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Starting in June 2020, the Decentralized Finance (DeFi) market has experienced a strong recovery. According to data from Defipulse, in just four months, the total value of the entire DeFi agreement locked up has reached US$14 billion from US$662 million in January, an increase of 2114%.
DeFi activities are frequent and the need for scalability increases
Governance tokens are at the center of the DeFi boom in 2020. The launch of Compound (COMP) and Yearn.finance (YFI) marked the beginning of a new trend, leading to the introduction of governance tokens for more and more DeFi protocols on the blockchain network. What followed was an unexpected upsurge surrounding liquid mining. The increase in the total value of locked positions in the DeFi agreement means that the number of DeFi users is also rising rapidly. As a result, the Ethereum blockchain network has begun to experience higher user activity, leading to a surge in daily transaction volume, transaction fees, and a soaring hash rate.
The data shows that the daily transaction volume of Ethereum reached 1.4 million on September 17, a record high. The previous record was established in January 2018, when the price of Ethereum exceeded $1,400.
In terms of the total amount of GAS transactions, Ethereum increased from 37.3 billion transactions at the beginning of the year to 79.6 billion in early November, an increase of 113%. The increase in transaction volume leads to network congestion and high GAS fees. In September, the average GAS fee for DeFi transactions reached a peak of 0.03 ETH (more than 500 GWEI), which was about 14.4 US dollars, and the price of blockchain’s native token ETH also soared to 480 US dollars.
Hash rate hits a record high, V God clears the blueprint of Ethereum 2.0
Before Ethereum turns to PoS, the hash rate will still be an important indicator to measure the level of blockchain network security. Since the beginning of the DeFi wave in July this year, the hash rate of the Ethereum blockchain network has continued to rise, reaching a record high, reaching 264,000 terahash per second. Under the circumstances of DeFi hype and fees surge, Ethereum miners pushed the hash rate to a new historical high.
As the user activity of the Ethereum blockchain network has soared, the network has seen bottleneck scenarios. During the peak period, the cost of GAS soared, so that the transaction (especially pledge transaction) fees sometimes reached more than $100 per transaction. Ethereum 2.0 is a key step in the expansion of Ethereum to a larger capacity and is an extremely important development node for DeFi.
In early October, V God clarified the Ethereum 2.0 roadmap on Twitter. Initially, V God mentioned that the Ethereum 2.0 roadmap has three stages: PoS (Proof of Stake), fragmentation, and then fragmented transaction processing. However, in a recent statement, V God pointed out that before sharding, you can run the sharded Rollup first, which can be done without Ethereum 2.0. In this way, the expansion of Ethereum can be implemented in two stages instead of three.
Why does Ethereum 2.0 bring the second spring to DeFi?
Simply put, the optimization of Ethereum 2.0 is trying to make each node only need to process part of the transaction, so that each node only needs to process a small part of the transaction in the network, thereby reducing communication costs. Specifically, Ethereum 2.0 has 64 shard chains, which are coordinated by the beacon chain. Each shard chain has its own exclusive block producer and validator, and these shard chains are closely connected with each other and can communicate with each other, thus forming a large shard chain network. Therefore, the validator of Ethereum 2.0 does not need to process all transactions in the entire network, but only needs to process and verify transactions on a certain shard chain.
In essence, Ethereum 2.0 will shift Ethereum from the current Proof of Work (PoW) algorithm to a Proof of Stake (PoS) consensus algorithm. Currently, Ethereum uses PoW like Bitcoin, which requires miners to use computing power to verify transactions. The PoS algorithm does not rely on miners, and users collectively verify transactions through pledges.
Rollup can provide speeds of 1000 to 4000 TPS, which will be about 100 times the current Ethereum blockchain capacity. Over time, Ethereum 2.0 will increase the TPS to more than 25000TPS through sharding, thereby further expanding the blockchain capacity.
It is true that the DeFi panorama is difficult to describe, but in the face of slow transaction times and huge fees, withdrawal and activity are reduced, Ethereum 2.0 is almost giving the answer. For example, at the level of Ethereum’s September GAS, DeFi transactions under $1,400 are expensive, and the delay in transaction time has increased the slippage and reduced the accessibility of DeFi, which is contrary to the DeFi goals that most founders and users hope to achieve. . We seem to understand that without Ethereum 2.0, there would be no “second spring” outbreak of DeFi.
Ethereum 2.0 is undoubtedly the greatest development since the launch of the blockchain and will have a huge impact on the future of DeFi. By speeding up the release schedule, the core developers of Ethereum are going all out. In the deployment of Ethereum 2.0, the smallest “episodes” may bring disaster to the future of the project. Problems in the migration process or continued high fees may cause the DeFi ecosystem to shift from Ethereum to a faster and cheaper alternative.
In fact, this has become a problem, and Ethereum’s challengers have been moving forward. Competitors like Polkadot and TRON are speeding up the development progress. Polkadot has developed decentralized exchange DeFi projects like Polkastarter. So, with the emergence of these external threats, it may not be surprising that Ethereum 2.0 entered the market at the fastest speed.
Although DeFi is not just an exclusive application of Ethereum, it is a fact that Ethereum is the core. Ethereum powers the largest volume of decentralized applications and has a dominant position in the field of decentralized finance (DeFi). The accessibility of individual users is the core focus of DeFi. With the substantial increase in transaction speed and continued low fees, Ethereum 2.0 will certainly help DeFi move higher to a certain extent.