Addressing Cross-chain Liquidity: Amplifi’s Approach

3 min readAug 26, 2024

Introduction

Cross-chain liquidity — the ability to transfer assets across different blockchains — offers access to enhanced trading opportunities and optimized yield farming.

However, it also presents challenges that can complicate strategies and impact returns.

This article explores the complexities of cross-chain liquidity strategies and how Amplifi aims to address these challenges.

Primer on Blockchain Ecosystems and Fragmented Liquidity

Blockchains are networks that enable the deployment and use of decentralized applications (dApps). dApps are apps, mainly front-facing, powered by blockchain technology.

Although dApps can be deployed on multiple chains, their total value locked (TVL) — which represents liquidity — is fragmented across these chains.

For example, Compound, a popular lending protocol on Ethereum, might have different levels of adoption and liquidity compared to its deployment on a layer-2 (L2) solution like Optimism. Similarly, crypto trading pairs can experience significantly different volumes across various chains based on the attention and adoption they receive.

Consequently, dApps may offer more competitive rates on some chains compared to others. This fragmentation of liquidity makes it challenging for users to optimize their strategies across multiple blockchain ecosystems.

Downsides of Executing Cross-Chain Strategies

While cross-chain strategies provide access to higher interest rates and greater opportunities, they also have certain drawbacks, including:

Bridge Asset Support: Not all blockchain bridges support the same assets, requiring users to swap tokens before transferring them across chains. This adds a layer of complexity and cost, as users must navigate various decentralized exchanges (DEXs) and incur swap fees.
Bridging Fees: Every time assets are moved from one chain to another, a bridge fee is incurred. Depending on the bridge used and the frequency of transactions, these fees can significantly erode the overall returns of a cross-chain strategy.
Gas Fees: Cross-chain activities often involve multiple transactions, including swaps, bridging, deposits, and withdrawals. Each of these transactions requires gas fees, which can vary widely depending on the chain and network congestion. These costs can add up quickly, reducing the net benefit of executing cross-chain strategies.
Manual Reclaiming: When funds are spread across multiple chains, users may need to manually reclaim their assets, performing numerous transactions to consolidate funds back to a single destination chain. This process is not only time-consuming but also incurs additional transaction costs, further diminishing returns.

Amplifi’s Solution

Recognizing these challenges, Amplifi has developed solutions aimed at simplifying cross-chain liquidity management.

Amplifi’s AI-driven vaults dynamically manage and rebalance assets to maximize returns. They target the highest APY pools and adjust leverage to avoid liquidation. This is achieved through several key components:

Account Abstraction: Amplifi’s integration with ThirdWeb enables account abstraction. Users can benefit from Web2-like conveniences such as social sign-in and gas-free transactions that don’t require holding tokens in their wallet. Additionally, bridging and swap fees are waived, reducing the friction of managing accounts and paying for gas across multiple chains.
Cross-Chain Interoperability: Amplifi leverages Chainlink’s Cross-Chain Interoperability Protocol (CCIP) to deploy funds across multiple blockchains. This enables seamless token transfers, including direct transfers to user accounts or smart contracts on other chains, and programmable transfers, where tokens and specific instructions are executed in a single transaction.
AI/ML Engine: Vaults utilize advanced algorithms to optimize investment strategies dynamically. Compounds and rebalances assets to the highest APY pools every hour. If market conditions change, vaults can rapidly adjust leverage ratios to help avoid liquidation.

Conclusion

Amplifi’s innovative cross-chain liquidity solutions, including features like account abstraction and cross-chain smart contracts, aim to mitigate these challenges, making it easier for users to execute cross-chain yield farming strategies across different blockchain ecosystems efficiently.

About Amplifi

Amplifi is an Artificial-Intelligence Finance (AI-FI) asset management protocol designed to simplify and enhance yield farming. Our platform leverages existing DeFi liquidity layers, such as DEXs and Money Markets, to provide users with automated yield farming powered by AI trained on institutional-grade strategies.