The founder of peer-to-peer lending platform for digital assets, DeFiner, believes the launch of Ethereum 2.0 could be the catalyst for DeFi (or decentralized finance) growth. Jason Wu, who foresees 2020 as the year of DeFi following its birth in 2018 and the further growth it witnessed in 2019, sees this alternative to the traditional financial system continue to mature in 2020 as an ecosystem.
“The different services within DeFi such as DEXs, lending, insurance, market makers, hedge funds etc., have started to connect with each other and form an alternative financial system to serve the customer,” DeFiner’s Wu says. “This will increase the liquidity of DeFi and ultimately provide a better service to the customer. In addition, this alternative financial system has already demonstrated financial innovation that didn't exist in the traditional financial system, a clear example being the rapid rise of peer-to-peer digital loans.”
Ethereum has been the main network known for running most decentralized applications including DeFi projects but has been bugged down by technical issues surrounding mainly its platform’s scalability. Its laggy pace of restructuring over the last two years, though, has seen several other smart contract platforms emerge to compete with its dominance. Now, from China to Europe and the U.S., several new blockchains have emerged with networks that are bent on outdoing one another in hosting projects including those that are focused on DeFi.
But Ethereum 2.0 is all about scale, Vitalik Buterin said this week as his presentation of a roadmap of what he thinks the next five to 10 years of the new protocol and beyond might look like was criticized as a waste of resources. He described the last two years as a time when “there has been a solid shift from “blue sky” research, trying to understand what is possible, to concrete research and development, trying to optimize specific primitives that we know are implementable and implement them.”
This is my approximate view of what the next ~5-10 years of eth2 and beyond might look like.
Roadmap below reflects my own views, others (including future versions of me) may have different perspectives! Details may of course change as we discover new info or new tech. pic.twitter.com/wynMVC04Ag
— vitalik.eth (@VitalikButerin) March 18, 2020
The period also saw “an increasing move toward maintaining compatibility and ensuring a smooth transition for applications, as well as making eth1.x and eth2 fit together as part of a coherent vision.” Though details may still change as he and his team discover new information or new technology, Buterin allays fears that there will ever need to be a further upgrade as large as the transition from Ethereum 1.0 to Ethereum 2.0. Rather, from Ethereum 2.0 onwards, things will be much more incremental, he said.
If all the related issues – including scaling – are resolved, Ethereum 2.0 has the potential to improve the performance of the blockchain network significantly as it will lower transaction fees, improve the throughput of transactions, and increase reliability, Wu said, adding:
“With the infrastructure upgrade, the quality of DeFi services will reach another level. DeFi builds trust using code and mathematics, whereas the traditional financial system is based on human trust and company reputation. The financial crisis in 2008 taught people that financial intermediaries are not always as trustworthy as they seem. The current financial system is associated with high-costs and lacks transparency where consumers are faced with high-risk and low-profit. Thus, a future financial crisis could also be a factor in proving the worth of DeFi. Bitcoin was born from the last financial crisis and DeFi will thrive in these economic conditions.
While admitting that DeFi is most popular with Ethereum right now, he stressed that the largest digital asset is Bitcoin and major efforts are being made to make it compatible with other blockchain assets. This is crucial, going by developing trends in the crypto space, because “compatibility and interconnectivity will be important” for DeFi in the future. Interconnectivity looks at DeFi projects being able to easily connect with other DeFi services with clearly defined API, standard smart contracts etc; while each DeFi project continues to focus on its specialized area but “looking to integrate and build channels with other DeFi projects” to be able to better serve customers.
Last month, the DeFi ecosystem marked a major milestone as the total value of assets locked in applications surpassed $1 bln but some challenges and obstacles still need to be overcome for DeFi to be considered a truly global development. Top among them, according to Wu, is the need to ensure “first-grade accessibility and internet infrastructure across less developed regions” as it is of paramount importance in opening up DeFi to the rest of the world.
“Without the necessary infrastructure in place, DeFi could face regional growth obstacles,” he says. “Industry participants are already recognizing this issue as a priority and are eager to find solutions, so that we can provide our services to global markets.”