Due to its newly announced next major update, The Merge, Ethereum is currently catching everyone’s attention. This attempts to enhance all cryptocurrency protocols in order to increase their security and efficiency.
However, there is a lot of discussion about this planned update among participants in the cryptocurrency market. Indeed, many analysts concur that The Merge may have a big impact on a lot of initiatives.
According to a recent analysis released last week by DappRadar, the way that the DeFi protocols and stablecoins function after this update may be significantly affected.
The impact of Ethereum on DeFi networks and the stablecoin industry
Not only is Ethereum the second-most valuable cryptocurrency globally. It also serves as the hub for an ecosystem that unites other decentralized projects related to platforms for token exchange, loans, and yield production.
Billion-dollar daily cryptocurrency transactions take place in the environment that Ethereum has created. Additionally, as Ethereum serves as the backbone of the entire system, its reliability is crucial to the smooth operation of DeFi protocols that rely on this blockchain. Therefore, the latter rely heavily on the Ethereum consensus mechanism’s smooth operation.
The stablecoin market is enormous right now, according a DappRadar analysis. They were able to more effectively utilize public blockchains like Ethereum through their development, and they swiftly established themselves as being absolutely necessary for the execution of DeFi operations.
It is also not surprising that the paper makes it clear that after The Merge operation is completed, DeFi platforms’ reliance on the Ethereum ecosystem may seriously harm stablecoin stability. This procedure, due to take place on September 15, will require the Ethereum blockchain to transition from the PoW (Proof of Work) protocol to PoS. (Proof of Stake).
Concerned Professionals Regarding Future Ethereum Upgrade
The research done for DappRadar’s report focuses on potential delays that could happen throughout the Ethereum changeover process. Although this is a much-needed technological advancement, not all of its implications will be favorable.
In fact, there may be a slowdown in transaction times on the Ethereum network during the shift. It’s also likely that the update would cause service outages for all platforms involved in the DeFi lending protocols, which would be problematic. The value of stablecoins would decline, and the lending pools on DeFi platforms would shrink as a result of these issues.
MakerDAO, the company that created the decentralized Ethereum stablecoin DAI, has already spoken out in regards to the potential issues that could result from the Ethereum update.
He identified potential issues the platforms would experience and provided solutions in a series of posts on Twitter. The investing firm Grayscale also discussed the potential effects of the update on tokens of the ERC-20 standard at the same time.
What could have prompted that jump in $BTC, $AVAX, $ETH, $SOL $BCH and $ETC prices the morning of August 10? pic.twitter.com/Y1gM4dUuPi
— Grayscale (@Grayscale) August 24, 2022
The change, according to the business, might result in tokens that had been locked for using smart contracts becoming permanently locked. a circumstance that would compel owners to begin selling their tokens before the update occurs.
In what ways might the Ethereum blockchain network be affected by Operation The Merge?
The majority of participants in the cryptocurrency industry as well as other outside parties have already voiced their worries about the upcoming Ethereum (ETH) update.
However, it doesn’t appear like Ethereum developers are bothered by their worries. Indeed, the latter do appear to have given these possibilities some thought and to have taken the necessary precautions to lessen all hazards. The update will take place at the base layer, therefore according to the project team, it won’t have an impact on the network.
By the way, experts have not identified potential problems with all DeFi protocols. The majority of these protocols won’t even see any disruptions in the way their transactions are carried out.
Additionally, other market participants including Circle’s USDC have backed the Ethereum upgrade. It is not just the largest stablecoin on the Ethereum blockchain that uses dollars, but it also has reserves that have been confirmed and are held by the US-based financial institution BlackRock. Along with Circle, Tether, a major stablecoin supplier, has lent assistance to The Merge operation with its USDT token.
