Blockchains are open systems, available to anyone, anywhere. Initially, they were standalone platforms, with no connection between one another. There were some attempts to solve this, take Atomic Swaps, for example. Using this technology, it’s possible to swap BTC to ETH, LTC, or many other chains in a decentralized environment.
A major factor driving this interoperability came with the rise of Ethereum and other blockchains focused on smart contracts. As dApps gained a wider user base, it became crucial to allow them to interact with one another. Ethereum was the most used network; however, other platforms had a better performance and a higher throughput. EVM-compatibility and other ways of cross-chain interconnection became mandatory.
Why Cross-Chain Trading Matters for Tokenomics
The ability to move funds through several chains is key to any token’s success in the DeFi ecosystem. Crypto markets are no longer bound to one or two chains. Investors want to transfer their assets between Ethereum, Solana, or Tron. Now, Bitcoin’s DeFi ecosystem is growing steadily as well, introducing a new player to the market.
Bitcoin is the first blockchain, regarded as the safest and most valuable platform. So it’s no surprise that developers are looking for ways to expand its utility. Layer-2 chains are crucial to allow Bitcoin to host DeFi protocols. And these tools are obviously focusing on cross-chain interoperability. For example, Build On Bitcoin (BOB) gives EVM-compatibility to Bitcoin dApps. As of February 2025, BOB’s TVL is $230 billion.
Interoperability increases the overall liquidity of the DeFi sector. Investors from all compatible chains pool their assets and move them along the different platforms. It also increases demands for the particular versions of each token and other tokens in these chains, driving the price upwards.
The Biggest Challenges in Cross-Chain Swaps and How to Overcome Them
Although cross-chain swaps offer an opportunity for DeFi to thrive, some risks and challenges must be addressed. From scalability issues to security threats, developers need to think these issues through. The sector is still maturing. While there are many worthy projects, others are jumping on the trend without properly shielding their solutions.
Security Risks
The main security risk comes from unsafe bridge platforms. Bridges are protocols to transfer tokens from one chain to another, to swap across the different versions of the asset. However, bridges are a weak point of DeFi. According to blockchain analysts, around 40% of all value stolen in DeFi protocols was from attacks to cross-chain bridges.
The most pressing issue regarding bridges’ security is the lack of a solid technological infrastructure. To protect their funds, investors should research and verify the protocol they’re using. Factors like third-party smart contract audits or a clear history regarding security breaches should be taken into account when dealing with a new bridge.
Liquidity Issues
As you already know, cross-chain interoperability increases overall liquidity. In fact, it solves a problem known as liquidity fragmentation, where money is disaggregated across incompatible chains. But this can happen in compatible chains as well. For example, Ethereum is the undisputed leader regarding liquidity and TVL. For smaller blockchains, even if they’re EVM-compatible, it can be difficult to access this liquidity, as investors will likely prefer to trade in Ethereum or bigger chains. That can cause price differences, known as slippage, which further impacts the use of the coin.
Automated Market Makers (AMM) gained relevance as an innovative DEX model because it helped check and balance this issue. Through Liquidity Pools, investors are encouraged to maintain a balance between the tokens and avoid price slippage to increase their potential rewards. Traders exchanging in this AMM will also pick the most favorable option, contributing liquidity to pools with a lower price. In this regard, arbitrage traders play a key role in balancing the prices across the whole sector.
Scalability Limits
Bitcoin and Ethereum, despite leading the market in terms of capitalization, have a very low throughput compared to other blockchains. Solana, for example, can process up to 65,000 tps, while Ethereum’s tps is around 14. Bitcoin’s metrics are even lower — only 7 tps. Besides interoperability with other blockchains, like Solana or Tron, Layer-2 chains have emerged as a solution to scalability issues. These protocols batch transactions and validate them off-chain, and then settle the resulting balance in the main network, whether Ethereum or Bitcoin. That way, for example, traders can benefit from Ethereum’s security and liquidity, but settle transactions on Polygon.
The Impact of Cross-Chain Transactions on DeFi
The boom of DeFi protocols in 2020 was closely related to cross-chain operability. What drove the surge of so many protocols was the ability to migrate dApps and tokens from Ethereum to BSC and other blockchains. This enabled investors to consider arbitrage trading and yield farming schemes, leveraging the best trading and staking rates across the whole ecosystem.
The role of USDT can’t be understated, either. This token is available in over 60 different chains, between Layer 1 and Layer 2. It contributes to its high daily trading volume, placing it at the top of this metric. But also powers DeFi platforms in all those chains.
It’s important to remember the risks associated with unsafe platforms and bridges. Experimenting with new protocols can yield high rewards. Still, the risk is also high if those protocols aren’t audited and tested.
Cross-Chain Trading in 2025 – What’s Next for DeFi?
The ecosystem is moving towards a fully interconnected network, allowing transfers for Bitcoin to other chains like Ethereum. DeFi is one of the most popular use cases for cryptocurrencies. The positive regulatory stances in countries like the US can attract new users to this technology. In the future, we can expect the market to keep expanding, as Layer 2 and bridges develop and mature.
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