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Ethereum Merge: Risk for Stablecoins and DeFi Protocols?

 


Ethereum's transition to a Proof-of-Stake (PoS) network could impact DeFi protocols and stablecoins on the blockchain, according to DappRadar's new report.


According to the report, the stablecoin market has reached massive proportions. On public blockchains like Ethereum , this token class has become an integral part of DeFi operations . Not least because of this, the use of these tokens has increased so significantly.


With the majority of DeFi applications running on Ethereum, the report says the merge could affect the stability of stablecoins . The event, scheduled for September 15, will transition the blockchain from its Proof-of-Work (PoW) consensus mechanism to PoS.


Although major stablecoin issuers like Tether (USDT) and Circle (USDC) have already announced their support for the merge , some community members still have concerns about this planned migration.

MakerDAO is the creator of DAI, one of the largest decentralized stablecoins on Ethereum . The company pointed to several potential issues related to the Ethereum merger .



The tweet about the potential difficulties also laid out plans to resolve them. Difficulties mentioned include negative funding, additional costs for perpetual contracts, network outages, and replay attacks, among others . 


Additionally, Grayscale, a digital currency investment firm, expressed concerns about the potential impact of the merger on ERC-20 tokens. These concerns would be particularly justified when it comes to hard forks. The scenario mentioned is again very likely.


According to Grayscale, the merger could lead to a situation where tokens are locked in smart contracts forever . Investors would therefore be forced to take their tokens out of the smart contracts before the merger.


The Ethereum merge should not affect the operation of the network

However , Ethereum developers seem to have considered all of these possibilities and taken precautions. There is a strong belief that the merge will have no impact on the network as it will take place at the base layer.


Most DeFi protocols also seem unconcerned about these potential issues. Uniswap e.g. B. stated that it would not interrupt its services because of the merger.


The future of stablecoins remains controversial.

Even if none of these difficulties arise, the future of stablecoins still poses a major challenge for the DeFi sector. 


As centralized stablecoins dominate decentralized protocols, many DeFi projects have considered algorithmic stablecoins, according to the report.


Furthermore, potential regulations for stablecoins could still affect DeFi even after the Ethereum merger 

Disclaimer

All information contained on our website has been researched to the best of our knowledge and belief. The journalistic contributions are for general information purposes only. Any action taken by the reader based on the information found on our website is entirely at their own risk.

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