The Quest for domination of the DeFi ecosystem

Jamie Dimon of JP Morgan recently made a statement that JPM Coin was winning big business deals moving trillions of dollars around the world every day. This newly formed crypto currency has allowed their enterprise business to grow and this is just one example of how the DeFi space is booming. You’ll also notice Defillama.com lists the top blockchains and their TVL or Total locked value. This is a really helpful tool I use when considering projects to invest in, possibly stake, or add liquidity to. From a bird’s eye view you can search for interesting DeFi projects and see what exactly is going on with their finances.

The fact that the applications (dapps) built on these blockchains all work together and the information they store is visible to all, is reminiscent of the idealism of the early architects of Internet, before most users embraced the walled gardens offered by tech giants. The idea that a new kind of “decentralized” digital economy might be possible has been reinforced over the past year as many applications built on different blockchains have exploded in size and functionality. Perhaps the most important part of this economy is decentralized financial applications, which allow users to exchange assets, receive loans, and store deposits (staking). Above all, Ethereum, the main DeFi platform, seems to be losing its exclusivity.
Until recently, the Ethereum blockchain was the undisputed host of all this activity. It was created in 2015 as a more general-purpose version of Bitcoin. Bitcoin’s database stores information about transactions in the associated cryptocurrency, providing proof of who owns what at any time. Ethereum stores more information, such as lines of computer code. Many have called it the world computer.

The fight resembles competition between operating systems on computers, says Jeremy Allaire, the boss of Circle, a firm that issues USD Coin, a popular crypto-token stable coin. Current blockchain technology is clunky. Both Bitcoin and Ethereum use a mechanism called “proof of work”, where computers race to solve mathematical problems to verify transactions, in return for a reward. At busy times, transactions are either very slow or very costly (gas fees). It is predicted that Ethereum will be moving to their consensus layer protocol, once called ETH 2.0 by June this year which will be their unique proof-of-stake protocol.

When demand to complete transactions on Ethereum’s network is high, the fees paid to the computers that verify them climb and settlement times grow. Developers have long been trying to improve Ethereum’s capacity. Another idea is to split the blockchain up, through a process called “sharding”.

In early 2021, nearly all of the assets locked in DeFi applications were on Ethereum’s network. However, in a recent research note JPMorgan Chase, a bank, estimates that the share of DeFi applications using Ethereum fell to 70% by the end of 2021. A growing number of networks, such as AAVE, Avalanche, Binance Smart Chain, Terra and Solana, now use proof of stake to run blockchains that do the same basic job as Ethereum, but much more quickly and cheaply. Avalanche and Solana, for instance, both process thousands of transactions a second.

Solana can handle “Visa-scale volumes” with “settlement finality in about 400 milliseconds and a transaction cost of about a twentieth of a penny”. Other DeFi applications, like Sushi Swap, an exchange founded on Ethereum, have also launched on several other blockchains. Anyone can access the data they produce and view their operating code, making it possible to build bridges or applications that work across many blockchains, or which aggregate information from different blockchains.

Some applications, like 1inch, already scan exchanges on several blockchains in order to find the best execution prices for various crypto transactions. “Multi-chain” blockchains, like Polkadot and Cosmos, act like bridges between different networks, making it possible to work across them and send assets. For as long as decentralized finance holds promise, competition to be the network of choice will naturally be fierce.

Binance vs Ethereum - THE BATTLE of THE BLOCKCHAINS

Binance vs Ethereum and More

In mid-October of 2021, Binance Smart Chain created a $1 billion dollar grant to incentivize widespread user and developer participation. This drive to accept billions of dollars has put pressure on competing cryptocurrencies, especially Ethereum, the world's largest and most established blockchain for decentralized finance (DEFI). A battle rages in the world of cryptocurrency, where decentralized blockchain models battle for priority. The metrics that will determine who will succeed in this competition include transactions per second, average fees per transaction (Gas Fees), scaling solutions, developer and user adoption rates. When you add an incentive like millions or billions of dollars for developers to chose your smart contract blockchain network to build dapp upon, you start competing in a bigger way.

Like Ethereum, the BSC can host smart contracts that essentially replace centralized authorities in the nascent world of DeFi. BSC now hosts over 800 decentralized applications, compared with Ethereum’s 2800. This is a direct challenge to Ethereum. Gas fees on Binance are a fraction of those on Ethereum and BSC’s transaction speeds are much faster, having a speed improvement over Ethereum of roughly 4.3 times.

Despite its high gas fees and slow transaction speeds, Ethereum is still an attractive platform for both developers and users. Although BSC is much cheaper and faster than the Ethereum network, it has one significant vulnerability that is causing institutional finance to be wary of approaching it for long-term DeFi investment. The Binance Smart Chain is heavily centralized. It only has 21 validators, or miners, whereas the Ethereum network has over 11,000 validators.

