Multi-Chain Finance for Beginners: How to Earn, Swap & Invest Easily Across Blockchains

Cryptocurrency began as a single-chain decentralized system with the launch of Bitcoin (BTC) in 2009. The earlier altcoins, such as Ether and Litecoin, were also built on their individual “single-chain” networks.

These single-chain architectures acted as a standalone Blockchain network, independent of one another.

As the crypto space evolved, the limitations of a single-chain network have become evident, particularly with scalability, slow innovation, network congestion, and high gas fees.

This need for improvement led to the development of multi-chain ecosystems, which feature multiple interconnected blockchains. Examples of multi-chain ecosystems include Solana, BNB Chain, Polygon, and Base, among others.

Although Ethereum started with a single-chain system, it has embraced Layer 2 (L2) scaling solutions to process transactions off the main chain.

Multi-chain architecture enables greater scalability, enhanced functionality, greater innovation and flexibility, and improved security by using multiple blockchains in an interconnected ecosystem rather than a single blockchain.

With multi-chain ecosystems now established, a range of multichain decentralized finance products has emerged to take advantage of the enhanced interoperability.

Multi-chain finance products enable users to seamlessly move assets between different blockchains, breaking down the barriers of isolated blockchain ecosystems. It also provides flexibility, broader access, and enhanced user experience, giving users the freedom to earn, swap, and invest anywhere.

This simple analogy will help you better understand the significant benefits presented by multi-chain finance:

Think of multi-chain finance as an international banking system where you can have bank accounts in different countries and seamlessly move your funds between these banks, each with its own currency and regulations.

What is Multi-Chain Finance?

In simple terms, multi-chain finance refers to the system that enables different blockchain networks to interact and exchange assets and data seamlessly. Multi-chain finance overcomes the traditional limitations of isolated systems.

This interoperability enables users to move their digital assets seamlessly across various blockchains and create a more expansive and interconnected decentralized finance (DeFi) ecosystem.

There are several different real examples of multi-chain finance. A notable example is the prominent USDT multi-chain stablecoin, which is available on multiple networks. USDT can be used in different blockchains, including Ethereum, Tron, and Binance Smart Chain, with varying transaction speeds and costs.

How to Get Started with Multi-Chain DeFi

To get started with multi-chain DeFi, observe the following steps:

Step 1: Create a wallet (MetaMask, Trust Wallet)

Carefully research and choose a reputable non-custodial wallet. Popular options include MetaMask (for EVM-compatible chains), Trust Wallet, and Phantom Wallet (for Solana).

Download the wallet app from the official website and install it on your smartphone. After that, create a new wallet and store your seed/recovery phrase in a safe place.

Step 2: Add multi-chain support (choose networks)

It’s fine if you choose a multi-chain wallet. It enables you to interact with various DeFi multichains without needing a different wallet for each network.

Otherwise, add multi-chain support to your wallet. When doing this, choose your network carefully, as different networks have varying costs, transaction speeds, and available applications.

Your choice of network depends on your risk tolerance and investment strategy. Popular EVM-compatible networks include Ethereum, Polygon, BNB Chain (BNB), Arbitrum, and Optimism.

Step 3: Fund your wallet with crypto

Once you have created your wallet, set it up, and added the multi-chain support, you will need to fund the wallet.

Based on your chosen network, buy the applicable cryptocurrency from a reliable centralized exchange (CEX) like Binance and Kraken. Send the purchased crypto to your new wallet's address on the correct network.

Be so careful to double-check that the network on the CEX matches the network you have chosen in your wallet, or else you will lose your funds.

Also, make sure that the purchased crypto is enough to also cover transaction fees on their respective networks.

Step 4: Use a bridge (Multichain, Stargate, Wormhole)

The next step involves bridging your assets. To be able to swap assets between different blockchains, you need to use a cross-chain bridge.

A cross-chain bridge is an application that facilitates the swap between different blockchains. Popular bridges include Multichain, Stargare, Symbiosis Finance, and Wormhole.

If you choose a multi-chain wallet like Phantom, you can use the built-in cross-chain swap functionality. This feature enables you to complete the swapping process without leaving the wallet app.

Step 5: Try swaps / investing on a DEX

This is the final step, and it involves performing the cross-chain swap. You can swap tokens by following the general steps below:

Please note that the exact steps may vary slightly based on your chosen platform.

• Connect your wallet to your preferred swap platform or use the built-in swap feature in your wallet.
• Choose the token and network you want to swap from (e.g., MATIC on the Polygon network) and the token and network you want to swap to (e.g., Ether on the Ethereum network).
• Enter the amount of tokens you want to swap. The swapping platform should calculate and display the amount you will receive in the new token. Review these details carefully, as well as the estimated gas fees and applicable exchange rate.
• If you are comfortable with these details, click on confirm to approve the swap and pay the gas fees.
• Wait for the transaction. Cross-chain swapping can take between a few seconds to an hour, depending on the networks and bridge congestion. You can always view the transaction status in your wallet's activity tab.
• Once the transaction is complete, you can verify the new tokens in your wallet on the destination network.

