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ConsenSys Warns ETH 2.0 Could Be Threatened By High DeFi Yields

ConsenSys has recently issued out its Q3 DeFi Report. Within this report, ConsenSys warns that DeFi’s rise, coupled with high-yielding liquidity provision opportunities, could serve as a barrier for staking participation in ETH 2.0 once it finally launches Phase 0.

Falling Behind In Its Own Innovations

The latest report from ConsenSys has taken a deep dive to investigate the rising trends within the DeFi space. In this report, the firm warns that the upcoming Beacon Chain of Ethereum could potentially be limited thanks to more profitable opportunities within various decentralized finance (DeFi) protocols.

ConsenSys is convinced that Phase 0 of the ETH 2.0 upgrade will most likely be launched before 2020’s end. Ben Edgington, a developer at ConsenSys, stated last week that the ETH 2.0 deposit contract’s launch is imminent, promising the Beacon Chain Genesis can happen within the following six weeks.

Some Good; Some Bad

As it stands now, the Beacon Chain won’t offer any improvements to scaling, at least not quite yet, but staking opportunities will be made for individuals holding Ethereum of 32 ETH or more. It will do so by way of the new proof-of-stake consensus mechanism.

DeFi

It should be noted, however, that some drawbacks are present. ETH holders will be mandated to lock their funds within a deposit contract in order to gain a variable return. As it stands now, this time frame that their funds are locked in has yet to be disclosed, which is very concerning indeed.

Threatened By Its Own Booming DeFi Industry

With the number of DeFi protocols already competing for liquidity, offering greater returns for ETH holders, only increasing, the report had some concerns for ETH 2.0. It was afraid that ETH 2.0 could be left without the minimum threshold of staked ETH needed to make the network decentralized and secure enough for use.

Potential Delay Of ETH 2.0 For A Year

In the report, ConsenSys warned that it wouldn’t be too far-fetched to wonder if ETH holders would wait to see how the early staking returns compare to DeFi returns, at best. At worst, these investors could opt not to lock up any ETH into ETH 2.0 until Phase 1.5’s launch until another bull run happens in the meantime. Phase 1.5 itself stands a minimum of one year away.

ConsenSys expects that DeFi providers and protocols could opt to distribute liquid tokens representing the value of an investor’s ETH that they had staked within it. This token, in turn, could then be easily used as collateral for other protocols, and be redeemable. ETH that investors stake within the Beacon Chain, by contrast, is locked away for some time without such a benefit.

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      A journalist, with experience in web journalism and marketing. Ali holds a master's degree in finance and enjoys writing about cryptocurrencies and fintech. Ali’s work has been published on a number of cryptocurrency publications.