity problem of the entire DeFi chain. At first glance, it sounds a bit similar to @LayerZero_Labs and @cosmos. So, what is the difference between these interoperability solutions? How does Entanglefi specifically overcome the DeFi cross-chain and cross-chain issues under the complex Oracle challenge? Next, I will try to analyze from a business narrative perspective, why is interopeablity important to DeFi?

Cosmos solves the interoperability problem between heterogeneous chains through SDK and IBC protocols, and is an infra that builds multi-chain interoperability. LayerZero provides a universal and scalable cross-chain interoperability through tools and protocols such as cross-chain and oracle machines. Operational framework.

Entangle focuses on DeFi ecological projects and provides solutions to promote the liquidity interoperability of cross-chain DeFi protocols: Liquid Vaults and Oracle, thereby improving capital circulation efficiency and enhancing user experience.

To put it simply, the interoperablity capabilities provided by cosmos and layerZero are more focused on the underlying infra of the chain and build a framework, while Entangle focuses on the DeFi application layer and anchors the capital circulation efficiency, transaction friction, and Oracle price feed rationality preferred by DeFi. ” and so on provide special interoperable capabilities.

However, it is not easy to achieve full-chain liquidity integration, management, and combined applications of DeFi protocols. How to do it?

1) Liquid Vaults, Entangle provides a middle-layer cross-chain asset library; users pledge liquidity in chain A such as Uniswap, and the LP certificate obtained can be stored in Liquid Vaults, and the Entangle contract will generate a receipt (LSD), The original LP can still enjoy profits on Uniswap, and this receipt can be used as new liquidity to directly cross-chain and be combined into other DeFi liquidity to expand profits. Currently, there is at least 14 B of DEX liquidity scale that can be used for liquidity extension and expansion applications.

Based on the user orientation, the more chains that the interoperablity layer can integrate and access, the richer the asset circulation scenarios that can be realized, especially the ability to connect EVM and Non-EVM heterogeneous chains, which will reduce the users cross-chain operations. It is a rigid need to reduce transaction friction by eliminating the required steps and complexity, such as cross-wallet, cross-chain bridge, etc.;

The cross-chain bridge service provided by the interoperability layer is different from the business logic of other protocols that specialize in cross-chain services. The goal of interoperablity in cross-chain is to allow the funds of chain A to circulate in chain B with the lowest friction. The focus is It is the circulation and use of assets in DeFi. Unlike traditional cross-chain bridges, the handling fee itself is a kind of transaction friction.

In short, Liquid Vaults, as the middle layer, builds new tradable certificates (LSDs) for the liquidity in known DEXs, which not only eliminates the complex cross-chain asset operations on the user side, reduces transaction friction, but also expands the existing liquidity. value coverage, expanding revenue possibilities.

This involves smart contract communication issues between heterogeneous chains, heterogeneous chain asset bridging issues, unified specification issues for different native link interfaces, etc., which especially tests the chain communication, asset management, and scheduling capabilities of the integrated chain.

2) Oracle Oracle, after completing the cross-chain aggregation Vault service of heterogeneous chain assets, another challenge is how to realize the state interoperability coordination between DeFi protocols. For example, a user pledges assets on the A-chain Lending platform and gets an LP certificate. Then the recepit is used to the B chain through Entangle, and the B chain again pledges the certificate for lending. In an extreme case, if asset prices fluctuate significantly, bad debts may easily occur if Oracle fails to coordinate the status of bilateral assets. For example, a user redeems assets in chain A before the assets in chain B are liquidated.

The key to dealing with this thorny problem is the Oracle price feed mechanism. Oracle needs to be able to integrate on-chain + off-chain price data in real time, and be able to perform effective time- and transaction volume-weighted price feeds based on TWAP and VWAP, so as to achieve better results on chains A and B. Predict possible asset status changes, and then make correct asset disposal decisions to avoid bad debts due to oracle price feeds and communication problems.

Based on liquid Vaults to solve asset cross-chain friction, and based on Oracle to solve asset chain status management, if these two pieces can be coordinated, a set of interoperablity solutions specifically designed for DeFi circulation scenarios can be applied.

Why can Ethereum alleviate the DeFi consensus overload problem? The logic is also very simple:

1) DeFi operations within a single chain have limitations: Doing DeFi nesting dolls and Restaking overlay within a chain actually limits liquidity to increase expectations of future value-added assets. Although it can create new profit opportunities, it also limits Asset liquidity. Assets are locked during these operations and therefore cannot be used for other potential investment opportunities.

2) Cross-chain liquidity expansion. Cross-chain interoperability allows an asset that has been used in chain A to flow to other chains to combine the liquidity of other chains to find value. It can not only bring capital and activity to the new chain degree, which is equivalent to completing the decompression of the original chain;

3) After the DeFi protocol operates stably, the amount of funds, number of users, profitability, etc. will become an intangible brand and reputational asset. Indirectly extending the brand to other chains through interoperability is actually a kind of brand gain. It avoids the concerns that many old brands are reluctant to expand into new chains, and also avoids the various risks and costs of new expansion that exist when restarting the stove.

Everyone can also feel that the fields of Data Availability and Interoperability have long been in a melee. The former Ethereum wants to guard the border, but it is inevitably invaded by modular thinking. No matter how you look at the latter, it is a gain without harm. Opportunity.

Even if Ethereum unfortunately becomes a DeFi module bottom layer among many chains in the future, no one can shake Ethereums status.

Note: Interoperability is indeed a direction worthy of attention. Chainlink is considered the originator, and LayerZero is hard to describe in a word. In addition, Wormhole and ZetaChain are both worthy of attention, and we will take the time to analyze them in detail.