The crypto market has changed dramatically over the past year as trading volume, capital, total locked-in (TVL), and incentive schemes have migrated away from Ethereum to Layer 1 and Layer blockchains.

This has led to liquidity fragmentation across different chains, creating more friction for users looking to enter the DeFi space and engage in profitable activities like staking and farming.

This makes cross-chain bridges more important than ever, bringing in billions of dollars in transaction volume as they become a vital piece of infrastructure in space.

Ethereum is losing market share to competing chains

Since the emergence of DeFi in late 2019, Ethereum has had strong traction across the market.

This is demonstrated by the “DeFi summer” of 2020, which saw the launch of new AMMs, farming aggregators, and farms on the Ethereum network. Most of the liquidity and trading volume remained on the Ethereum chain until last year, when many notable protocols began implementing cross-chain capabilities.

Polygon (formerly known as Matic) was one of the first alternative chains to see massive growth in DeFi activity. Its success has attracted a large amount of investment capital, which has led to other chains such as Terra, Solana, Avalanche…

Although Ethereum still holds more than 50% of the total TVL of the crypto ecosystem, capital seems to continuously flow away from Ethereum and to other chains. This can be seen from DefiLlama’s TVL chart.

TVL on Ethereum accounted for about 95.5% in December 2020, while the index is currently below 60% and shows no signs of growing again in the near future.

This trend is likely to continue as long as Ethereum transaction fees remain double those of competing chains.

Bridges are becoming DeFi’s critical infrastructure

Cross-chain bridges are one of the key infrastructure elements enabling Ethereum’s exodus while making it easier for users to move assets from one chain to another.

Synapse, one of the most popular cross-chain bridges in the space, recently found that their total transaction volume has surpassed $5 billion.

Ahmed Salam, founder of Atlas DEX, a new DEX aggregator that allows users to perform swaps between different assets on different chains, for example swaps from SOL on Solana to CRV on Ethereum, solves the problem. Hence, cross-chain Interoperability vital for DeFi to navigate its next phase of growth. Without cross-chain interoperability, the future of DeFi will continue to run on legacy infrastructure.

There are no signs that Ethereum’s shift to other chains will slow down anytime soon, and the rise of bridges like Atlas and Synapse will make it easier for users to take advantage of lower fees, faster transaction speeds, and higher potential returns than competitors Ethereum.

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