This has led Wilson Withiam of crypto-data firm Messari to tweet that “it is hard not to presume that each Binance Chain validator is in some way connected or tied to Binance”. Apart from this governance issue, BSC is also facing growing competition from a blockchain originating in Singapore that is significantly faster and cheaper. There are now at least 25 major blockchain platforms available in a market that is becoming increasingly competitive (ELROND, SOLANA, CARDANO, AVALANCHE). Blockchains are still not able to handle transactions at scale compared with the centralized financial instruments used by Visa and Mastercard, which can handle thousands of transactions per second.

Until this problem of scalability is solved, there will be a persistent bottleneck inhibiting the adoption and widespread practical application of blockchain technology. The comparison in transactions per second between DeFi and legacy transaction processing systems is stark. Ethereum operates at approximately 30 transactions per second, whereas Paypal can muster around 200, and VISA can validate on average 1,700. The goal to dethrone VISA and MASTERCARD is very clear from competing blockchains and since October of 2021, we have seen many smart contract blockchain ecosystems or even DEFI ecosystems attract new development through grant programs just like Binance started.

What is happening with Ethereum lately?

After the Merge update, the network will rely completely on validators, but in order to achieve a new consensus algorithm, developers spent “years of research” thanks to high standards for their vision of proof of stake. Alternatively, developers could have used such already existing ready-to-use solutions such as Nakamoto PoW (Proof of Work) or NXT (Opensource) proof of stake, which existed since 2013 and was an actual candidate for the replacement of the existing protocol. But since developers aimed at accomplishing more than NXT could do, they had to focus on a wider set of objectives. The foundation could have chosen a completely distinct path for the EVM (Ethereum Virtual Machine), which is copying existing virtual machines like LLVM, WASM and others.

The second path was making EVM a top-tier language with its own constructs and features. The first path was not considered as it would make the development process significantly complicated, while they rejected the second path because of Ethereum’s unique constraints that will not allow for pulling out any benefits from using existing solutions.

The Ethereum Price, expected to Breakout!

Ethereum’s price at the $3,450 level of resistance versus the US dollar is holding. ETH’s price may rise again if it holds above the $3,250 level. Above the $3,350 support level, Ethereum is exhibiting encouraging indicators. The increase in the price of Ethereum has continued over the $3,400 barrier level. To get to the $3,482 high, it broke over resistance at $3,450.
There has been a recent decline lower than the $3,400 mark. The $3,410 level serves as an early obstacle on the upward. Fib retracement level is close to the $3,482 high-to-low level of the latest fall. The $3,450 mark will be the next significant hurdle to be overcome shortly. If ether price breaks through the $3,450 level, a new uptrend might begin.

About institutional investment…

Currently, staked ETH is already a wildly popular investment among crypto traders and investors, even though those deposits are illiquid and impossible to trade until sometime after the Merge takes place. Liquid staking solutions – services that offer users a tradable token representing those deposits in the ETH 2.0 staking contract– currently account for roughly $20 billion in deposits, per DeFiLlama, is almost 10% of all of DeFi’s total value locked. The reason for this incredible success is attributable to how staked ETH derivatives offer yield farmers lucrative opportunities as part of complex farming strategies. For instance, users can leverage stETH, Lido’s staked ETH derivative, as collateral for many DeFi protocols.

Curve’s single largest pool is “steth” with $4.91 billion in total value locked. Aave is another main destination for stETH, with $1.63 billion total stETH supplied. One popular strategy is when a user deposits their ETH into the Ethereum staking contract through Lido and receives stETH, then supplies their stETH as collateral, they can borrow more ETH against it, and re-stakes that borrowed ETH for stETH. The user can repeat this process multiple times over, in large part because the interest gained by staking is much higher than the borrowing rates across DeFi lending platforms.

For instance, the APR for staking ETH is approximately 4%, while ETH’s variable interest rate for borrowing is 2.33% on AAVE’s lending platform, allowing them to create a leveraged yield position. While the strategies institutions and individual farmers utilize with the assets will be different, staked ether’s core properties appeal to both for similar reasons. In March, staking services provider Staked introduced a staked ETH trust aiming for 8% returns. Likewise, in June, Switzerland-based Sygnum Bank introduced institutional staking services for its clients.

Shiba Inu Tokens

An active Ethereum whale wallet named (Gimli) has bought another 150 billion Shiba Inu tokens. The whale bought 271 billion SHIB worth $7.3 million in the first transaction and another 150 billion SHIB worth $4 million in the second. Gimli is known to have made several large SHIB purchases over the past year. The wallet now holds $81 billion worth of tokens, with the largest holdings being SHIB and Decentraland .

Earlier this month, Benzinga reported that the largest SHIB whale had 3.9 trillion tokens of the meme-based cryptocurrency alone. A snapshot of the whale wallet revealed that these tokens were worth $101 million at the press time.

Get a College Education in Crypto

As of last Tuesday, Cambridge Centre for Alternative Finance (CCAF) residing at Cambridge Judge Business School announced a new research initiative focused on the “growing digital asset ecosystem”. According to CCAF, the newly launched collaborative effort involves 16 financial institutions such as the Bank for International Settlements, Accenture, Ernst & Young, Goldman Sachs, and more.

