According to the Ethereum Foundation, the Ethereum network will undergo an "Istanbul" network upgrade at block height 9069000 (expected on December 7). According to the development map of Ethereum, after the Berlin upgrade is implemented in the next 6 months, its consensus mechanism will shift from POW to POS, and Ethereum will officially enter the 2.0 stage.
In this Istanbul upgrade, in addition to the zero-knowledge proof layer2 scalability solution, what the community is most looking forward to is the adjustment of its Gas price, which will undoubtedly make the Ethereum network faster, cheaper, and more efficient.
Since the beginning of this year, the Ethereum network, with its outstanding performance in the field of DeFi financial applications, has let everyone see the possibility of blockchain technology being fully implemented in the financial field. So what opportunities and challenges will the arrival of Ethereum 2.0 bring to the DeFi field?
Before discussing the topic, let’s review the market performance of DeFi lending platforms in the past November.
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Figure 3: Distribution of Outstanding Loan Assets in 2019
Judging from the performance of the DeFi market data in November, both the amount of borrowing and lending of funds have increased significantly, while the total amount of outstanding loans has declined significantly. DAppTotal data analysts believe that the possible reasons for the large changes in the data are:
1. On the eve of the third bitcoin halving, the market sentiment is generally bullish, but in fact it fluctuates downwards. Many miners are unwilling to sell their chips and choose to mortgage digital assets in exchange for stablecoins to pay electricity bills, which directly stimulates The borrowing and lending market demand of the DeFi lending platform.
2. With the substantial increase of Maker's mortgage assets, the total supply of Dai has gradually increased. For this reason, Maker has raised the debt limit of 100 million Dai. According to data from DAppTotal, the loan amount of Dai on various platforms increased by 3.6 million compared to October, an increase of 66.66%.
3. As for the decrease in the total amount of outstanding Dai, the reason is that due to the impact of MakerDAO’s launch of multi-collateral Dai on November 18, a large number of single-collateral Dai (Sai) circulating in the market needs to repay debts and upgrade multi-collateral Dai. According to data from DAppTotal, the total supply of multi-collateral Dai has reached 45.12 million USD since its launch at 0:00 on November 19.
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1. Opportunities
In the short term, the upgrade of Ethereum Istanbul will reduce the contract Gas fee, so that the borrowing and lending operation costs of users using the DeFi lending platform will be reduced accordingly, which will stimulate the increase in the activity of existing users and stimulate more incremental users entry.
In addition, the protection of personal information privacy and security by zero-knowledge proof will make DeFi financial applications more trusted by more people, and the scalability brought by layer 2 solutions will provide protection for a larger number of transactions and demands in the DeFi application field, and then Attract traditional financial securities, credit, insurance and other related financial models to test DeFi, and inject new vitality into the DeFi lending market with the help of various innovative combination models of DeFi.
In the long run, the arrival of Ethereum 2.0 will make the staking market active again. Most of the staking mining models now suffer from the instability of currency prices, resulting in no substantive breakthroughs and progress in the staking market. After Ethereum 2.0, the top three mainstream currencies in the market and the smart contract platform with the most extensive influence , Will it lead to a change in this situation, it is worth looking forward to.
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2. Challenge
The business model of DeFi lending applications is essentially the same as that of banks. Some users mortgage assets (deposit money) for other users to lend assets (loans). Only when the amount of lending is large, banks can continue to make profits through interest rate differences. Obviously, now The amount of lending in the DeFi market is still relatively small, and the overall market potential has not been fully activated.
There is a paradox here. If DeFi lending platforms such as Compound continue to develop and mature, more and more users will borrow money through the platform, and at the same time, more and more users will participate in mortgage assets. Then mortgage assets to Ethereum There will be fewer chips for mining in the network system. In this way, the cost for perpetrators to be attacked by using the Ethereum network will be reduced, thereby affecting the security of the entire Ethereum network.
There is some truth in this assumption, but the question is, under what circumstances will the deposit interest on the DeFi lending platform be higher than the POS mortgage mining income? Under the regulation of market demand and supply, this is obviously not an easy condition to achieve.
The Ethereum network market is an ecosystem composed of mining pools, DApp developers, users, etc., which restrict and influence each other. It is almost impossible to assume that everyone will pledge tokens without mining any more. If it happens, it will be a devastating blow to the entire ecology. Moreover, it is difficult for a DeFi application to have the credit and endorsement of the Ethereum platform, and the two are not in a competitive dimension. Such worries are the same as those worried about miners spending huge sums of money to implement a 51% attack on the Bitcoin network, and there is a high probability that it will not happen.
