- Ethereum co-creator addresses critics who question the sustainability of the consensus protocol that will be implemented in Eth 2.0, Proof-of-Stake.
- Self-correcting mechanism keeps the ETH in balance in the DeFi sector.
Ethereum co-creator Vitalik Buterin published a series of tweets in which he addresses the critics of the Proof-of-Stake to be implemented in Eth 2.0. The discussion arose from a tweet from Buterin where he presented the advantages of Ethereum 2.0 sharding over Bitcoin.
Andrew COP, co-founder of the cryptocurrency Grimm, responded to Vitalik Buterin’s tweet and asked about the possible vulnerabilities of PoS against the growing DeFi sector. According to Andrew COP, a competition between the DeFi sector and the PoS protocol will cause further centralization, vulnerabilities and attacks on Ethereum. In addition, Andrew COP questioned the sustainability of block rewards with PoS. Grimm’s co-creator stated that PoS will decline over time because the PoS protocol “cannot safely use deflationary monetary policy”.
Demand for ETH staking is manageable
Buterin responded by saying that Andrew COP’s arguments are based on a mistaken assumption. According to the co-creator of Ethereum, interest rates on cryptocurrencies are different from the ones applied to fiat currencies:
A lot of people make the very wrong assumption that lending interest rates should equalize out to be the same across different currencies. This is wrong because fiat is an inherently interest-bearing asset in ways that crypto is not, so of course interest rates on fiat are higher.
In addition, Buterin said, Andrew COP does not consider the rewards in Eth 2.0:
(…) are proportional to 1/sqrt of amount deposited, so if deposits become very low reward rates go extremely high to motivate more people to deposit. For example at 1M ETH deposited, rewards are ~18% per year.
And if a system is forced to be txfee-only, then it maintains this property: assuming 100k ETH/year fees, 1m ETH deposited could still earn 10% annual rewards.
Buterin concluded by stating that the demand for ETH lending “is not that high”. In addition, the co-creator of Ethereum stated that there is a self-correcting negative feedback mechanism that controls the balance in the staked ETH so that it does not go too high or too low.
However, Ethereum’s DeFi sector has faced problems recently. The MakerDAO platform received a lot of criticism when it presented losses in mid-March that affected its users. A sudden drop in Ethereum’s price caused the platform to lockdown. The failure was exacerbated by a delay in Ethereum’s network which was congested at the time. The Maker Foundation was able to raise $5 million in an auction to make up for the losses, but the industry must regain user confidence.
Follow us on Facebook and Twitter and don’t miss any hot news anymore! Do you like our price indices?
