Liquidity Mirroring: An Efficient Way To Bridge Liquidity Across Blockchains
DeFi is no longer native to the Ethereum chain even though Ethereum still maintains its dominance as the preferred network for championing the drive for open finance initiatives. At least $112 billion in asset value is currently locked across the DeFi protocols on different chains like Ethereum, Binance Smart Chain, Solana, Avalanche, Polygon etc., after reaching an ATH in May when the DeFi industry’s TVL broke the $160 billion mark.
Clearly, DeFi users are always trying to take advantage of features like solid liquidity, low fees, fast transaction times and much more. But one thing is clearly evident from what is obtainable in the industry today, and that is: no single chain enjoys all these qualities in one spot. Ethereum is the hallmark of blockchain decentralisation and base layer security, but it still lacks scalability, triggering higher transaction fees during network congestion and poor user experience for most DeFi users. Binance Smart Chain currently enjoys impressive throughput but still cannot match the liquidity of DeFi protocols native to Ethereum. The list goes on in that way, pointing to the fact that in DeFi, no single chain rules them all. And if that is the case, then a solution to help solve the liquidity fragmentation problem of the industry from both the user and LP perspective is in high need now that DeFi is moving at an insane speed.
One way to solve this issue will be through our cross-chain liquidity mirroring across chains to efficiently bridge crypto-assets across chains. Let’s demonstrate a practical example of how Pontoon’s Liquidity Mirroring works for the major participants of DeFi:
- Liquidity Providers
- DeFi Protocol Users
Taking Ethereum and Polygon as a reference, DeFi allows for pool staking on both chains for LPs. So now let’s say
- User A has ETH on Ethereum
- User B has ETH on Polygon
User A can simply stake his ETH on Pontoon protocol to provide liquidity and is incentivised in $TOON tokens as liquidity mining incentive.
User B can simply stake his ETH on Pontoon protocol to provide liquidity and is incentivised in $TOON tokens as liquidity mining incentive.
User B’s action just like User A also gives $TOON tokens as a liquidity mining incentive.
With both Stakers on Ethereum and Polygon, they have now formed staking pools for anyone seeking to bridge their assets on any of these chains; Ethereum or Polygon with Pontoon now easily mirroring liquidity across both chains.
Now, for any DeFi user who already has ETH on Ethereum but would like to bridge it with Polygon’s commit chain, all he has to do is simply stake his ETH on Pontoon and immediately, he unlocks the same asset on Polygon. The DeFi user is able to do this through Pontoon’s seamless relayer network feature allowing gas-less cross-chain transfers. The same thing goes for any user who has ETH on Polygon and would like to bridge it and claim it on the Ethereum chain.
Seamless user experience for DeFi users across multiple chains
Pontoon’s one-click liquidity mirroring works across ETHEREUM, BSC, HECO Chain, xDAI, POLYGON, OPTIMISM. The beauty of this solution is that asset staking and claiming with Pontoon protocol liquidity mirroring bridge is that it happens in a fraction of the time should DeFi users opt for the PoS or Plasma bridge. DeFi users seeking to bridge their assets from Polygon to Ethereum goes through the PoS bridge which takes at least for hours for the asset bridging across the two chains to take full effect. The other option will be to go through the Plasma bridge which takes a minimum of seven days resulting in a poor user experience for DeFi users.
The industry needs all the seamless experience it can get and this is what Pontoon’s liquidity mirroring is about making it extremely easy to bridge liquidity for crypto-assets in an efficient manner.