Life beyond Ethereum: What layer-one blockchains are bringing to DeFi

Life beyond Ethereum: What layer-one blockchains are bringing to DeFi

Ethereum is the dominant force in DeFi, and layer-two solutions are a promising alternative, but the layer-one blockchains are not done just yet.

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Issues with Ethereum congestion and high fees have led to many companies adopting layer-one solutions like Optimistic Rollups, OMG Network and many others. These platforms allow transactions to be created outside of the Ethereum network on what are known as “sidechains,” which then can be reconciled on the main Ethereum network in one simple transaction.

These layer-two options are gaining a lot of traction in anticipation of the release of Ethereum 2.0, which aims to solve the current high gas fees through sharding and splitting transactions throughout multiple blockchains.

Many projects have been adopting both layer-one and layer-two solutions to give users alternatives to the current demanding fees seen on the Ethereum blockchain. Among these projects, decentralized exchanges like SushiSwap and 1inch stand out. Sergej Kunz, co-founder of 1inch Network, told Cointelegraph: “We are ready to expand to any other blockchain with enough DEXes, tokens and users. No matter if it is a separate blockchain like BSC, NEAR, TRON, Solana or it is an L2 solution like Optimism or zkSync.”

Binance Smart Chain: Complimenting while competing

In the meantime, layer-one projects like Binance Smart Chain, or BSC, give users cheaper and faster trading and liquidity provision options. BSC is one of the most popular alternatives to Ethereum, due to all of the advancements already made by Binance. Zhenwu Shi, founder of InfStones — one of the top 10 validators on the BSC network — told Cointelegraph:

“Making a transaction on BSC only takes $0.1 and is confirmed within 5 seconds, while it takes $20 and a few minutes on Ethereum. Such excellent performance has attracted a lot of developers to migrate their projects to BSC. Moreover, Binance is dedicating a significant amount of engineering resources on developing BSC, and the technology progress of BSC is much faster than other projects.”

While BSC can be seen as Ethereum’s current number-one competitor, there are other ways of looking at the present scenario. BSC provides an alternative for projects and users that frees up space on the Ethereum chain and allows for cheaper gas prices on this currently overburdened blockchain. Some, however, have slammed BSC for being centralized, so there are many factors to consider when thinking about efficiency and decentralization.

Many believe that the future of blockchain and smart contract platforms will be distributed once there is no single project that will hold total domain over the market. Multiple projects will have different advantages and features to offer users. Sometimes, even branding can make projects stand out from each other. As so, it’s unlikely that Ethereum will remain the dominant decentralized finance powerhouse it has been so far. Ilya Abugov, an advisor to a DeFi data platform DappRadar, told Cointelegraph:

“ETH 2.0 is significantly far away that competing blockchains can establish their own ecosystems. When ETH 2.0 launches, it will likely be just one of the options for project teams. It should improve things for the Ethereum ecosystem, but it will not take things back to Ethereum as the only viable option.”

A community-driven project, Cardano

Many other projects offer different approaches to smart contract and DeFi technology that may compete with and complement the current paradigm that has so far been dominated by Ethereum, which has achieved a strong network effect. Alongside BSC, Cardano is often viewed as one of the leading contenders to Ethereum.

The Cardano community has a passion, and the community has seen rapid expansion. Love him or hate him, Charles Hoskinson can move a crowd. Cardano was built from the ground up with the backing of academic research. Many in the blockchain industry consider Cardano to be one of the best-designed blockchains in the crypto space. The industry heavily criticized Cardano for its initial slow development. However, as the system becomes operational, the thought, planning and engineering may allow for rapid acceleration and adoption.

Cardano is one of the pioneers in an emerging contract model, extended UTXO. Extended UTXO builds on the “box” transaction framework that was brought to market by Bitcoin. However, UTXO boxes gain custom logic and programmability. Rather than the contract model, which gained adoption starting with Ethereum, the extended UTXO has a unique property by which the majority of the contract logic does not run on the blockchain itself. The extended UTXO model prevents the chain bloat that account-model smart contracts accumulate.

The extended UTXO model is relatively new. However, many researchers believe it is equivalent to moving from 8 bit to 64 bit. Some had speculated that Cardano’s real challenge to compete with BSC and Ethereum might as well be the path to mass developer adoption of this new model, as it is relatively new. The Plutus testnet certainly puts these fears to rest, as there have been overwhelming interest and signups before its launch.

The extended UTXO alliance in Ergo

Ergo is a project that lacks the hype-driven marketing that tends to be so prevalent in the crypto space. Perhaps this is because its research-first approach and high-level content produce a lot of confusion for the average crypto investor.

