The growing popularity of the DeFi sector, with liquidity provision at high yields, could become a barrier to attracting users to ETH2 staking after the launch of phase zero. This is according to a fresh report from Consensys Codefi.
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— ConsenSys (@Consensys) October 27, 2020
The authors of the report consider a high probability that Phase Zero of ETH2 will launch by the end of this year. It will not improve the scalability of the second-largest cryptocurrency by market cap, but will enable passive earnings from staking.
From a technical standpoint, users will have to lock up the minimum amount required (32 ETH) in a deposit contract for an indefinite period. The yields will be variable.
What is Ethereum 2.0?
ConsenSys Codefi sees a risk that DeFi projects could become an alternative that prevents ETH2 from crossing the recommended staking coin threshold to ensure a sufficient level of security and decentralization.
“One could suppose that ETH holders (at best) will wait and assess how early staking yields compare with DeFi yields. Or (in the worst case) they may decide not to risk their ETH at all until Phase 1.5 (which is likely to occur no earlier than a year from now),” the report says.
Which scenario ultimately plays out will only be known with time. According to analysts, factors influencing investors’ decisions will include the size of a user’s ETH position, ETH1 volatility relative to ETH2, and the level of experience interacting with smart contracts.
They do not rule out that DeFi protocol developers will begin offering liquid tokens that are equivalent in value to the ETH locked up. Unlike staking coins, these assets can be easily unlocked and used as collateral in other DeFi protocols.
Earlier, Ethereum 2.0 lead developer Danny Ryan said that the ETH2 deposit contract would launch in the first half of November.
Earlier, cybersecurity expert Chase Wright expressed doubts about the advisability of participating in staking after the launch of phase zero of Ethereum 2.0.
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