April 30, 2023

What is Web3 Liquidity Aggregation?

What is Web3 Liquidity Aggregation?

We Need Blockchains & Cryptocurrencies to be Interconnected

Blockchain technology and cryptocurrency have the potential to change the world in many ways. However, itsbiggest obstacle is attaining mass adoption.

Yes, more people are giving in to the hype surrounding cryptocurrencies, web3, and blockchain. But, unfortunately, developers need to address the ever-present issue that is stopping more people from doing the same – user experience.

In this article, you'll see how and why web3 liquidity aggregation is the answer.

Why Do We Need Web3 Liquidity Aggregation?

Currently, web3 technologies are incredibly fragmented. There are many blockchains, projects, wallets, tokens, cryptocurrencies, exchanges, apps, and more.

Furthermore, prices and liquidity are volatile, and markets are often easily manipulated.

As someone new or completely unfamiliar with how web3 works, it can be incredibly complicated.

The premise of each blockchain and how they operate isn’t complicated. However, a lack of interconnectivitypresents a challenge. In its current state, web3 can be described as organized chaos. However, we need it to bea streamlined and seamless experience.

What is Web3 Liquidity Aggregation?

Web3 liquidity aggregation enables cryptocurrency markets to be more stabilized, making them more convenient and useable for everyday activities and purchases. It promotes high liquidity in markets by making all web3 technologies seamlessly interconnected.

Currently, the majority of volatility can be attributed to illiquid markets caused by the fragmented nature of web3 technology.

Instead, with web3 aggregation, people will be able to seamlessly transact cross-chain, prices will be able to bepulled from multiple locations, and the markets should, in theory, become more stable.

For reference, high liquidity means a lot of market activity. There are tokens readily available to buy, and they would be easy to sell.

On the other hand, low liquidity means supply and demand aren’t in sync, causing price volatility.

An Example of Web3 Liquidity Aggregation in Action

Let’s say you’re an avid crypto investor.

You have a portfolio of multiple cryptocurrencies stored in different exchanges and wallets.

However, the coins in your portfolio all trade on different exchanges, at varying prices, and fluctuating volumes.

When it comes to buying, selling, and swapping, you now have to cross-compare all of the different exchanges, looking for the best prices while factoring in exchange fees and multiple other variables.

Do you see the rabbit hole you’re going down? The time it takes to manage the risk of trading across multiple platforms is exhausting and stressful.

Pump the brakes a minute – you don’t need that hassle.

Web3 liquidity aggregation will bring all those prices together in one place. The aim is to make it easy to see the best prices, compare fees, and securely execute cross-chain transactions.

The Benefits of Web3 Liquidity Aggregation

Enable More People To Easily Adopt Cryptocurrency

As discussed, individually, blockchains and their functionality aren’t complicated. However, the lines can get blurry when you introduce the need for cross-chain communication.

Web3 aggregation brings an end to that confusion. The stability of markets makes cryptocurrencies a feasible option for less risky individuals.

Also, it gives confidence to businesses, demonstrating that transacting in crypto won’t put their livelihoods in danger.

The majority of people are risk-averse, so creating a less volatile and more stable market is crucial in the pursuit of mass adoption.

Encourage More Collaboration to Create Better Solutions

Soon, blockchain interoperability will become the norm, making web3 liquidity aggregation possible.

Currently, many talented people work on different projects, separated by the division of web3. Ideally, thesepeople will easily be able to work together, collaborate on projects, and interlink their technologies to createground-breaking and user-friendly web3 technologies.

Not only will the speed of adoption advance, but so will the pace of development and the quality of products andsolutions being produced.

Blockchain Interoperability Challenges Security

Blockchains are designed to maximize security. When you bridge between blockchains, you’re interlinking two ecosystems that are supposed to be locked down from outside interference.

Blockchain bridges need to find a way of seamlessly interlinking these networks without interrupting user experience and not compromising on security.

Remaining Decentralized

The entire premise of cryptocurrency is decentralization. Developers will have to consider if the decentralization of their blockchain will be compromised when creating bridges to other ecosystems.

Facilitating Peer-to-Peer Transactions

With cryptocurrency, two people from opposite sides of the world can freely transact directly with each other.

A fully interconnected web3 ecosystem needs to find a way of facilitating this without third parties.

If a middleman is needed, that means additional fees and individuals relinquishing the control of their crypto inorder for the third party to finalize the transaction.

Technologies Pushing Web3 Interoperability

Progress is already being made to encourage blockchain interoperability with many technologies already in place.

As with the rest of web3, there is much development yet to be done. But, we’re headed in the right direction, and hopefully toward web3 liquidity aggregation.

Some examples of these blockchain technologies are:

●               Blockchain bridges

●               Atomic swaps

●               Sidechains

●               Cross-chain protocols

●               Blockchain routers

●               Hashed time locks

●               Oracles

In Summary

Web3 is a fragmented space with many platforms that don’t work separately from one another. For mass adoption,we need to create market stabilization.

This will be done through liquidity aggregation and blockchain interoperability.

There are challenges, such as ensuring the core principles of cryptocurrency are adhered to, but strides are being made toward making web3 feasible for everyone.

Are you ready to start investing in crypto? Check out Escrypto’s institutional-standard wallets for retail investors.

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