Investing in the "Kayak" of Web3

Cross-chain interoperability is one of the most painful problems facing Web3 today.

There are 450+ blockchains today (and that's just the EVM compatible L1 blockchains). There are 30+ bridges, not including centralized exchange owned or L1 owned bridges. In this current form, there are numerous permutations for an asset to travel from any one blockchain to another.

This doesn’t even include the growing number of layer two (L2) blockchains, side chains, app chains. etc. As the universe of blockchain grows, the cross-chain bridging problem will only become more painful.?

Last year, Haseeb Qureshi compared blockchains to cities (you can read his full post here). Ethereum is considered to be the equivalent to New York City because it is the most expensive. Avalanche is the equivalent of Chicago because it's newer, cheaper, and more aggressive. Solana is the equivalent to Los Angeles because its fees are low and no one takes themselves so seriously, etc.

If one can think of blockchains as cities, then bridges could be thought of as airlines. There are 15,000+ cities in the world, with at least one commercial airport. There are roughly 290 commercial airlines. Not every airline flies to every city, but there are thousands of routes for air travel from city A to city B.

So, how do you decide on the route to take from, say, New York City to Los Angeles during the Memorial Day weekend (May 26th through May 29th)? There are 2809 flights, across 14 major airlines. If you expand your search to +1-1 day, the number of choices grows exponentially.?

You can optimize for speed (non-stop), you can optimize for cost (fly Spirit Airlines with a 4-hour layover at Minneapolis), or you can optimize for safety & security (we have evolved to trust most airlines, but assume that one airline is considered to be safer than another).

The same dilemma currently applies to cross-chain bridging in Web3. When an asset has to travel from blockchain A to blockchain B, in most cases, the asset owner has a number of choices. Just like with the above example, she can optimize for speed, cost, or security. You can think of it as a bridging trilemma.

In this current state of blockchain infrastructure, there is not one single bridge that fulfills all three criteria at once. In fact, every single one of them has trade-offs. For example, one can choose LayerZero for its configurable "trustlessness" or Wormhole for speed, but speed often comes at the cost of safety and configurable "trustlessness" might come at the cost of speed.

So, how do you decide on a path to travel from blockchain A to blockchain B?

Our recent investment, Li.Fi is a bridge and DEX (Decentralized Exchange) aggregation protocol, acting as a "Kayak" of sorts for crypto-assets.

It will analyze the most optimal routes for your asset to travel from blockchain A to blockchain B. It will present you with a number of options, including one recommendation for the cheapest, fastest, and most secure bridge option.

In its B2C version, you can go to jumper.exchange and convert ETH on Ethereum blockchain to ETH on Optimism blockchain (give it a try!). This is a single UI that aggregates possible bridge and DEX combinations.

Li.Fi has already established itself as a leader in cross-chain DEX and bridge aggregation, processing $767M in trading volume to date and responsible for processing 95%+ of MetaMask's cross-chain volume. It is well positioned to become the category leader in big market.

So, how big is this market anyways?

The aggregator business model is not a new concept.

It has disrupted many of the traditional Web1 and Web2 business. Aggregators come in different flavors - from travel aggregators (e.g. Kayak, Expedia, etc) to financial data aggregators (e.g. Bloomberg, Reuters, etc).

Each of these aggregator markets are $100B+ markets.?

And while crypto-assets are still in its infancy, the market of DEXs and bridging assets is growing fast! Just in 2022, the top 10 DEXs had an annual trading volume of $1.33 Trillion. That is 21x increase of just two years prior! If this pace keep up for two more years, we are looking at at $30T DEX trading volume market. The numbers for bridge volume are growing at a similar pace.

As a cross-chain bridge aggregator, Li.Fi is well positioned to be at the center of gravity for solving this complex problem. As more decentralized applications and smart contracts require cross-chain connectivity, Li.Fi will benefit greatly from the mass adoption.

Looking forward to seeing where things go from here!