Ethereum: Only A Testnet For DeFi?

Most of the current developments in DeFi are happening on Ethereum. But recent days have shown us that the blockchain can quickly reach its limit! The gas has dropped a bit since reaching all time highs, but the danger of high network fees are looming over the platform like a Damocles sword. Not to mention what would happen if a future event would trigger the community to mass withdraw their capital from DeFi in panic.

A few days ago, the CEO of block.one, the same company developing the software for the EOS network among others, tweeted a rather provocative message:

Less performant platforms have quickly hit practical scalability and performance limits, but have acted as a functional Testnet for a wide range of #DeFi models. Welcome to #EOS’s unrivalled performance, developer friendliness, and token-holder empowerment https://t.co/kJMg4itAb4
— Brendan Blumer (@BrendanBlumer) September 4, 2020

“Less performant platforms […] have acted as a functional Testnet for a wide range of #DeFi models.”

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Ethereum is not sustainable in its current state

Even within the crypto community, which is negligible when compared to the world population, only a few are actively involved in DeFi, and much less use its applications. Dappradar shows a peak of around 25,000 addresses using DeFi platforms within a 24 hours day. It is to be assumed that some users have multiple addresses, leaving the effective number of people using DeFi even lower.

The question asks itself. How will Ethereum be able to support mass adoption if it’s overloaded with less than 25,000 daily users? Another problem is the skyrocketing fees, making many DApps unusable. This could render DApps obsolete once they are no longer able to generate interest.

In a rollup-heavy ecosystem, on-chain gas fees would remain the same, and 465 gwei may even become the norm, but most transactions would be happening inside rollups, where actual fees paid by users would be hundreds of times lower.
— vitalik.eth (@VitalikButerin) September 2, 2020

Vitalik Buterin, the brain behind the concept of Ethereum, is addressing a realistic problem. After scaling the network speed by a factor of 100, Ethereum would be able to support 2.5 Million users, the size of a major city. Mass adoption on a global scale? Far from it. That’s why Vitalik is hinting at offchain solutions like zk-rollups, which could be a massiv relief for the Ethereum layer 1. When coupled with ETH 2.0, zk-rollups could process a large amount of transactions. The technology is still new and has to prove itself first.

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What about Blumer’s braggadocio?

EOS has a different consensus mechanism known as delegated Proof of Stake (dPoS). The token holder delegate their voting power to (currently) 543 possible block generators. The 21 block generators with the most votes get to propose the next block, and calculate the current state n the decentralized ledger. This assures a high data throughput. EOS’ current record lies at 5000 TPS (transactions per second), more than 300 times the current Ethereum performance. A new resource model being tested at the moment is supposed to improve the TPS in the short-term, with further upcoming optimizations taking it to 20,000 TPS.

TPS aren’t the most important factor for smart contract platforms. A single transaction can trigger a multitude of mathematical operations. Therefore, the website „blocktivity.info“ measures the performance of blockchains in operations per second (OPS). A classification where EOS is the uncontested #1 right now.

EOSand dPoS blockchains like Tron, Cardano, or Tezos, are by far faster than Ethereum. Nevertheless, they probably remain too slow for mass adoption. They will also require solutions in the long-term, either by connecting multiple chains, or by using concepts like zk-rollups.

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Conclusion

DeFi on Ethereum shows the potential that decentralized finance has for the future. DeFi remains however a playground for early adopters and gamble friendly users. In its current form, Ethereum can indeed be seen as a testnet. All platforms have a long way to go to support mass adoption.

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