Opinion: Jing Kwon, co-founder and chief strategy officer of Saga
Crypto has come a long way to improve transaction throughput. The new Layer 1 (L1) and side networks offer faster and cheaper transactions than ever before. But the core challenges are focused. Fragmentation of Liquidity – scattering of capital and users in a constantly growing maze of blockchain.
In a recent blog post, Vitalik Buterin highlighted how expanding success has led to unexpected adjustment challenges. With so many chains and so many value split within them, participants face entanglements in daily bridging, exchanges, and wallet switching.
These issues affect Ethereum, but they also affect almost all ecosystems. No matter how much progress progresses, new blockchains risk becoming “islands” that struggle to connect with each other.
The real cost of fragmentation
Liquidity fragmentation means that there is no single “pool” of assets that traders, investors, or decentralized finance (DEFI) applications can leverage. Instead, each blockchain or side network hosts its own siloed liquidity. For users who want to purchase tokens or access certain lending platforms, this silo can cause multiple headaches.
Switching networks, opening a specialized wallet, and paying multiple transaction fees is far from seamless, especially for those who are less skilled in the tech. Additionally, each isolated pool has less liquidity, resulting in higher price disparities and trading slippage.
Many users rely on bridges to move capital across chains, but these are frequent targets for exploitation, causing fear and mistrust. If it’s too much trouble or dangerous to drive fluidity, Defi can’t gain mainstream momentum. Meanwhile, the project is rushing to deploy to multiple networks or take the risks left behind.
Some observers worry that fragmentation can bring people back to some dominant chains or central exchanges, and undermine decentralized ideals that drive the rise of blockchains.
A familiar fix with persistent gaps
Solutions have emerged to tackle this tangle. Bridges and wrapped assets allow for basic interoperability, but the user experience remains tedious. A cross-chain aggregator can route tokens through a series of swaps, but typically does not merge the underlying liquidity. It just helps users navigate.
On the other hand, ecosystems such as Cosmos and Polkadot are separate areas of the broader crypto landscape, but provide interoperability within the framework.
The problem is fundamental. Each chain considers itself to be clear. New chains and subnetworks need to “connect” at the ground level to truly unify liquidity. Otherwise, add another fluid island that users must discover and bridge. This challenge is exacerbated by the view of chains, bridges and aggregators as competition to each other, leading to even more prominent silos and fragmentation.
Integrating fluidity in the basic layer
Integration in the base layer addresses fluidity fragmentation by embedding bridges and routing capabilities directly into the chain’s core infrastructure. This approach appears in specific Layer-1 protocols and specialized frameworks. Here, interoperability is treated as a fundamental element rather than an optional add-on.
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Validator nodes automatically handle cross-chain connections, allowing new chains or side networks to launch with immediate access to the liquidity of the wider ecosystem. This reduces the reliance on third-party bridges that often introduce security risks and user friction.
Ethereum’s own challenges with a non-uniform Layer 2 (L2) solution highlight why integration is essential. The various participants – Ethereum as a settlement layer, L2 focused on execution, and various bridging services – have their own motivations and bring fragmented liquidity.
Buterin’s reference to this issue emphasizes the need for a more cohesive design. The integrated base layer model brings these components together at launch to allow capital to flow freely without the user navigating multiple wallets, bridge solutions, or rollups.
The integrated routing mechanism also integrates asset transfers, mimics a unified liquidity pool behind the scenes. By capturing a portion of the overall liquidity flow rather than charging the user for every transaction, such protocols reduce friction and promote capital movement across the network. Developers deploying new blockchains can instant access to a shared liquidity base, avoiding end users juggling multiple tools or encountering unexpected fees.
The emphasis on integration helps maintain a seamless experience even when more networks come online.
It’s not just an Ethereum issue
The Buterin blog post focuses on Ethereum rollups, but fragmentation is ecologically dependent. Whether the project is built on an Ethereum virtual machine compatible chain, a WebAssembly-based platform, or something else, if the liquidity is fenced, then a fragmentation trap occurs.
As more protocols explore base layer solutions, there is hope that embedding automated interoperability into chain designs will help future networks not further divide capital, but instead integrate it.
A clear principle appears: throughput makes little sense without connections.
Users don’t need to think about L1, L2, or sidechains. They want seamless access to distributed applications (DAPP), games and financial services. If you step into a new chain and feel it’s the same as working on a familiar network, adoption continues.
Towards a unified, fluid future
The Crypto community’s focus on transaction throughput revealed an unexpected paradox. The more chains you create for speed, the more fragmented the strength of the ecosystem in shared fluidity. The new chain aimed at increasing capacity creates another isolated pool of capital.
Building interoperability directly into the blockchain infrastructure provides a clear path through this challenge. When the protocol handles cross-chain connections automatically and routes assets efficiently, developers can scale without splitting their user base or capital. The success in this model comes from measuring and improving how values move smoothly across ecosystems.
The technical foundations of this approach exist today. It should be implemented thoughtfully with care and security and user experience.
Opinion: Jin Kwon, co-founder and chief strategy officer of Saga.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
