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This is another busy week for the blockchain field. BTC briefly broke through $18,000, while ETH touched $490. This field is extremely active, but it has also increased competition.
As the future of blockchain improves, there may be more open competition. For DeFi, hacking is still a problem, and as its frequency continues to grow, it remains to be seen how the industry intends to resolve its vulnerabilities.
When the output of liquid mining dries up
Liquidity mining has been the main catalyst in the DeFi field in 2020, thereby stimulating user activity and increasing the TVL value. However, the issue of sustainability has remained unresolved throughout this process.
What happens when the revenue incentive disappears? As Uniswap’s token liquidity program ends on November 17, the consequences may have begun to take shape.
Uniswap’s TVL value was halved within a week, and the TVL was reduced from over US$3.3 billion to around US$1.6 billion. However, the capital did not evaporate, but transferred to other agreements, mainly competitor SushiSwap. During the same period, TVL, an alternative to AMM, soared from US$300 million to around US$1 billion.
Consider Uniswap and SushiSwap. The latter first attracted investors and then realized, while Uniswap, compared with the beginning, the TVL value is still a net increase.
Likewise, the liquidity program helped drive Uniswap’s TVL to rise significantly. Even after the big cuts, TVL is now (about $1.6 billion) higher than when it was released on September 16 ($916 million).
The Uniswap community is currently voting to decide whether to launch another liquidity mining plan.
The proposal hopes to distribute UNI tokens to the same pool as before, but the ratio is half of the previous one. Before the voting ends on November 19, this proposal requires at least 25 million UNI support. Interestingly, 15.46 million of the 16.86 million people currently in favor are from one address-Dharma: Deployer.
Ethereum and its competitors
As the industry develops, competition for market share may begin to intensify. Despite current limitations in scalability, Ethereum is still the leader in the dapp field. In addition, it also shows signs of accumulating network effects. This may help it defend its position against rival blockchains.
For example, ETC will be the latest blockchain that plans to make its cryptocurrency appear on Ethereum in the form of packaging tokens.
Facts have proved that tokenized BTC is very popular on Ethereum, and Dash and Zcash are also planning to appear on Ethereum in the form of packaging tokens, which seems to have become a trend.
In terms of dapp, users have shown willingness to transfer funds quickly to seek higher returns. Whether this is the case for the underlying ecosystem remains to be seen.
Ethereum’s competitors are also working hard to provide alternative products. Among them, Nervos has released a new token standard to help the development of its DeFi ecosystem. Tezos’ Delphi upgrade can reduce fuel costs by 75%. Given that high transaction costs are one of the biggest challenges hindering the development of Ethereum, this may make Tezos a competitive choice.
Oasis Network (Oasis Network) launched its main network, focusing on protecting user privacy, and is also developing competition in the DeFi field, especially in the loan field.
Traditional industries are also actively participating. For example, IBM has released news about its consensus protocol patent for blockchain games. In the blockchain field, the influence of corporate participants is usually discounted, but considering their influence and resources, they may change the current competitive landscape. It is unclear how such patents will affect the dynamics of industries that focus on open source solutions.
At the same time, the progress of the Ethereum 2.0 deposit contract is quite slow. This may delay its release expectations. Therefore, in order to maintain its dominance as a dapp field, layer 2 solutions may become more important for Ethereum.
The threat of malicious attacks
In November, a large number of DeFi dapps were attacked. Three projects have suffered losses recently: Value DeFi (US$6 million), Origin Dollar (US$7 million) and Akropolis (US$2 million). These attacks all occurred in a relatively short period of time and highlighted several characteristics.
Flash loans are not only a useful financial tool, but also a potential attack tool. This feature in the DeFi field is very complex, and it seems difficult for the project to identify all possible attack vectors.
The audit coverage is not enough to protect the project. Even audited projects have been attacked. This has caused some people to question what the audit firm should be responsible for. The industry may need to use more audit methods. The recent attacks are not to break the protocol defenses, but to steal assets. As the interconnections between agreements become closer, it may become more necessary to evaluate the relevant conditions of cross-agreements in the future.
In addition, recent situations have exposed the fact that in a decentralized environment, the ability of projects to recover losses is also very limited. Few projects currently demonstrate their ability to take legal proceedings. As the industry develops, this may only encourage such malicious attacks.
Centralization in a decentralized world
Axie Infinity has always been one of the benchmark game projects in the Ethereum ecosystem and the entire industry. Whether it is the game profit model or the introduction of DeFi elements into the game and the release of governance tokens, it has always been one of the leaders of blockchain games.
However, Sky Mavis blocked 800 Axies and set a bad precedent. This is reminiscent of some DeFi projects that blacklisted some addresses to combat illegal activities. Although the intent may be good, the results show that a centralized entity can have a significant or even decisive impact on the ecosystem. This may be an issue that cannot be ignored for both users and regulators.