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In the letter
- Ethereum 2.0 requires people to participate in ETH to secure the network.
- DeFi protocols offer high returns to ETH stakers.
- This could leave Ethereum 2.0 high and dry, according to ConsenSys researchers.
A ConsenSys report on decentralized finance released yesterday said the launch of Ethereum 2.0 could be disrupted by DeFi protocols, which could be much more profitable.
In its Q3 DeFi Report, ConsenSys, which funds an independent editorial Decrypt, described concern that “DeFi could be the number one threat to gaining a significant amount of stake in Eth2 staking.”
DeFi refers to a wide variety of Ethereum-based unsecured financial products that have roughly $ 11 billion worth of cryptocurrency running through their veins, according to DeFi Pulse.
Investors earn interest and commissions on the money they invest in contracts; this summer, some protocols offered APYs above 1000%. Those hazy days are largely over, but investors can still make good money.
Ethereum 2.0 is a major update of the Ethereum blockchain which is expected to be released later this year. It brings with it a proof-of-stake consensus mechanism and the opportunity to earn ETH by staking existing pooled funds. Here’s how Ethereum 2.0 will validate transactions.
However, “If various DeFi protocols offer higher returns than Eth2 staking, ETH holders may choose to direct their ETH elsewhere, thus leaving Eth2 without the staked ETH threshold necessary to make it sufficiently secure and decentralized,” says the ConsenSys report. Users will need to accumulate a minimum of 32 ETH (worth approximately $ 12,300 at today’s prices) to participate in staking.
Authors, Everett Muzzy, James Beck and Tom Hay, added: “It is not unreasonable to worry that ETH holders would wait (at best) to see how initial staking returns compare to DeFi returns, or (in the worst case) decide completely not to “risk” blocking ETH until phase 1.5 (which is probably at least a year away) in the event that in the meantime another similar bullish run occurs “.
The authors anticipate that it may be possible for smart contracts to offer “liquid tokens that represent the value of their staked ETH,” much like some DeFi protocols offer tokens that represent staked currencies, such as Wrapped BTC, an Ethereum-based version of Bitcoin. issued in exchange for Bitcoin staked in its smart contracts.
