The most significant development in DeFi is liquidity provisioning. It allows innovators and users to test new financial instruments, without having to go through intermediaries. 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.
DeFi is moving at a rapid pace, and the challenges of liquidity provisioning (LPing), are growing. Due to incompatibility between different layers 2 and 1, and their respective applications, a silo effect has developed within the industry. To maximize earnings, liquidity provisioning must be able to trade in and out at all costs.
It is extremely hard to transfer assets across different protocol layers without the use of interoperability. This may discourage liquidity providers as the cost of switching their LP position on another layer or chain could be prohibitive. This means that users cannot maximize their earnings. The use of liquidity provisioning fails.
Instrumental Finance offers a solution for these interoperability concerns. Instrumental can be used to direct LP positions using various L1 or L2 scaling options. Instrumental’s solutions can facilitate asset transfers and swaps as well as the support and creation of complicated LP strategies. Instrumental is able to help liquidity providers gain access to new yield opportunities, which are currently not possible.
Instrumental was incubated at Composable Labs (the incubator arm of Composable Finance), and is now using the Composable Finance software development kit (SDK), as well as the cross-layer asset swapping Mosaic Tool from Composable Finance. Instrumental now has the ability to run their Instrumental Vault. Their main feature, which optimizes users’ LP yields for different L2s and/or L1, is enabled by this.
Instrumental will also benefit from L2 and L1 solutions already linked to Composable’s Mosaic tool, such as Arbitrum, Polygon, the Avalanche C-Chain, and Moonriver. Instrumental will be able to deliver more yield opportunities through this strategic partnership with Composable.
Instrumental’s strategy addresses the barriers to LPing head-on in order to optimize yield for its users. Instrumental can now bridge between layers and chains to resolve interoperability concerns. This allows for future applications to build off of this foundation and benefit from Instrumental’s innovations.
There are no other solutions to solve the problem of liquidity provisioning that can match this one. Instrumental’s innovative solution puts it in a position to lead DeFi into the future of decentralized liquidity providing, allowing the industry to continue to grow in the right direction.