The post The key to DeFi’s future appeared on BitcoinEthereumNews.com.

Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of crypto.news’ editorial. Right now, protocols are stuck: cycling between incentive-driven inflows and inevitable outflows of liquidity as providers chase higher and higher returns. Even with existing bridging and wrapping solutions, because of concerns around complexity and security, most retail investors are unable to or unwilling to distribute their assets effectively across protocols.  This leaves over $400 billion worth of idle assets locked across siloed chains whilst protocols across DeFi compete for limited liquidity, their demand vastly outsizing the available supply.  Without a global liquidity to unlock these idle assets and enable a shared source of liquidity, DeFi will struggle to supplant traditional finance and reach global adoption. The liquidity problem Traditional finance thrives on deep, integrated capital markets. The centralized structure of global banks means that liquidity thresholds can be proactively regulated to maintain solvency, and the sheer number of participants in permeable global markets means that there is always capital circulating within any given system.  DeFi, by contrast, remains fragmented. A lack of compatibility between competing chains fractures the liquidity of an already small user base, whilst nontechnical participants may struggle to move their assets with the interoperability solutions that currently exist. This limits the capabilities of DeFi as a financial system; simply put, people are able to do less with their capital. This problem is captured in the one-two punch of stagnation and underutilisation. Without access to sufficient liquidity, emerging products struggle to maintain trading volumes, lending capacity, and user activity. To attract liquidity, new projects issue native tokens and offer high APYs or governance rewards. However, whilst these strategies succeed in the short term, this capital remains trapped within individual ecosystems.  These ecosystems suffer from sharp…

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Filed under: News - @ May 18, 2025 9:25 am