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The Dark Side of Ethereum

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For the last six years, Ethereum has dominated the smart contract landscape and has been arguably the only viable platform for launching decentralized applications (dApps) — due to its sizeable developer community and first-mover advantage.

But in the last year, Ethereum’s limitations have begun to show, leading to an exodus of sorts among its once fervent developer community. Here, we take a look at three of the main reasons why developers are migrating from Ethereum to alternative platforms.


The Fees Are A Major Barrier

If you’ve used Ethereum more than a few times recently, then you may be aware that it has been experiencing something of a gas price pandemic in the last few months.

As decentralized finance (DeFi) and stablecoin usage on the platform have skyrocketed in the last year, so too has the average Ethereum transaction fee — which recently reached over $25 a pop and potentially several times higher when invoking a smart contract function.

Ethereum gas fees are becoming a serious bottleneck to growth. (Image: fees.wtf)

Understandably, developers are generally trying to build platforms and applications that are accessible to a wide audience — not just those that can stomach a $25+ fee with each transaction.

As a technology designed to empower the many, rather than the few, these high transaction fees are posing a significant barrier to entry for users looking to interact with dApps.

To circumvent this problem, developers are now migrating to more advanced platforms with much lower fees. Arguably the most prominent of these is Metaverse, a platform that uses a hybrid consensus system to keep fees down to a bare minimum while remaining speedy.

Metaverse’s compatibility with the Ethereum Virtual Machine (EVM) is another major reason why solidity developers are jumping ship in preparation for the release of the hyperspace mainnet.

Interoperability Is On the Agenda

Right now, interoperability is a buzzword in the crypto space. As more projects begin to realize the merits of producing cross-chain applications, there has been a major push to develop bridges between blockchains — helping to provide a seamless experience across blockchains and power a new wave of interoperable applications.

Though Ethereum has seen some improvement in this area, with the development of numerous token wrapping protocols, layer 2 swapping platforms, and bridges, it still offers only limited interoperability with other blockchains.

But with true interoperability promising to bring assets from one blockchain to any other, and enabling new, ever more powerful decentralized applications and use cases, developers have begun taking matters into their own hands — by adopting platforms built with interoperability at the core.

In recent weeks, the substrate-powered Polkadot blockchain has emerged as a major focus for these developers — as its novel relay chain and bridge technology make it easy to build cross-chain applications without enforcing uniformity across blockchains.

Likewise, platforms like Metaverse and Binance Smart Chain have also seen an influx of developers looking to build interoperable applications due to their advanced interoperability capabilities.

Doubling Down on Efficiency

Several years after Bitcoin launched, something became painfully obvious — though massively secure, Bitcoin’s consensus mechanism was also incredibly wasteful when it comes to energy usage.

Though this wasn’t a major problem in its early days, when the Bitcoin mining network was small, it has become increasingly problematic in recent years, as its energy usage (and hence its effect on the environment) now rivals that of a small country.

Ethereum isn’t much different. With one of the most extensive proof-of-work (PoW) mining networks currently operating, Ethereum requires an incredible amount of energy to maintain the security of its network. And although Ethereum 2.0 is set to resolve this with its transition to a mixed proof-of-stake and proof-of-work consensus system, it has been a long time coming — and it’s still not ready.

But developers generally don’t have the time to wait around. Because of this, they have begun looking for more efficient alternatives.

Generally, this search leads them to one of the numerous proof-of-stake blockchains, which are able to achieve consensus by using a network of validators — which consume far less energy but achieve similar levels of security.

Platforms built on Parity Technologies’ substrate technology are currently garnering much of this attention, due to the possibility of combining the security of proof-of-work with the efficiency of proof-of-stake in a hybrid consensus mechanism.

 



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Ethereum

DeFi summer 2.0? ‘Gen 2’ tokens on a tear amid wider market slump

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As some brand-name decentralized finance (DeFi) tokens sputter, a crop of new projects have emerged that are catching strong bids on the back of aggressive yield farming programs, generous airdrops, and significant technical advances. 