Additionally, CCAF is known for publishing the Cambridge Bitcoin Electricity Consumption Index and the CBECI bitcoin mining map. This week, CCAF has revealed a new research initiative called Cambridge Digital Assets Program , which will be dedicated to the cryptocurrency landscape and will involve an initial two years of research.

(Over an initial period of two years, CCAF will work with public and private organizations to create the empirical data, tools, and insights necessary to facilitate an evidence-based public dialogue about the opportunities and risks presented by the growing digital asset ecosystem).

In fact, crypto news outlet CoinDesk recently published a ranking of the top 50 universities for blockchain. Researchers from CoinDesk, Stanford University and the Massachusetts Institute of Technology analyzed 230 schools across the world and ranked them according to five factors. For example, Scholarly impact was a main factor which includes the number of blockchain and cryptocurrency-related research papers published between 2019 and 2021. Existing blockchain-related offerings on campus, including classes, educational centers, clubs and more.

The 5 factors that influenced the research from CoinDesk, Stanford University and the Massachusetts Institute of Technology were:

Scholarly impact

Existing blockchain-related offerings on campus (adding classes, educational centers, clubs and more).

Employment and industry outcomes

Cost of attendance

Overall academic reputation

Some additional information About Financial Institutions that Joined the CDAP Initiative:

(Centre for Alternative Finance Digital Assets Research Project)

The growing adoption of digital assets increasingly blurs the lines between roles, responsibilities and applicable rules, stretching the boundaries of long-term institutional arrangements. “The Cambridge Digital Assets Program that we are launching today aims to meet the resulting need for greater clarity by providing data-driven insights through collaborative research involving public and private sector stakeholders”. Bryan Zhang, executive director at CCAF said in a statement.

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Blockchain at Berkley (Enterprise):

Born in October 2016, the Berkeley Bitcoin Association, which consists of about 12 members, established a blockchain research program in Berkeley, an organization that aims to become a blockchain hub in East Bay. They also launched Blockchain Fundamentals, the world's first university-certified basic blockchain course, and taught about 50 students. In addition to blockchain, consulting firms have grown within Berkeley's education team, bridging the gap between geeky Bitcoin enthusiasts and the industry's technical early adopters, and the concept of a disruptive blockchain use case. Since then, research and governance teams have also emerged through other ambitious B2B members.

Crypto Currency in Times of War

As of March 3rd 2022, Multiple donations have been received by the Ukrainian army in cryptocurrencies like bitcoin. Researchers at Elliptic (a blockchain analysis company), say the Ukrainian government, thanks to NGOs and a large quantity of volunteer groups have manage to increase their money supply by advertising their Bitcoin wallet addresses online.

Bitcoin has leapt in value to over $44,000 USD since Russia's invasion of Ukraine, bolstered by people in those countries looking to store and move money in anonymous and decentralized crypto wallets. Bitcoin trading denominated in the Russian ruble went into overdrive when the invasion began on Thursday, with daily volumes rising 259% from a day earlier to 1.3 billion ruble, according to data from CryptoCompare. On Feb 24, 5 days after Russia invaded, Bitcoin trading denominated in the Russian ruble went into overdrive as bitcoin has risen 13%, while the S&P 500 dropped. On the day of the attack, about $300 million short bitcoin positions were liquidated, Coinglass data showed, while Singapore-based QCP Capital said (a good portion) of leveraged long positions had been taken out.

Research shows that $4.1 million in crypto has been raised by nongovernmental organizations and volunteer groups in Ukraine since the invasion began, including a single $3 million donation early Friday. When Ukraine’s pro-Russian president Viktor Yanukovych was ousted in 2014, for example, legions of organized volunteers stepped up to support protesters. Typically, these organizations receive funds from private donors via bank wires or payment apps, but cryptocurrencies such as bitcoin have emerged as an important alternative funding method, since they allow for quick, cross-border donations, which bypass financial institutions that might block payments to Ukraine. A statement on the government’s website said that the (national legislation does not allow the Ministry of Defense of Ukraine to use other payment systems ).

On Saturday afternoon, the official Twitter account of the Ukraine government posted this message: "Stand with the people of Ukraine. Now accepting cryptocurrency donations. Bitcoin, Ethereum and USDT." Followed by a message that had posted addresses for two cryptocurrency wallets, which collected approximately $5.4m in Bitcoin, Ethereum and other coins within eight hours.

Positive uses for cryptocurrency:

Ukrainians have deployed crypto funds for a variety of purposes, including equipping the Ukrainian army with military equipment, medical supplies and drones, as well as funding the development of a facial recognition app that identifies if someone is a Russian mercenary or spy. An activist group, Come Back Alive, which began accepting cryptocurrency in 2018, provided the military with equipment, training services and medical supplies. It also funded the development of a drone-based reconnaissance and targeting system for Ukrainian artillery units. Other groups supporting the efforts of the Ukrainian resistance have asked for donations in crypto assets, such as non fungible tokens also known as NFTs.

Stable Coins:

Additionally, as of Friday, stablecoin transactions comprised over 83% of the total crypto market's 24-hour trading volume according to CoinMarketCap.