Original author: PaperMoon

Decentralized finance (DeFi) has become a core application of Web 3, but its development still faces several practical challenges: Ethereum's high gas costs, the fragmented experience between Layer 2 protocols, the security risks of cross-chain bridges, and the difficulty of centralizing liquidity. According to DeFiLlama data, nearly all of the top ten protocols by TVL are based on the EVM, demonstrating that the EVM has become the de facto industry standard.

Against this backdrop, Polkadot Hub has chosen a more pragmatic roadmap for 2025: first launching a 100% EVM-compatible execution environment (RustEVM) to enable seamless migration of applications on Ethereum, while continuing to develop the RISC-V-based PolkaVM to prepare for more complex and high-performance applications in the future.

This isn't a simple compromise, but rather a strategic choice based on its own unique circumstances. Polkadot's shared security, XCM cross-chain capabilities, and vast validator network allow it to maintain EVM compatibility while also providing enhanced security and liquidity aggregation capabilities. By building on Ethereum's ecosystem achievements in the short term and exploring new execution environments in the long term, the Polkadot Hub has the potential to become an ideal landing platform for DeFi projects.

1. Current DeFi Ecosystem

The DeFi ecosystem in 2025 is a thriving multi-chain landscape, with total locked value (TVL) exceeding $150 billion. Ethereum, leveraging its strong first-mover advantage and developer community, continues to dominate core areas such as lending and decentralized exchanges. However, even after its successful transition to PoS, high gas fees and scalability limitations remain major challenges. Meanwhile, Layer-1 platforms like Solana, Binance Smart Chain, and Avalanche, while attracting a large number of users with their faster speeds and lower costs, operate independently, severely hindering cross-chain liquidity and interoperability.

2. Problems with the existing system

The current DeFi system has the following main problems, which together limit the further release of its potential:

• Efficiency and cost dilemma: High gas fees and network congestion on Ethereum severely hinder high-frequency trading. While Layer-2 solutions can alleviate this problem, they rely on the security of Layer-1, and potential risks still exist when transferring assets between different layers.
• Centralized bridging risk: To aggregate assets across multiple chains and increase liquidity, many DeFi applications rely on centralized cross-chain bridges. This model poses two risks:
• Security vulnerabilities: Centralized bridges are the main target of hackers. Once the private key or password is cracked, a large amount of assets are at risk of being stolen.
• Trust crisis: Centralized operators have privileges and may engage in malicious activities and profit from them, making it difficult to build community trust.
• Inefficient smart contract execution: Most blockchains supporting the EVM face execution efficiency bottlenecks. To overcome this limitation, various platforms are actively exploring new contract execution environments, such as Rust-based CosmWasm and Ink, as well as new proposals based on RISC-V being proposed by the Ethereum community.
• Limited expansion of underlying functionality: Some specialized applications that require support for underlying cryptographic primitives (such as ZK technology) are difficult to implement on general-purpose blockchains. Upgrading and expanding existing systems is often lengthy and difficult, hindering deeper innovation in the DeFi space.

3. Why is Polkadot Hub particularly suitable for DeFi?

100% EVM compatible: quickly start network effects and attract high-value ecosystems

The Polkadot Hub's strategic decision to prioritize the development of a 100% EVM-compatible solution (based on the REVM engine) is crucial. Previously, Substrate projects faced cumbersome custom integration processes to list on major exchanges or attract top-tier applications. Now, this bottleneck has been completely eliminated.

For developers: Unmodified Ethereum dApps can be directly ported, including popular protocols that rely on older versions of Solidity. This greatly reduces migration costs and allows top Ethereum projects to quickly connect to the Polkadot ecosystem.

For exchanges: Exchanges do not need additional adaptation and can directly use their existing Ethereum integration process, which simplifies the process of listing new projects and thus introduces more liquidity to the ecosystem.

Ecosystem Benefits: This initiative has accelerated the integration of high-value applications and third-party service providers, rapidly generating a powerful network effect. Infrastructure service providers like Chainlink and The Graph, as well as compliance solution providers like Elliptic and Chainalysis, can now expand their services to Polkadot at virtually zero cost, providing reliable oracles, data indexing, and compliance assurance for all DeFi projects. This "Lego building block"-like combination effect is the core driving force behind DeFi innovation.

PolkaVM: An innovation engine for the future

While REVM solves the immediate access problem, PolkaVM (PVM) remains Polkadot's long-term vision and core innovation. Based on the RISC-V architecture, PVM offers performance exceeding that of the EVM and supports more complex applications.

Performance and cost advantages: PVM will provide more powerful on-chain computing capabilities than EVM through technologies such as JIT (just-in-time compilation), thereby supporting more complex computing-intensive tasks such as on-chain ZK primitives.

Language flexibility: PVM is not only compatible with Solidity and Vyper, but also supports multiple languages such as Rust and C++, providing developers with greater flexibility and unlocking more innovative use cases.

Native support: PVM can natively support the next generation of DeFi protocols such as more complex encryption logic and cross-chain derivatives, leaving unlimited innovation space for future high-performance and high-complexity DeFi applications.

XCM: Trustless, Native Cross-Chain Interoperability

Polkadot’s unique XCM (Cross-Consensus Message) protocol is its most significant difference from other ecosystems. It allows for the secure transfer of assets and logic between parachains without relying on a centralized bridge.

This means that DeFi protocols can truly achieve "cross-chain composability", allowing developers to build complex cross-chain yield farms across different parallel chains to maximize capital efficiency.

Snowbridge: Opening up Ethereum’s liquidity portal

The lifeblood of DeFi lies in the smooth flow of capital. Snowbridge, a fully audited, trustless, two-way bridge, securely brings Ethereum mainnet assets (such as ETH, USDC, and WBTC) to the Polkadot Hub.

This solves the problem of liquidity "islanding", allowing the DeFi ecosystem of Polkadot Hub to directly take over and utilize Ethereum's huge capital resources, providing new projects with sufficient start-up capital and transaction depth.

Shared security: reducing systemic risks and ensuring high-value applications

Polkadot's shared security model ensures that all parachains share the validator security of the relay chain. This provides top-tier security for DeFi applications on the Polkadot Hub. Unlike Ethereum's Layer 2 solution, cross-chain interactions within the Polkadot ecosystem require no additional trust assumptions and no withdrawal delays. This is crucial for DeFi applications that handle high-value assets, effectively mitigating systemic risks arising from bridge vulnerabilities or fraudulent activity.

4. Outlook for DeFi Applications

The launch of Polkadot Hub is also a key adjustment in Polkadot's development path: from purely pursuing technological innovation to taking into account both ecological compatibility and market demand.

This isn’t a simple compromise, but rather a pragmatic, phased strategy. I believe Polkadot has recognized the need for a solid bridge between technological ideals and market realities.

In the short term, EVM compatibility is key. Polkadot prioritized the launch of a solution based on the REVM to quickly address current market pain points. This allows for faster migration of high-value applications on Ethereum and lowers the barrier to entry for both capital and users, crucial for the formation of DeFi network effects. According to the roadmap, Polkadot will launch the REVM on the Kusama Hub in late October and officially on the Polkadot Hub in mid-December, making it possible to launch ecosystem expansion before the end of the year.

Meanwhile, Polkadot hasn't given up on its own exploration. PolkaVM, its flagship technology, continues to steadily advance, aiming for even higher performance and more complex applications. As shown in the roadmap, a preview version of PolkaVM has been released on Kusama, and higher-level optimizations such as JIT compilation will be enabled by the end of Q2 2025.