It’s a set of outlier projects pushing forward on both price and fundamentals that has led one crypto analyst, eGirl Capital’s mewny, to brand them as DeFi’s “Gen 2.”

Mewny, who in an interview with Cointelegraph pitched eGirl Capital as “an org that takes itself as a very serious joke,” says that Gen 2 tokens have garnered attention due to their well-cultivated communities and clever token distribution models — both of which lead to a “recursive” price-and-sentiment loop. 

“I think in terms of market interest it’s more about seeking novelty and narrative at this stage in the cycle. Fundamental analysis will be more important when the market cools off and utility is the only backstop to valuations. Hot narratives tend to trend around grassroots projects that have carved out a category for themselves in the market,” they said.

While investors might be eager to ape into these fast-rising new tokens, it’s worth asking what the projects are doing, whether they’re sustainable, and if not how much farther they have to run.

Pumpamentals or fundamentals?

The Gen 2 phenomena echoes the “DeFi summer” of last year, filled with “DeFi stimulus check” airdrops, fat farming APYs, and soaring token prices — as well as a harrowing spate of hacks, heists, and rugpulls. 

However, mewny says that there’s a population of investors that emerged from that period continuously looking for technical progress as opposed to shooting stars. 

“There are less quick “me too” projects in defi. An investor may think that those projects never attracted much liquidity in the first place but they overestimate the wisdom of the market if that’s the case. They did and do pull liquidity, especially from participants who felt priced out or late to the first movers.This has given the floor to legitimate projects that have not stopped building despite the market’s shift in focus. ”

One such Gen 2 riser pulling liquidity is Inverse Finance. After the launch of a yield farming program for a forthcoming synthetic stablecoin protocol, the Inverse Finance DAO narrowly voted to make the INV governance token tradable. As a result, the formerly valueless token airdrop of 80 INV is now priced at over $100,000, likely the most lucrative airdrop in Defi history. 

Another Gen 2 star is Alchemix — one of eGirl Capital’s first announced investments. Alchemix’s protocol also centers on a synthetic stablecoin, alUSD, but generates the stablecoin via collateral deposited into Yearn.Finance’s yield-bearing vaults. The result is a token-based stablecoin loan that pays for itself — a new model that mewny things could become a standard.

“eGirl thinks trading yield-bearing interest will be an important primitive in DeFi. Quantifying and valuing future yield unlocks a lot of usable value that can be reinvested in the market,” they said.

The wider markets appears to agree with eGirl’s thesis, as Alchemix recently announced that the protocol has eclipsed half a billion in total value locked:

Staying power?

By contrast, governance tokens for many of the top names in DeFi, such as Aave and Yearn.Finance, are in the red on a 30-day basis. But even with flagship names stalling out, DeFi’s closely-watched aggregate TVL figure is up on the month, rising over $8.4 billion to $56.8 billion per DeFi Llama — progress carried in part on the back of Gen 2 projects. 

The comparatively wrinkled, desiccated dinosaurs of DeFi may have some signs of life left in them, however. Multiple major projects have significant updates in the works, including Uniswap’s version 3, Sushiswap’s Bentobox lending platform, a liquidity mining proposal working through Aave’s governance process, and Balancer’s version 2.

These developments could mean that DeFi’s “Gen 2” phenomena is simply a temporary, intra-sector rotation, and that the “majors” are soon to roar back. It would be a predictable move in mewny’s view, who says “every defi protocol needs at least 1 bear market to prove technical soundness.”

What’s more, according to mewny some of the signs of market irrationality around both Gen 2 tokens as well as the wider DeFi space — such as triple and even quadruple-digit farming yields — may be gone sooner rather than later.

“I don’t think it’s sustainable for any project in regular market conditions. We are not in regular conditions at the moment. Speculators have propped up potentially unsustainable DeFi protocols for a while now.”