You can also choose to perform various DeFi activities, which include yield farming, lending, and liquidity provision.

Ways to Earn, Swap, and Invest Across Chains

Several earning opportunities exist in multi-chain finance. Here are ways to earn across chains:

• Multi-chain yield farming: You can deposit your token into liquidity pools on multichain DeFi platforms across different blockchains to earn rewards. These rewards come as interests, trading fees, or new tokens. Notable platforms include Lido and Thorchain.
• Liquid staking: You can stake a network's native token and receive a liquid token in return. You can then use the liquid token for yield farming or other DeFi activities on other blockchains.
• Cross-chain staking: You can stake an asset on one network and receive rewards on another network. This way, you have the capital to use on a new network without having to sell your initial holdings.
• Cross-chain arbitrage: This involves making profits from the price differences of the same token across different blockchains on various exchanges. You can use trading bots for high-speed trade execution on multichain DeFi platforms.

Here is how to use DeFi APIs for a multichain trading bot:

• Select the right multichain DeFi APIs. This enables the bot to access multiple chains to find trading opportunities.
• Connect to multiple blockchains using providers. This gives the bot a way to interact with each blockchain it would trade on.
• Implement a trading strategy. Your bot’s logic depends largely on its strategy. We recommend that you choose Arbitrage, which is a common strategy.
• Execute trades through smart contracts, which is the only way your bot would interact with the blockchains.
• Give your bot a rigorous test and deploy it to live trading once you are satisfied.

Popular methods to swap assets easily across blockchains include:

• Decentralized Cross-Chain Swap: You can swap a token on one blockchain directly for another token on another without manual bridging. Multi-chain platforms like 1inch Fusion, Rango Exchange, and Symbiosis handle bridging and swapping in one transaction.
• Cross-Chain Bridges: You can move the same token across different blockchains. For instance, you can move USDT from Arbitrum to BNB Chain.
• Atomic swap: This is a peer-to-peer (P2P) method for swapping assets directly between different chains without an intermediary.
• Centralized Exchanges: This is the simplest way to swap between chains. You just send your token to a CEX, perform the swap to your desired blockchain, and then withdraw your new token to your desired blockchain.

Investing across different chains is an effective way to diversify your portfolio, access new opportunities, and mitigate risks. Here are a few ways to invest across chains:

• Cross-chain lending and borrowing: Multichain DeFi lending platforms like Aave allow you to deposit assets on one chain as collateral to borrow on another chain with more favorable interest rates.
• Cross-chain RWA tokenization: You can invest in tokenized representations of a traditional asset, like gold. The created tokens can be moved seamlessly between different blockchains using the “lock and mint” or “burn and mint” process.
• Diversification and hedging: This involves spreading your investments across multiple chains to minimize your exposure to the risks associated with any single network.

Best Beginner-Friendly Multi-Chain Platforms

Here is a list of the best beginner-friendly multi-chain platforms:

Multichain: Multichain (formerly Anyswap) was a cross-chain router protocol that enabled asset transfers between different chains. Multichain used a “lock and mint” process, where assets are locked on one blockchain and a wrapped version is minted on another blockchain.

Since 2023, Multichain’s operations have become inactive due to security and operational challenges. Hence, the platform is now considered defunct and no longer a viable option.

Thorchain: This is a decentralized, cross-chain liquidity protocol. The platform allows users to swap native, or “Layer 1” tokens like native Bitcoin for native Ether without using a CEx or wrapped tokens. Thorchain uses its native token, RUNE, as a bridge asset for the swaps.

In terms of fees, Thorchain’s swap fees comprise a slippage-based fee and an affiliate fee. The slip-based fee is usually a percentage of the trade and is dependent on the size of the trade. That is, larger trades pay higher fees than smaller trades.

Affiliate fee, on the other hand, is an optional fee ranging from 0% to 10%. This is usually charged to generate revenue.

Thorchain is for more advanced users, and new users may find it more challenging to use. Though Thorchain offers unique benefits like native asset swapping and yield opportunities, its underlying mechanics are complex.

Symbiosis: This is a multi-chain DEx and cross-chain automated market maker - it uses smart contracts to aggregate liquidity from different networks. Symbiosis enables users to swap any token between extensive EVM and non-EVM blockchains via a single interface.

Symbiosis is very simple to use and has an intuitive user interface. It simplifies the complex process of cross-chain swaps into a few clicks. All of these make Symbiosis relatively beginner-friendly.

Symbiosis has a very low fee for swapping. However, you have to pay the network gas fee, protocol fee, and liquidity provider fee.