Ergo is a proof-of-work, or PoW, smart contract blockchain, and was the first blockchain to introduce the extended UTXO smart contract model. This led to a strategic research partnership with Emurgo and IOG, the two primary companies building Cardano. Joint research has created oracle pools, a radical new approach to broadcasting read-only oracle data in the blockchain space.

NIPoPoW’s, or non-interactive proofs of proof-of-work, allow full PoW node security on ultra-light client environments, mainly cell phones. The founder and core developer of the Ergo platform, Alexander “Kushti” Chepurnoy, told Cointelegraph:

“Ergo is acting in a Bitcoin-like UTXO model, which is far more friendly to known scalability and privacy solutions than Ethereum and other account based block chains. Ergo has native tokens, not contract based, which is cheaper. Also, it is enforcing developers to do computations off-chain, with just necessary checks and minimal storage to be on-chain, achieving rollups level of blockchain bloat compression.”

The path to PoW full node security on mobile devices and potentially wearables is undoubtedly an exciting development. Joint research has also built the framework for an extended UTXO algorithmic stablecoin protocol, AgeUSD. The AgeUSD protocol can be customized to be a derivative representing any asset or commodity with relative ease.

While Ergo is not a native privacy coin, it already has one of the most advanced layer-two privacy applications on the blockchain: a noninteractive mixer. Ergo was launched with Schnorr signatures called sigma protocols.

The Ergo/Cardano alliance certainly is something that can drive further development. After completing the Goguen rollout, joint sidechain research may plug these two chains together, creating an extended UTXO network, bringing together the strengths of both PoW and proof-of-stake blockchains.

Array

Waves is a blockchain protocol that seeks to create a larger ecosystem of interconnected blockchains. Solving this fragmentation and interconnection, the blockchains‘ cumulative functionality is one of Waves’ critical points of focus. Rather than squeeze everything into one chain, the solution lies in interchain interaction that is genuinely blockchain agnostic, without a new native token, but with its tokenomics based on participating chains’ respective economies.

When asked about the advantages being brought to DeFi by Waves as a layer-one protocol, the head of growth at Waves, Max Pertsovskiy, told Cointelegraph that since the smart contract scripts are not Turing complete, it is easy to predict their complexity, and as such, “A blockchain transaction fee doesn’t depend upon what script is used and is fixed at 0.005 WAVES, or $0.05 at the current exchange rate.” He added further:

“Another factor is staking, which, thanks to the Waves protocol’s underlying LPoS consensus algorithm, facilitates locking WAVES coins at 6% annually and, based on that, building attractive DeFi mechanics, as the Neutrino team has done.”

The blockchain space is famous for its tribalism — one chain to rule them all. The Waves protocol is working to develop gateways that remove borders to interconnect the blockchains. Waves would allow each blockchain to potentially hyper-specialize while evolving together as a whole. However, it is debatable whether the different tribes will unite and form a society.

Is DeFi adoption here to stay?

It is hard to say with any level of certainty what the future of DeFi will look like. The current DeFi environment has many notable projects all building toward a common goal. The race might be decided by technology, or perhaps community adoption, or maybe use will be the deciding factor.

It’s worth noting that, much like traditional finance, the world of DeFi may have room for many competing and collaborative solutions. For example, Polkadot believes this to be the case and focuses heavily on building interoperability solutions.

One thing is clear: The increasing level of research, innovation and adoption certainly shows that the DeFi movement is only going to grow. Michael Gord, managing director at the XDB Foundation — a nonprofit organization focused on supporting DigitalBits and related technologies — told Cointelegraph:

“Over the past year, the industry has more than proven its ability to hyperconnect all manners of network participants, and now, there are more places than ever to build. We are witnessing the rise of protocol layer blockchains, such as Polkadot, Cardano, Stellar and DigitalBits.”

Gord believes that the future of DeFi is not about one chain or the other but about a cross-chain one. Though difficult, “Cross-chain solutions are absolutely imperative to keeping DeFi truly open.”


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Ethereum is the dominant force in DeFi, and layer-two solutions are a promising alternative, but the layer-one blockchains are not done just yet.

What will happen to Bitcoin price as Coinbase goes public?

What will happen to Bitcoin price as Coinbase goes public?

The highly anticipated public listing of Coinbase stock is leading Bitcoin and Ether to rally, but what will happen afterward?

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Bitcoin (BTC) and Ether (ETH) have continually surged toward record highs, causing the futures market of Bitcoin to see a substantial increase in volume and open interest. The term “open interest” refers to the total sum of active trades in the Bitcoin derivatives market. Currently, the open interest of the Bitcoin futures market is hovering at historic highs, currently $27.43 billion.

