Ethereum 2.0 Delayed Launch Can Affect Its Dominance in DeFi Market

UTC by Bhushan Akolkar · 3 min read
Ethereum 2.0 Delayed Launch Can Affect Its Dominance in DeFi Market
Photo: Depositphotos

The continuous delay in the launch of Ethereum 2.0 threatens its dominance as market analysts question whether its development will be able to keep pace with the DeFi growth. Some new DeFi projects have already started looking for alternatives in the meanwhile.

The Ethereum community and the DeFi world has been eagerly waiting for the launch of Ethereum 2.0. The transition to the Proof-of-Stake (PoS) Ethereum 2.0 promises massive scalability and network performance. Earlier this month, the Ethereum 2.0 deposit contracts went live allowing ETH holders to stake their holdings. Only after a minimum contract deposit of 524,288 ETH in the deposit contracts, the Beacon Chain will go live.

So far, there’s been a lukewarm response from the stakers with a possible delay ahead for the Beacon Chain launch. Well, this will further delay the launch of sharding and the next phases in ETH 2.0. Since the Ethereum blockchain hosts a majority of the DeFi tokens, the ETH 2.0 delay is likely to affect the decentralized finance market.

The DeFi sector registered significant growth in summer 2020 with a majority of the DeFi tokens touching new highs. However, following the bloom period, the market has also corrected significantly. Nearly 80-90% of the DeFi transactions happen on the Ethereum blockchain. Analysts said that the delayed launch of Ethereum 2.0 could dwindle the platform’s dominance in the DeFi market.

With its projected scalability, the Ethereum 2.0 network is expected to provide a major boost to DApp and DeFi use cases. Steven Becker, the CEO of DeFi project MakerDAO told CoinTelegraph:

“Eth2 is designed to optimize the network architecture without causing decentralization, security and scalability to suffer. Upgrades should enable Ethereum to scale to thousands of times its current capacity while remaining both secure and decentralized… which will be a boon for DeFi.”

Will Ethereum 2.0 Development Match Up With the DeFi Growth?

Some of the crypto analysts think that the DeFi bubble will soon burst after the recent explosion. On the other hand, others believe that the DeFi market is here to stay in the long term. Now, if the DeFi growth continues faster than expected, some market analysts think that Ethreum 2.0 development won’t be able to keep with the DeFi growth.

As a result, some DeFi project developers are already looking for alternatives in that case. Sam Bankman-Fried, CEO of FTX, has decided to snub Ethereum for his own DeFi project Serum and instead chosen the Solana blockchain. Jay Hao, CEO of the OKEx cryptocurrency exchange, said:

“We know already that it (Ethereum 2.0) will be faster than the current chain, but we also know that it will be rolled out in iterations and that, to start with, may only be 100 times faster, perhaps a little more. We are already seeing other many blockchain solutions that can produce a faster throughput than this.”

However during the Reddit AMA session last week, Ethereum co-founder Vitalik Buterin users will get the benefits of Ethereum 2.0 faster than they expect. He said: “As DeFi grows, so will Eth2, and it will become increasingly faster, more scalable and decentralized.”

It will be interesting to see how Ethereum developers maneuver through these challenges. We expect things to be on track pretty soon in the coming day.

Ethereum (ETH) remains one of the top-performing cryptocurrencies for 2020. ETH’s year-to-date returns are better than BTC. The ETH price has made a swift movement over the last few days jumping way past $500 and approaching $600. ETH is seeing these levels for the first time since January 2018. At press time, ETH is trading at a price of $580 with a market cap of $65.9 billion.

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