How Instrumental Finance Corrects Challenges in Liquidity Provisioning

Liquidity provisioning is arguably one of the most important developments in DeFi to date allowing innovators and end-users to explore new boundaries per financial instruments without the usual go-betweens. The concept of liquidity provisioning, whether inbound or outbound, has quickly established itself as the essence for the burgeoning DeFi industry’s continued growth, growing more than 1,000% since the March Covid market crash of 2020. However, as DeFi advances into the future at full speed, challenges to liquidity provisioning (LPing) continue to grow. A siloing effect has emerged in the industry due to a lack of interoperability between the different layer 2 and layer 1 solutions and their respective applications. Meanwhile, the success of liquidity provisioning is dependent on moving in and out of trade positions to maximize earnings at the slightest cost. Without interoperability solutions, transferring assets from different protocols on different layers becomes extremely difficult. This can ultimately discourage liquidity providers; the time and fees it takes to switch their LP position to one on another chain or layer may no longer be worth the new yield opportunity. Thus, users are unable to maximize their earnings, and the use case of liquidity provisioning falls short. Instrumental Finance presents a new solution that attempts to alleviate these interoperability problems for liquidity providers and the larger DeFi ...