Following the Coinbase listing, traders and investors generally anticipate the uptrend of Bitcoin and Ether to continue. But there are also short-term bear cases due to various factors such as a potential “sell-the-news” scenario and an overheated futures market.

The bull case for post-Coinbase listing

According to Adam Cochran, partner at Cinneamhain Ventures, Bitcoin should theoretically be at $70,000 going into the Coinbase listing. The investor said that the reason behind BTC’s gradual uptrend is the use of heavy leverage in the Bitcoin futures market, causing BTC to drop when the derivatives market gets overheated.

High leverage can cause short-term drops to occur because when there is a significant percentage of highly leveraged buy orders or longs in the market, the funding rate increases. Funding is a mechanism used by Bitcoin futures exchanges to achieve balance in the market.

When there are more buyers in the market, the funding rate increases. When the funding rate rises, buyers have to compensate short-sellers with a portion of their position. Since buyers have to pay sellers every eight hours to keep their positions open, it becomes less attractive to long Bitcoin, making it vulnerable to a drop. Cochran said:

“It’s crazy that we hit a new $BTC ATH the day before Coinbase lists, and kicks off 6 months of new roll outs, upgrades and institutional adoption with ETFs, etc. And it *STILL* doesn’t feel like we’ve got feverish 2017 levels of mania and FOMO yet. It just feels…on track?”

He further added: “The only reason $BTC isn’t at $70k already is because the retail-kiddies don’t know how to use leverage without getting mega-nuked at every all time high.”

Despite the price of Bitcoin hovering at an all-time high, the relative strength index is lower than where it was during the 2017 peak of the previous bull run. When the price of Bitcoin violently dropped in a short period, its RSI was at around 95. Currently, the RSI is at 92, which is lower than the tops of both the 2017, 2013 and 2011 rallies.

PlanB, the creator of the Stock-to-Flow indicator — which predicts Bitcoin will likely reach $200,000 — said that BTC would have to rally toward $92,000 to hit an RSI of 95. The analyst said: “#Bitcoin is looking strong at RSI 92.”

The price of Bitcoin is strongly rallying in anticipation of Coinbase’s public listing. Investors and traders generally believe that the cryptocurrency market will continue on an upward trajectory post-Coinbase listing, mainly due to the strong momentum of the market. However, there are some who believe that the listing of the stock, which will trade under the ticker “COIN,” will mark a temporary top for cryptocurrencies.

On-chain data also suggests that Bitcoin is in a favorable position to see a broader rally. Elias Simos, protocol specialist at Bison Trails, said that the supply of Bitcoin among addresses that hold 100 to 1,000 BTC has hit an all-time high. This indicates that the number of high-net-worth investors holding Bitcoin is increasing. He stated:

“The supply of $BTC in addresses that hold between 100 and 1k of the coin has hit an all time high! This growth has come at the expense of both the cohorts right below (1-100) and above (1k-10k). The reshuffling continues unabated.”

Atop the technical and fundamental strong points of Bitcoin heading into the Coinbase public listing, the general sentiment around the event remains overwhelmingly positive. Nic Carter, a long-time Bitcoin investor and researcher, said COIN is gearing up to be one of the most explosive public listings in the history of the United States stock market:

“As COIN gears up to be the most explosive public listing in history; GBTC eyes GLD for the title of largest commodity tracker; and BTC exceeds the value of the monetary base of the Pound Sterling; Take a minute to let it sink in. Then get back to work.”

Although a big part of the interest comes from the fact that the stock market is seeing the first debut of a major U.S. crypto exchange, Coinbase’s financials have impressed investors in the traditional financial market. Anthony Pompliano, a noted Bitcoin investor and co-founder of Morgan Creek Digital, pointed out in early April that Coinbase made more in revenue in the previous 90 days than it did in all of 2020.

The bear case following the Coinbase listing

The primary bear case surrounding the Coinbase listing remains the high probability of a “sell-the-news” drop in the cryptocurrency market. Atop this, there is a chance that buyers will rush into COIN, possibly selling Bitcoin, Ether and other major cryptocurrencies in the process.

Mohit Sorout, partner at Bitazu Capital, also emphasized that he believes the final leg of the Bitcoin bull market is approaching, based on historical trends. He said, “Truth be told I seriously think we’ve entered the final leg of this $btc bull market. To be clear, final leg could be 2-3 weeks or even more. Price could reach 200k or even more who knows. Just don’t make irrational life decisions based on unrealized PnL.”

On top of the possibility of a peak approaching for the cryptocurrency market, the funding rate of the Bitcoin futures market is at around 0.11% on average. The default funding rate of Bitcoin is 0.01%, so this is 11 times higher. Hence, the likelihood of a flush correction in the short term remains relatively high.