Opinion by: Jin Kwon, co-founder and chief strategy officer at Saga
Crypto has come a long way in boosting transaction throughput. New layer 1s (L1s) and side networks offer faster, cheaper transactions than ever before. Yet, a core challenge has come into focus: liquidity fragmentation — the scattering of capital and users across an ever-growing maze of blockchains.
Vitalik Buterin, in a recent blog post, highlighted how scaling successes have led to unforeseen coordination challenges. With so many chains and so much value splintered among them, participants face a daily tangle of bridging, swapping and wallet-switching.
While these issues affect Ethereum, they also affect nearly every ecosystem. No matter how advanced, new blockchains risk becoming liquidity “islands” that struggle to connect with one another.
The real costs of fragmentation
Liquidity fragmentation means there is no single “pool” of assets for traders, investors or decentralized finance (DeFi) applications to tap into.