Vitalik Buterin Does Not Believe Lending Will Outcompete PoS
Complex smart contracts that big corporations worldwide are currently employing use Ethereum blockchain. This is proof that the number two largest cryptocurrency is performing as designed. Nevertheless, the blockchain is encountering some challenges requiring solutions.
There is imbalance among decentralization, security, and scalability on Ethereum’s blockchain. According to Vitalik Buterin, it is known as “trilemma of blockchain.” Two of the three are the maximum achievable by a blockchain but all blockchains struggle to have them all.
There are plans to move from Ethereum [PoW] to Ethereum 2.0 [PoS] through updates. However, a debate is ongoing in the space regarding staking versus lending. The debate is about the possibility of rise in lending jeopardizing staking. Such viewpoint has been in place and this might be because of the converse relationship between lending and Ethereum price.
As Ethereum price declines, there is an increase in the number of Ethereum locked in DeFi, and vice versa. This has led to increasing concerns about attacks on centralization if lending takes over staking. A Twitter user said as DeFi services and the POS protocol compete, there will be net vulnerability, attacks and centralization.
According to the Twitter user in another tweet, a reduction in PoS’ block reward as time passes with Ethereum’s deflationary model will make the far-reaching equilibrium between assets lent and staked to skew towards the assets lent.
However, Vitalik Buterin tweeted that he does not believe in this. He said some individuals assume wrongly that lending interest rates should be similar to various currencies. Buterin said it is wrong due to fiat being an asset that bears interest but cryptocurrency is not; hence, fiat’s interest rates are greater.
According to Buterin, lending demand for Ethereum is yet to become quite high and that a “self-correcting negative feedback mechanism” existed to curb outrageous staked Ethereum.