The Liquidity Dilemma and Solutions in the Multi-Chain Era

With Ethereum's shift towards Layer 2-centric scaling solutions and the rise of tools like RaaS, many public chains are rapidly developing. Numerous institutions hope to build their own chains to represent their respective interests and pursue higher valuations. However, the emergence of numerous public chains has made it difficult for the ecosystem to keep up, resulting in many projects facing difficulties in the early stages.

With the help of technologies like OP Stack, several well-known exchanges and tech companies have successively launched their own Layer 2 or proprietary chains. Today, the threshold for building and operating a chain based on OP Stack has been greatly reduced, requiring about $10,000 per month.

The future will undoubtedly be an era of coexistence of multiple chains. Although these Layer 2 chains may choose EVM compatibility for interoperability, it is difficult for them to build applications and reach consensus on the same chain due to the large number of downstream applications from the Web2 entities behind them.

The current multi-chain ecosystem has brought about a new challenge: liquidity and state decentralization. Interoperability has become an area that must be explored and addressed. Currently, there are many liquidity solutions, such as chain abstraction, intent, liquidation execution, native cross-chain, ZK sharding, etc., but their core essence is similar.

The widely recognized Cake architecture introduces the core components of cross-chain abstraction from top to bottom:

1. Application Layer: The interface that users interact with directly, completely shielding the details of liquidity conversion.

2. Permission layer: Users connect their wallets and request quotes to fulfill their trading intentions.

3. Account Management and Abstraction Layer: Adapt to the account structures of different chains and maintain the unique account systems of each chain.

4. Solution Layer: Receives and executes user trading intentions, with the Solver role competing to provide a better experience.

5. Settlement Layer: Includes core components such as oracles, cross-chain bridges, pre-confirmation schemes, and data availability.

Currently, there are various solutions on the market to address Liquidity fragmentation, mainly including:

1. Centered around RaaS: Assisting in the construction of Rollup shared Liquidity and state on specific architectures through shared sequencers and cross-chain bridges.

2. Account-Centric: Build a full-chain account wallet, supporting signing and executing transactions across multiple blockchain protocols through "chain signature" technology.

3. Centered on the off-chain intent network: Users send intents to the Solver network, where Solvers compete to provide the optimal solution.

4. Centered on the on-chain Liquidity network: Build a dedicated liquidity layer that optimizes cross-chain liquidity issues.

5. Centered on on-chain applications: Build high Liquidity applications by integrating large market makers or third-party applications.

Some typical chain abstraction projects include:

• INFINIT: Build DeFi RaaS services, providing the components needed for direct protocol construction.

• Khalani Network: Building three core components: Intent compatibility layer, Validity, and Universal Settlement layer.

• Liquorice: A decentralized application for auction-based price discovery and unilateral Liquidity pools.

• Xion: Based on the Comet BFT consensus protocol, using Cosmos IBC to achieve cross-chain communication.

• =nil; Foundation: Proposed the zkSharding solution, using ZK technology to horizontally scale the Ethereum mainnet.

• ERC-7683: The cross-chain liquidity standard that Ethereum is promoting, using an Intent-based cross-chain approach.

• OP Stack: By designing a complete multi-Layer 2 solution, it addresses the issues of information transmission and Sequencer decentralization.

Solving cross-chain Liquidity is a complex and multifaceted field. The future coexistence of multiple chains is an inevitable trend, and the integration of overall chain Liquidity has vast potential, promising to build key infrastructure for the Web3 era.