Stargate Finance: Stargate is a cross-chain liquidity protocol built on LayerZero. Being a protocol for omnichain interoperability, Stargate provides a single pool of liquidity for users to swap stablecoins and other tokens between different blockchains.

Stargate has a straightforward process and is also beginner-friendly, especially for those dealing primarily with stablecoins.

Aside from the network gas fee, users have to pay a protocol fee, which is a small percentage of the transfer amount.

SushiSwap: SushiSwap is also a multi-chain DEX and automated market maker. It started as a fork of Uniswap on Ethereum, but has expanded its operations to over 40 different blockchains.

The platform offers token swaps, liquidity provision, and other features across multiple ecosystems.

Although SushiSwap has an easy-to-navigate user interface, the impermanent loss and general wallet management may be an issue for beginners.

How to Avoid the Common Mistakes?

Navigating the world of multi-chain finance requires careful strategies to address the common mistakes of trusting unaudited bridges, using the wrong chain ID, ignoring gas fees, FOMO farming, etc.

The following best practices will help you to avoid mistakes and protect your assets:

• Don’t trust unaudited bridges, but prioritize tested and audited bridges. We recommend that you only use bridges that have been operating for a long time, have substantial bug bounty programs, and have passed several different independent security audits.
• Always consider gas fees in your transaction. Make sure that you have sufficient native chain token to cover gas fees, else the transaction will fail. For instance, maintain adequate MATIC on the Polygon network or Ether on the Ethereum network.
• Using the wrong chain ID can lead to a permanent loss of funds. Hence, always double-check wallet addresses and chain IDs. Before confirming any transaction, confirm that you have copied the right address properly and selected the correct blockchain network.
• FOMO farming often leads to impermanent loss. Therefore, be wary of social media hype, aggressive marketing, or high-yield opportunities.
• Finally, always start with small amounts first before bridging significant capital. This enables you to test the process to confirm if it’s working correctly.

Life Hacks for Safer Multi-Chain Finance

Managing a multi-chain finance portfolio comes with greater convenience but also multiple security risks.

Notable risks of multi-chain DeFi strategies include risks related to cross-chain interoperability, smart contracts, liquidity, market volatility, and regulation. However, the following fundamental habits will protect you across all multichain DeFi platforms:

Use portfolio trackers

Tracking your assets manually across multiple chains is not only inefficient but also prone to error. Therefore, it is wise to use a portfolio tracker like Nansen or De.Fi. These trackers provide a consolidated view of your entire multi-chain finance portfolio, including performance analytics.

These portfolio trackers can also help you to understand your overall exposure. This will definitely help you to identify and manage risks like over-leveraging and impermanent loss.

Compare bridge fees before swapping

The bridge fee associated with swapping assets between chains changes constantly based on the assets involved, network congestion, and protocol liquidity.

Before executing a swap or bridge, always compare bridge fees using a cross-chain aggregator or comparison tool, such as Rango Exchange or LI.FI.

Trade off-peak for lower gas

Generally, network congestion usually inflates the gas fee, especially on high-demand chains.

It is wise to carry out major transactions during off-peak periods for lower gas fees. When you time your transactions strategically, you can often pay less. For Ethereum, it is usually late at night or on weekends.

Start with stablecoins before experimenting

It is fun experimenting with new blockchains, but rushing into volatile assets can be costly, especially for DeFi newcomers on unfamiliar platforms.

So, when you are moving to a new chain, always start with a stablecoin first to test the platform. Stablecoins offer a less volatile entry point compared to other crypto assets.

Always keep a bit of native gas token on each chain

You need the blockchain’s native token to pay for all network transaction fees. Without it, you would be stranded and wouldn't be able to move assets.

Therefore, always keep a small amount of the native token in your wallet after every transaction.

Conclusion

The multi-chain finance era is here, enabling you to seamlessly move assets between different blockchains. It eliminates the barriers of isolated blockchain ecosystems and gives users the freedom to earn, swap, and invest anywhere.

Nevertheless, navigating the world of multi-chain finance requires knowledge, careful strategies, smart asset management, and a non-custodial multi-chain wallet. So, we advise newcomers to start small before bridging significant capital to enable them to test the process to know if it works correctly.

Future trends in multi-chain finance will be shaped by the growth of specialized blockchains, advanced interoperability solutions such as Chainlink's CCIP, Polygon's AggLayer, LayerZero, and Cosmos's IBC protocol, cross-chain liquidity, and the mainstreaming of tokenized real-world assets (RWAs).

Moreover, future trends for multi-chain finance wallets include becoming "chain-agnostic" through advanced interoperability solutions, while AI assistants will transform DeFi via automation and personalization.

With the multi-chain architecture now commonplace, multi-chain finance is no longer the destination, but the starting point for developing more sophisticated, user-centric, and secure multichain DeFi platforms and apps.