Vitalik Buterin Disputes Notion That Lending Will Overthrow PoS

News / 06.04.2020

Major corporations globally use smart contracts running on the Ethereum blockchain. That implies that the second largest cryptocurrency is performing as intended. However, the blockchain is experiencing some challenges requiring urgent redress. The Ethereum blockchain is experiencing an imbalance regarding its decentralization, security, and scalability. Vitalik Buterin calls this  “trilemma of blockchain.” In this situation, the attains a maximum of two out of the three features. All blockchains struggle to achieve all of the three.

Plans are afoot to update  Ethereum [PoW] to Ethereum 2.0 [PoS]. That said, there’s a raging debate pitting staking against lending. 

The gist of the matter is the possibility of increased lending impacting staking. This thinking has been prevalent owing to the inverse relationship between lending and Ethereum price.

Growing Concerns

A fall in Ethereum price increases the volume of Ethereum locked in Defi. The opposite is true too. This situation leads to growing concerns regarding centralization attacks if lending overtakes staking. 

One Twitter user stated that competition between Defi services and the POS protocol would increase net vulnerability, attacks and centralization.

Another user in a different tweet averred that considering Ethereum’s deflationary model, reducing the PoS’ block reward with time will have far-reaching effects on the equilibrium between assets lent and staked. The effects will skew towards the assets lent.

Vitalik Buterin Says It is Erroneous Thinking

Vitalik Buterin, however, discounted this. He tweeted that it was erroneous to believe that different currencies would have the same lending rates. Mr Buterin said that the thinking is flawed as fiat assets bear interest, but cryptocurrency isn’t. Consequently, fiat’s interest rates are higher.

Buterin insists that Ethereum’s lending demand is yet to grow. Additionally, it has a “self-correcting negative feedback mechanism”  to curb abnormally staked Ethereum.

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Debasish Das is from India, an engineering graduate and holds a postgraduate degree in management. He has 10 years of experience in the financial sector, having worked for one of the biggest MNC banking groups in the country. Currently he has business in e-commerce, insurance and consultancy. As an avid blockchain and cryptocurrency enthusiasts he believes in investing in the future of technology, and feels this is going to make the world a single marketplace and also give the power from centralized banks and governments back to people.