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1. Cross-Chain Interoperability in DeFi
DeFi, that is, decentralized finance, is a quickly and innovatively growing financial application
ecosystem, with applications built on solid blockchain technology observed Bahaa Abdul Hussein.
Among the key challenges confronting DeFi is the shortage of cross-chain interoperability. What
does this imply? It means that users can't easily transfer their assets or have interactions with
applications built on different blockchains.
Cross-chain Interoperability
Cross-chain interoperability is vital for the growth and development of DeFi. This is what permits
users to access a broader variety of financial products as well as services. It also lets DeFi
applications compete with conventional financial institutions.
Several ways to gain cross-chain interoperability exist. A possible approach is using bridges. What
are bridges? Bridges are essentially protocols that let users transfer assets between various
blockchains. These bridges are centralized or decentralized. If they are centralized bridges, they are
operated by one entity. Decentralized bridges are operated by a nodal network. An alternative
approach to cross-chain interoperability is to make use of wrapped tokens. These are tokens pegged
to another token's value, but stored on a very different blockchain.
A Wrapped Bitcoin
For instance, a wBTC, or wrapped Bitcoin, is a token pegged to Bitcoin's value, but stored on the
blockchain of Ethereum, a different blockchain. Wrapped tokens permit people to gain access to
Bitcoin-centric DeFi applications without actually owning Bitcoin.
The development and growth of cross-chain interoperability are among the most important trends
in the space of DeFi. As cross-chain interoperability gradually becomes more relevant, DeFi will
undoubtedly become more accessible to a larger base of users. It will also become more competitive
with conventional financial institutions that will find it challenging to keep up.
A Myriad of Advantages and Final Notes
The key benefits of cross-chain interoperability in DeFi are below:
• Increase in Liquidity: Cross-chain interoperability lets users access a broader range of
liquidity pools, leading to lower trading fees with more proficient price discovery.
• Expanded Access to Markets: Cross-chain interoperability permits users to access a larger
array of DeFi applications, resulting in more innovation as well as competition in the space of
DeFi.
• Risk Reduction: Cross-chain interoperability helps reduce risk by letting users diversify assets
spread over different blockchains.
• Security Improvement: Cross-chain interoperability improves security by making it difficult
for fraudsters/hackers to make targets of individual blockchains.
Cross-chain interoperability is still in a relatively nascent stage of technology, but it shows the
potential to totally revolutionize the space of DeFi. Cross-chain interoperability is on the way to
becoming more widespread, and DeFi will also become more efficient, accessible, and secure.

2. The blog has been authored by Bahaa Abdul Hussein and has been published by the editorial board
of Fintek Diary. For more information, please visit www.fintekdiary.com.