[ad_1]
This deposit agreement is the first step that will ultimately lead to the launch of Ethereum 2.0. If the launch is considered to be successful, Ethereum will ship the Beacon Chain and introduce proof-of-stake into the ecosystem, which is currently based on proof-of-work, another mining-based consensus algorithm. Shard chain would be the next update to follow Beacon Chain.
Ultimately, the eventual launch of Ethereum 2.0 will have an effect on the decentralized financial market. In 2020, the DeFi sector has grown significantly but has already suffered a slight cooldown. Because of this, it has been claimed that DeFi is a bubble that will soon burst. However, Binance CEO Changpeng Zhao said that despite these signs, DeFi is here to stay and compared these early speculations to the apprehensive stance the community showed towards the ICO bubble in 2017.
The launch of Ethereum 2.0 would be a “plus” for DeFi
Major players in the DeFi market expect Ethereum 2.0 to have a big impact on the community, as it is used as the core network for most DApp DeFi use cases. Cointelegraph further discussed this with Steven Becker, president and chief operating officer of the DeFi MakerDAO project. He said:
“Eth2 is designed to optimize the network architecture without compromising decentralization, security and scalability. The updates should allow Ethereum to scale up to thousands of times its current capacity while remaining both secure and decentralized … which will be a plus for DeFi. “
Although Ethereum’s scaling capabilities are set to increase more due to the launch of Eth2, it remains to be seen whether it will be able to scale fast enough to cope with the growth of DeFi markets. Sam Bankman-Fried, CEO of FTX, recently said he believes the launch of Ethereum 2.0 will not be able to cope with the potential growth that could be witnessed in the DeFi market. He even decided to build his DeFi project, Serum on the Solana blockchain, instead of choosing Ethereum, which is the most popular option right now.
The phased rollout plan carries a lot of uncertainty regarding the ability to cope with the potential growth of DeFi markets in the same duration, according to Jay Hao, CEO of cryptocurrency exchange OKEx, who told Cointelegraph:
“We already know that it will be faster than the current chain, but we also know that it will be implemented in iterations and that, for starters, it might only be 100 times faster, maybe a little more. We are already seeing many other blockchain solutions that can produce faster throughput than this. “
To address these challenges, Ethereum co-founder Vitalik Buterin said in an AMA Reddit session on November 17 that the benefits of Ethereum 2.0 will come faster than people expect. Hao supports this sentiment, stating, “As DeFi grows, Eth2 will also become faster, more scalable and decentralized.”
Furthermore, DeFi protocols may also start staking ETH natively on their platforms, but the downside to this would be the reduction of the decentralizing impact of the network. Patrick Collins, developer advocate at Chainlink Labs, told Cointelegraph:
“In a way, I see ETH 2.0 staking as a DeFi protocol in itself. It will be interesting to see the projects incorporate staking. […] The difficult part would be finding out how to do this without harming the security of the network as huge pools controlled by single entities are not ideal at all. “
The next update
After the Beacon Chain update, shard chains would be the next update to follow. According to the Ethereum website, the network capacity will increase, improving transaction speed by extending the network to 64 blockchains called shard chains. While these snippet chains will not support smart contracts or user accounts in the early stages, smart contract support is essential for DeFi platforms due to their use of oracles.
The most significant 2.0 update for DeFi would be Phase 1.5, where the existing Ethereum mainnet would be added to the Beacon Chain as a shard chain, transforming the network into a PoS consensus network from the current PoW consensus algorithm. The launch is scheduled for 2021, a specific date is not available for this transformation.
The DeFi boom has congested the Ethereum network, driving transaction costs to all-time highs. This is perceived as another reason for DeFi’s slowdown in growth. Becker further elaborated on how the 2.0 update can relieve the pressure that market participants are feeling: “The Sharding update alone should enable a return to the days when the commissions to generate and send Dai cost only cents, not dollars. Economic transactions would facilitate an increase in DeFi adoption and innovation. “
Kosala Hemachandra, founder and CEO of MyEtherWallet – an Ethereum-based wallet platform – even compared this growth expected to scale to the transactional levels experienced by electronic fund transfer giant Visa, telling Cointelegraph, “The increase in throughput and prices. Miniscule gas due to Eth2 helping DeFi reach the next level. Currently Visa can process around 20,000+ transactions per second; with Eth2, we will be able to get close to that level. “
The expected decline in network gas prices and increased throughput are set to increase market participation in DeFi, as many investors faced this hurdle during the DeFi boom in the summer, which caused them to miss out on profitable investment opportunities. The current scalability problems addressed can be solved by projects that launch level two solutions, which help solve this problem. Hemachandra spoke on how these tier two solutions could even help Ethereum 2.0 after launch:
“Initial Eth2 will start with 64 fragments, which means it will be able to support at least 64 times the current volume. If we start to have more volume than that, we will run into scalability issues. However, this is also where the second level solutions will be extremely useful. With adequate level two solutions and with Eth2, we can easily reach 128 times the current volume. “
DeFi could lose from the phasing out
While tier two solutions are capable of addressing the scalability issues Ethereum 2.0 may face, the duration through the various stages of the launch could see the DeFi market grow exponentially, as evident through triple-digit DeFi token gains. in the running Bitcoin bull. All the benefits proposed by launch 2.0 will only be effective once the final phase of Phase 2 arrives, as the fragments would be fully operational and will include support for smart contracts.
But this launch phase may only be two years away, as the Ethereum roadmap says it is still in the research phase. While most DeFi solutions and DApps use Ethereum as their blockchain of choice, there are other blockchain networks that could compete for a share of the DeFi market. Simon Peters, senior account manager of eToro – a social trading platform – told Cointelegraph: “The transition of Ethereum to 2.0 could take several years to complete, which is why some competing networks, such as Cardano, Tezos, Tron and EOS. , took advantage of this aspect to their advantage and acquired part of the DeFi market share. “
The transition of Ethereum to 2.0 is happening in a live environment, as 1.0 must run smoothly during the different stages of launch. Peters hinted at the risks this live transition currently entails for DeFi protocols:
“They do it while they are in a live environment. It’s not easy, especially when Ethereum already supports a large number of DeFi protocols. They also run the risk that any migration problems or delayed 2.0 rollout could lead developers to build elsewhere or port projects to a competing network. “
While there is not a single Ethereum contender for DeFi and DApps, Ethereum is bound to be of paramount importance to DeFi and its contribution will only grow as the technology matures. Therefore, the interaction between Ethereum and other blockchains that are starting to operate in the DeFi space is of great importance. Hao explained how these solutions should evolve: “The real key lies in making these solutions compatible with Ethereum and interoperable with other blockchains. I think it’s one of the most exciting things about the DeFi space: the constant innovation we see. “
The Ethereum Depository Agreement for Phase 0 of Ethereum 2.0 Launch took effect on November 4, with Phase 0 launching on December 1. Stakeholders will need to deposit 32 Ether (ETH) in the contract to participate. The deposit agreement must accumulate 16,384 deposits of 32 ETH, or $ 200 million for the launch to be successful.
