A Deep Dive into On-Chain Liquidity Solutions

As Ethereum and DeFi took center stage in the on-chain ecosystem, every public chain and Layer 2 (L2) has developed or supported decentralized exchanges (DEXs), lending platforms, and stablecoins to drive basic on-chain activity. However, after the infrastructure boom, multi-chain liquidity has become highly fragmented. With over 150 L2s currently in operation, the rise of BTCFi and Solana’s L2 ecosystem is making the prediction that “there will be more chains than users” feel increasingly real.

The Origin: Uncoordinated Competition in the Multi-Chain Era

On-chain liquidity traces its roots back to the development of DEXs, with Uniswap being an early pioneer on Ethereum. Since its launch in 2018, Uniswap rapidly gained market share with its AMM (Automated Market Maker) model and has continually evolved its liquidity solutions.

As Ethereum embraced its “Rollup-centric” scaling strategy, on-chain liquidity solutions began to shift towards more complex interoperability and multi-chain aggregation. NEAR Protocol, for example, introduced liquidity abstraction in 2021, offering an innovative, cost-effective solution for cross-chain DeFi that eliminated the need for bridges, enabling seamless interaction between chains.

However, in the multi-chain era, aggregating liquidity has become a significant challenge. Projects like LayerZero aim to aggregate liquidity across multiple blockchains, providing broader trading options and deeper liquidity. But the increasing centralization of cross-chain bridges raises concerns about whether they can truly offer decentralized liquidity solutions.

In light of the above developments, projects like Reya Network and Everclear are gaining traction by focusing specifically on liquidity solutions. Reya targets specialized L2 networks, improving trading efficiency from a technical standpoint, while Everclear focuses on fund efficiency by aggregating the on-chain ecosystem and liquidity providers.

Reya Network: Optimizing Trading and Fund Efficiency

Reya Network is an on-chain liquidity solution designed to address DeFi’s scaling challenges by optimizing both trading and capital efficiency. It operates as a highly modular L2 network tailored for trading, providing deep liquidity, optimal fund efficiency, and high performance for DeFi traders and liquidity providers.

Reya Network’s architecture includes two main modules: a derivatives clearing protocol and a margin engine.

• The derivatives clearing protocol is a decentralized, non-custodial protocol that handles margin calculations, liquidations, and profit/loss attribution.
• The margin engine offers one of the most advanced solutions in the crypto space, enabling users to trade with 3.5x higher efficiency and providing liquidity providers (LPs) with 6x greater efficiency.

In addition, Reya Network leverages Arbitrum Orbit technology to optimize trading. Its relay architecture eliminates gas fees and mitigates front-running issues like MEV (Miner Extractable Value).

In essence, Reya Network goes beyond technical optimizations, incorporating a traditional financial approach to enhance liquidity.

Everclear: Tackling Fragmented Liquidity with a Settlement Layer

On the other hand, Everclear is built around the operational approach of the Bank for International Settlements (BIS). Previously known as the cross-chain bridge Connext, Everclear rebranded this year and transitioned into an on-chain settlement protocol.

Everclear aims to solve fragmented cross-chain liquidity by improving cross-chain asset transfers using a “net settlement” approach. This solution simplifies the movement of assets between blockchains, enhancing trading efficiency and reducing costs. By connecting different blockchain networks, Everclear provides a decentralized settlement layer that allows assets to be transfered seamlessly across multiple chains.

Specifically, Everclear’s net settlement technology functions as follows:

• Chain abstraction settlement layer: Everclear is the first chain abstraction settlement layer, aggregating and settling assets and transactions across various blockchains to streamline and optimize cross-chain liquidity management.
• Decentralized network: The settlement layer operates in a decentralized manner, relying on distributed nodes rather than a center to process and settle cross-chain transactions.
• Modular stack: Everclear offers a modular stack that enables seamless interaction and asset transfers across different blockchains, addressing the fragmentation in cross-chain trading.
• Rapid liquidity rebalancing: Everclear’s technology quickly rebalances liquidity across chains, assets, and applications, ensuring efficient operations across the ecosystem.

It’s also worth mentioning that Everclear, like Reya, utilizes Arbitrum Orbit technology for its Rollup. However, unlike Reya’s DEX-centric focus, Everclear is centered on reducing cross-chain transaction fees. Traditional cross-chain transfers between public chains are reevaluated — if transactions can be processed within the same chain, cross-chain operations are unnecessary. Only when there’s a genuine imbalance between chains does a cross-chain transfer occur. Thus it will significantly lower gas fees and reduce the need for asset minting and wrapping.

The Future: Will DEXs Start Mimicking CEXs?

Following Everclear’s approach, cross-chain liquidity aims to address the imbalances in user and transaction volume across chains. For example, after StarkNet’s token launch, its user base plummeted by over 90%, with daily active users (DAUs) recently hovering around 5,000. Given that these are on-chain addresses, the number of real, individual users is likely even lower.

At the same time, leaders like Bitcoin, Ethereum, and new public chains, along with DEXs such as Uniswap and Aave, continue to command significant liquidity. One approach to on-chain liquidity aggregation is connecting superchains and decentralized apps (DApps), a strategy embraced by projects like UniswapX and 1inch.

Alternatively, some projects are working to connect all major decentralized and centralized exchanges, allowing users to access the entire market’s liquidity from a single platform. Orion Protocol is an example, offering a liquidity aggregator that connects all major centralized and decentralized crypto exchanges. This allows users to access liquidity across the entire market, although centralization concerns remain.

On high-performance chains like Solana, liquidity aggregators like Jupiter help users find the best trading prices by pooling liquidity from various exchanges. As the most popular DEX aggregator on Solana, Jupiter draws data from multiple DEXs within the Solana ecosystem to provide comprehensive DEX aggregation services.

In conclusion, on-chain liquidity solutions are increasingly replicating centralized exchange (CEX) mechanisms. However, due to fragmented liquidity and high transaction costs, no new product has yet surpassed DEX aggregators like 1inch, Matcha, Paraswap, KyberSwap, or CowSwap.