Diffuse Protocol Unlocks 25 Billion in Ethereum L2 Assets for Cross-Chain Utility

As of April 2025, over $25 billion in assets are locked across Ethereum’s Layer 2 (L2) platforms, rollups, and alt-layer ecosystems. These assets, originally deployed for liquidity or governance, have remained confined to their specific ecosystems due to interoperability challenges, trust concerns, and connectivity issues. This fragmentation is a side effect of Ethereum’s L2 success, where networks like Arbitrum, Optimism, and zkSync have significantly improved transaction speed and cost but at the expense of composability across chains. Assets locked in liquidity pools or lending protocols often remain stuck, unable to move or be repurposed without relying on bridges or wrappers that introduce new risks, fees, and delays.

Despite this fragmentation, the locked assets represent untapped potential. Capital already earning yield in Automated Market Makers (AMMs), lending platforms, or backing overcollateralized stablecoins could do more. These assets could support broader validation, contribute to shared security, participate in restaking systems, and back overcollateralized stablecoins and cross-chain lending protocols if the infrastructure allowed it. The industry is now exploring ways to unlock more utility from already deployed capital without moving the assets, thereby avoiding the friction and risk associated with bridging funds across chains.

Ask Aime: "Are we close to seeing more interoperability in the Ethereum Layer 2 platforms?"

One protocol gaining traction in this area is Diffuse, which is building infrastructure for cross-chain collaboration. Diffuse Collateral enables users to maximize their assets’ utility without relocating them. Users can contribute locked assets from across L1s and L2s to shared security protocols and restaking networks, such as Symbiotic, without moving, wrapping, or giving up custody. In return, participants can earn an additional 2–5% in rewards annually, without taking on the risks typically associated with bridging or reallocation. Support for EigenLayer is also coming soon.

The architecture behind Diffuse Collateral and zkServerless Execution is powered by a cross-chain mechanism for Collateral Abstraction. This protocol design is based on two key principles: verifiable data and trustless interoperability. Verifiable data ensures that inputs like on-chain events are provably correct, while trustless interoperability allows protocols to work across chains without custodians, wrapped tokens, or fragile governance models. This is essential given that over $2.5 billion has been lost to bridge and oracle exploits as of early 2025, highlighting the risks of relying on intermediaries for cross-chain coordination and off-chain data.

The zkServerless system enables developers to define logic that reacts to on-chain or off-chain events, using authenticated data from Web2 and Web3 sources. This ensures that smart contract interactions across chains, such as linking assets on one blockchain to restaking or other protocols, can occur securely without intermediaries. Diffuse’s data feeds use a combination of zero-knowledge (zkTLS) proofs and trusted execution environments (TEEs), which are secure hardware zones that ensure data can’t be tampered with during processing. These feeds fetch real-time prices directly from centralized exchange APIs in a way that’s both accurate and verifiable.

Risk parameters for each collateral type are calculated using these same feeds, allowing the protocol to adjust safeguards dynamically for volatile or complex assets. The Diffuse Protocol tracks key events like deposits, withdrawals, or slashing across chains, while Diffuse Core generates the cryptographic proofs that confirm and authorize each action. For example, a user holding an asset like wrapped Bitcoin (wBTC) on Ethereum, if supported as collateral, could deposit it directly on Ethereum. From there, Diffuse Collateral helps allocate it to Symbiotic’s vaults on other chains, like Optimism. Rather than moving the asset, Diffuse uses its zkServerless system to generate cryptographic proofs that verify deposit events and other cross-chain actions. This allows the asset to contribute to shared security while remaining in place. All transactions and state changes are backed by verifiable data, giving users and protocols confidence in the process without relying on intermediaries.

With billions in locked assets still siloed across chains, Diffuse Collateral offers more than just yield. It brings infrastructure-level benefits to the networks themselves. By enabling high-quality collateral to support shared security protocols without relocating capital, Diffuse helps blockchains retain liquidity, reduce fragmentation, and scale participation in restaking. Built on zkServerless, it delivers the cryptographic guarantees, low-overhead automation, and verifiable execution needed to support this coordination at scale. As restaking and shared security reshape DeFi’s foundation, Diffuse is creating new reward pathways and giving blockchains a smarter way to stay liquid, secure, and connected.