Posted on 03-31-2020.
The growth of decentralized finance may be choking other types of transactions in the Ethereum network. As the DeFi sector is highly reliant on Ethereum, this means a lot for both the blockchain network and the very near future of decentralized finance. In this article, we take a look at research on the matter and explore the effect Ethereum limitations may have on the emerging DeFi.
“In an ideal scalable world, all types of transactions have room to grow. But on Ethereum today, for one kind of transaction to grow, it has to cannibalize the others,” Ganesh Swami notes.Back in early 2016, roughly half of all block space was occupied by ERC-20 transfers and complex smart contract transactions in almost equal proportion, while the other half was taken up by Ether transfers. A share of the total gas cost for different types of transactions in the Ethereum network. Source: Covalent. As the DeFi sector grew and crypto-lending platforms like Maker and Synthentix launched, the share of complex transactions began to increase, taking the block space from Ether and ERC-20 transfers. Currently, these complex transactions amount to 30–35% of the total block space. The share of actual Ether transfers went down from 99% at the end of 2015 to 75–80% of the total transaction volume, while the share ERC-20 transfers went below 5% after the decline of ICO.
“The Ethereum protocol underlying most of the DeFi systems isn’t enough. Ethereum developers didn’t expect to have this many users. In terms of architecture, the system wasn’t designed to work under loads this high. Ethereum 2.0 will have an entirely different economy and we don’t know how it plays out,” Mikhail Sayfullin, CEO of Enecuum and one of the industry stakeholders, noted in a conversation with ForkLog’s Max Bit.The recent problems faced by MakerDAO and several other DeFi projects illustrate the matter. While not caused solely by the flaws and limitations of Ethereum, the Black Thursday of DeFi highlights the need for better underlying infrastructure. Notably, Ethereum 2.0 with the introduction of Proof-of-Stake and sharding may be one of the solutions. It is expected to launch a test net for the initial Phase 0 implementation in April 2020. Whether or not Ethereum will be able to keep up with the DeFi is yet to be seen, but the sector has to find some room for growth, which may lead to projects creating clever second-layer solutions or migrating to other networks. Follow us on Twitter and Facebook and join our Telegram channel to know what’s up with crypto and why it’s important.