Original Author: PaperMoon

Decentralized Finance (DeFi) has become the core application of Web 3, but its development still faces some real challenges: the high Gas fees of Ethereum, fragmented experiences between Layer 2s, security risks of cross-chain bridges, and difficulties in concentrating liquidity. According to data from DeFiLlama, the top ten protocols by Total Value Locked (TVL) are almost all based on EVM, indicating that EVM has become the de facto industry standard.

In this context, Polkadot Hub has chosen a more pragmatic roadmap for 2025: first launching a 100% EVM-compatible execution environment (RustEVM) to allow seamless migration of applications from Ethereum, while continuing to develop PolkaVM based on RISC-V to prepare for more complex and high-performance applications in the future.

This is not merely a compromise, but a strategic choice that combines its own conditions. Polkadot has shared security, XCM cross-chain capabilities, and a large validator network, which allows it to provide stronger security and liquidity aggregation while being EVM-compatible. In the short term, it can leverage the ecological achievements of Ethereum, while in the long term, it explores new execution environments, thus giving Polkadot Hub the opportunity to become an ideal landing platform for DeFi projects.

1. Current DeFi Ecosystem

The DeFi ecosystem in 2025 is a thriving multi-chain landscape, with total locked value (TVL) exceeding $150 billion. Ethereum, with its strong first-mover advantage and developer community, still dominates core areas such as lending and DEX. However, even after successfully transitioning to PoS, high Gas fees and scalability limitations remain its main challenges. Meanwhile, Layer-1 platforms like Solana, Binance Smart Chain, and Avalanche have attracted a large number of users with faster speeds and lower costs, but their siloed nature severely restricts cross-chain liquidity and interoperability.

2. Problems with Existing Systems

The current DeFi systems mainly face the following issues, which collectively limit the further release of their potential:

• Efficiency and cost dilemma: High Gas fees and network congestion on Ethereum severely hinder high-frequency trading. Although Layer-2 solutions can alleviate this issue, they rely on Layer-1's security, and there are still potential risks when transferring assets between different layers.
• Centralized bridging risks: To aggregate assets across chains to increase liquidity, many DeFi applications rely on centralized cross-chain bridges. This model brings dual risks:
• Security vulnerabilities: Centralized bridges are prime targets for hackers; once private keys or passwords are compromised, a large amount of assets face the risk of theft.
• Trust crisis: Centralized operators have privileges that may lead to malicious actions for profit, making it difficult to establish community trust.
• Inefficient smart contract execution: Most blockchains face execution efficiency bottlenecks in supporting EVM. To break through this limitation, various platforms are actively exploring new contract execution environments, such as Rust-based CosmWasm and Ink, as well as new proposals based on RISC-V being put forward by the Ethereum community.
• Limited underlying functionality expansion: Some special applications that require support from underlying cryptographic primitives (such as ZK technology) are difficult to implement on general-purpose blockchains. The upgrade and expansion processes of existing systems are often long and challenging. This hinders deeper innovation in the DeFi field.

3. Why Polkadot Hub is Particularly Suitable for DeFi

100% EVM Compatibility: Rapidly Initiating Network Effects and Attracting High-Value Ecosystems

Polkadot Hub has decided to prioritize the development of a 100% EVM-compatible solution (based on the REVM engine), which is a crucial strategic choice. In the past, Substrate projects faced cumbersome customized integration processes when launching on mainstream exchanges or attracting top applications. Now, this bottleneck has been completely broken.

For developers: They can directly port unmodified Ethereum dApps, including popular protocols that rely on older versions of Solidity, significantly reducing migration costs and allowing top Ethereum projects to quickly access the Polkadot ecosystem.

For exchanges: Exchanges do not need additional adaptations and can directly use their existing Ethereum integration processes, simplifying the listing process for new projects and thus bringing more liquidity into the ecosystem.

For the ecosystem: This initiative accelerates the onboarding of high-value applications and third-party service providers, rapidly generating strong network effects. Infrastructure service providers like Chainlink and The Graph, as well as compliance solution providers like Elliptic and Chainalysis, can almost zero-cost extend their services to Polkadot, providing reliable oracles, data indexing, and compliance guarantees for all DeFi projects. This "Lego block" combination effect is the core driving force of DeFi innovation.

PolkaVM: An Innovation Engine for the Future

While REVM addresses the current access issues, PolkaVM (PVM) remains the long-term vision and innovation core of Polkadot. PVM, based on the RISC-V architecture, can provide performance beyond EVM and support more complex applications.

Performance and cost advantages: PVM will provide more powerful on-chain computing capabilities than EVM through technologies like JIT (Just-In-Time compilation), thus supporting more complex computation-intensive tasks, such as on-chain ZK primitives.

Language flexibility: PVM not only supports Solidity and Vyper but also various languages like Rust and C++, providing developers with greater flexibility and unlocking more innovative use cases.

Native support: PVM can natively support more complex cryptographic logic and next-generation DeFi protocols like cross-chain derivatives, reserving unlimited innovation space for future high-performance and high-complexity DeFi applications.

XCM: Trustless, Native Cross-Chain Interoperability

Polkadot's unique XCM (Cross-Consensus Messaging Format) protocol is its most significant distinction from other ecosystems. It allows for the secure transfer of assets and logic between parachains without relying on centralized bridges.

This means that DeFi protocols can truly achieve "cross-chain composability," enabling developers to build complex cross-chain yield farms that span different parachains, maximizing capital efficiency.

Snowbridge: Opening Up Ethereum Liquidity Access

The lifeline of DeFi lies in the full flow of funds. Snowbridge, as a fully audited trustless bi-directional bridge, can safely bring assets from the Ethereum mainnet (such as ETH, USDC, WBTC) into Polkadot Hub.

This solves the problem of liquidity "islandization," allowing the DeFi ecosystem of Polkadot Hub to directly tap into and utilize Ethereum's vast capital resources, providing ample startup capital and trading depth for new projects.

Shared Security: Reducing Systemic Risks and Ensuring High-Value Applications

Polkadot's shared security model ensures that all parachains share the validator security of the relay chain. This provides top-notch security guarantees for DeFi applications on Polkadot Hub. Unlike Ethereum's Layer 2 solutions, cross-chain interactions within the Polkadot ecosystem do not require additional trust assumptions and have no withdrawal delays. This is crucial for DeFi applications dealing with high-value assets, effectively reducing systemic risks arising from bridge vulnerabilities or fraudulent activities.

4. Outlook for DeFi Applications

The launch of Polkadot Hub also marks a key adjustment in Polkadot's development path: shifting from purely pursuing technological innovation to also considering ecological compatibility and market demand.

This is not a simple compromise but a pragmatic, phased strategy. It is believed that Polkadot has recognized the need for a solid bridge between technological ideals and market realities.

In the short term, the focus is on EVM compatibility. Polkadot has prioritized the launch of REVM-based solutions to quickly address current market pain points. This allows high-value applications on Ethereum to migrate faster and lowers the barriers for capital and users to enter, which is crucial for the formation of DeFi network effects. According to the roadmap, Polkadot will launch REVM on the Kusama Hub in late October and officially land on Polkadot Hub in mid-December, making it possible to initiate ecological expansion before the end of the year.

At the same time, Polkadot has not abandoned its own exploration. PolkaVM, as its technological ace, is still steadily advancing towards a future of higher performance and more complex applications. The roadmap indicates that a preview version of PolkaVM has been launched on Kusama and will enable higher-level optimizations such as JIT compilation by the end of the second quarter of 2025.

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