Analyzing Entangle: Solving DeFi Cross-Chain Liquidity Issues and Breaking Ethereum's "Consensus Overload" in Its Later Years
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Analyzing Entangle: Solving DeFi Cross-Chain Liquidity Issues and Breaking Ethereum's "Consensus Overload" in Its Later Years
Even if Ethereum不幸 becomes just a "DeFi module layer" among many other chains in the future, no one can shake its dominant position.
Navigating Web3 tides with focused insightsWritten by: Haotian
Once DeFi was labeled as "matryoshka dolling," Ethereum had already entered the late stage of "consensus overload." To withstand the冲击 from high-performance newcomers like Solana, Ethereum has another path beyond defending its DA legitimacy and expanding the Rollup Layer 2 ecosystem: releasing liquidity across all chains through interoperability.
Indeed, instead of being constrained by an overinflated bubble, it's better to分流 part of the overloaded liquidity, allowing these established DeFi brands to extend their reach into a multi-chain environment and thereby build new "competitive moats."
The project I want to introduce today, Entangle, is precisely focused on solving cross-chain liquidity issues in DeFi. At first glance, it sounds similar to LayerZero Labs and Cosmos. So what distinguishes these interoperability solutions? How does Entangle specifically tackle the complex oracle challenges in cross-chain DeFi? Next, I’ll analyze from a business narrative perspective why interoperability matters so much for DeFi.
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Cosmos solves interoperability between heterogeneous chains via SDK and IBC protocol, serving as infrastructure for multi-chain connectivity;
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LayerZero provides a universal, scalable cross-chain interoperability framework using tools and protocols such as cross-chain messaging and oracles.
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Entangle, however, focuses specifically on DeFi ecosystem projects, offering solutions—Liquid Vaults and Oracle—to facilitate liquidity interoperability among cross-chain DeFi protocols, improving capital efficiency and user experience.
In short, Cosmos and LayerZero offer more foundational, infra-level interoperability by building frameworks, while Entangle targets the DeFi application layer, delivering specialized interoperability capabilities centered around DeFi priorities like “capital efficiency, transaction friction, and oracle price reasonableness.”
However, integrating, managing, and compositing liquidity across DeFi protocols isn’t easy. How exactly does it work?
1) Liquid Vaults
Entangle provides a middleware cross-chain asset vault. For example, if a user stakes liquidity in Uniswap on Chain A and receives an LP token, they can deposit this LP into the Liquid Vaults. The Entangle contract then generates a receipt (LSD), while the original LP continues earning yield on Uniswap. This receipt can now serve as new liquidity that can be transferred cross-chain and combined with other DeFi protocols to amplify returns. Currently, at least $14B worth of DEX liquidity is available for such extension and reuse.
From a user-centric standpoint, the greater the number of chains integrated at the interoperability layer, the richer the asset circulation scenarios become—especially when connecting both EVM and non-EVM heterogeneous chains. This reduces the steps and complexity of cross-chain operations, minimizing transaction friction, which is inherently a strong demand—such as across wallets and bridges.
The “bridge” service offered by the interoperability layer differs from dedicated cross-chain protocols in business logic. Interoperability aims to move capital from Chain A to Chain B with minimal friction, focusing on asset usability within DeFi, unlike traditional bridges where fees themselves represent friction.
In summary, Liquid Vaults act as a middleware layer, creating new transferrable tokens (LSDs) from existing DEX liquidity, eliminating complex cross-chain asset movements for users, reducing friction, expanding the value scope of existing liquidity, and increasing potential returns.
This involves technical challenges such as smart contract communication across heterogeneous chains, asset bridging, and standardizing interfaces across native chains—posing significant tests for chain integration, communication, and asset management capabilities.
2) Oracle
After enabling cross-chain aggregation of heterogeneous assets via Vault services, another challenge arises: coordinating state interoperability between DeFi protocols. For instance, a user stakes assets on a lending platform on Chain A and receives an LP token, then uses Entangle to bring this receipt to Chain B, where it’s staked again for borrowing.
In an extreme case, if asset prices fluctuate sharply and the oracle fails to properly coordinate the states on both chains, bad debt may occur—for example, if the user redeems their assets on Chain A before being liquidated on Chain B.
The key to solving this lies in the oracle’s price feed mechanism. The oracle must integrate real-time on-chain and off-chain price data, applying TWAP and VWAP to deliver time- and volume-weighted pricing. This enables accurate prediction of potential asset state changes across Chain A and Chain B, guiding correct decisions and preventing bad debt due to oracle delays or miscommunication.
Liquid Vaults solve cross-chain asset friction; Oracles manage cross-chain asset states. Coordinating both enables a full-fledged interoperability solution tailored for DeFi liquidity use cases.
Why can this alleviate Ethereum’s DeFi consensus overload? The logic is straightforward:
1) Single-chain DeFi faces “matryoshka” limitations: Stacking DeFi strategies and restaking within one chain locks up liquidity to boost future asset expectations. While this creates new profit opportunities, it also restricts asset mobility, preventing them from accessing other investment avenues.
2) Cross-chain liquidity expansion: Interoperability allows assets already utilized on Chain A to flow to other chains, combining with local liquidity to unlock new value. This brings capital and activity to new chains while relieving pressure on the original chain.
3) Once DeFi protocols achieve stable operation, their scale of funds, user base, and yields become intangible brand and reputational assets. Extending this brand indirectly across chains via interoperability enhances brand equity. It avoids the hesitation many legacy brands have about expanding to new chains and eliminates the risks and costs associated with starting from scratch.
It’s clear that the fields of Data Availability and Interoperability are already fiercely competitive. Ethereum tries to defend its boundaries in DA but is inevitably being challenged by modular thinking. In contrast, interoperability appears to be a win-win opportunity with no downside.
Even if Ethereum eventually becomes just one “DeFi module base layer” among many, its dominance remains unshakable.
Note: Interoperability is indeed a direction worth watching. Chainlink is the pioneer, LayerZero is complicated, and Wormhole and ZetaChain are also promising—more detailed analysis to come.
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Haotian | CryptoInsight
