Ethereum performance problem has become a fatal bottleneck for young DeFi
In the past week, you have seen a group of black swans fly by, all kinds of assets around the world have suffered serious shrinkage, and the cryptocurrency market has not been spared. On March 12, Bitcoin fell by 50%, Ethereum And other altcoins have also experienced bloodbath.
The bloodbath has also seen horrific setbacks for major platforms related to digital assets. Ethereum’s DeFi platforms have been hit especially hard.
Before these black swans flew by, the entire cryptocurrency market was full of praise for the development prospects of DeFi, because the DeFi ecology has taken root and grown rapidly in Ethereum.
However, this catastrophe has caused the Ethereum and DeFi ecology to encounter the largest chain liquidation in history.
According to the latest data from the data analysis platform DappRadar, the number of active users of Ethereum DeFi applications in February this year increased by nearly 3 times compared to the same period last year, while the total value of ETH and ERC-20 tokens in all DApps increased by nearly 100%. 7 times. According to DeFi Pulse data, the value of US dollars locked in DeFi platforms exceeded US$1.2 billion in February this year, doubling from the end of last year.
However, since most DeFi platforms use ETH as collateral assets, and ETH itself is a highly volatile asset, the sharp drop in the price of ETH has forced many DeFi protocols to initiate a liquidation mechanism, that is, sell mortgaged assets to reduce losses. Even MakerDAO was forced to carry out a large-scale liquidation, which was about 3 times the mortgage rate of Ethereum.
DeFi Pulse data shows that on March 13, the lowest point of DeFi locked value was close to 250 million US dollars, and then recovered to more than 600 million US dollars.
According to statistics from DeBank, a total of USD 23.45 million was liquidated throughout the day on March 12, and MakerDAO’s collateralized debt positions were liquidated over USD 10 million, followed by Compound and dYdX.
For transactions on the Ethereum chain, the handling fee is mainly affected by two factors: "Gas consumption" and "Gas unit price". Basis for packaging.
Normally, the unit price of Gas in the Ethereum network is only 1 Gwei, and it will increase to single digits at most. According to the data of Etherscan and ETH Gas Station, on March 12, the unit price of Gas increased to an average of 200 to 300 Gwei, with a maximum of 600 Gwei. We observed that even transactions exceeding this unit price may not necessarily be packaged by miners.
This means that the transaction fee on the Ethereum chain has increased hundreds of times, which undoubtedly further increases the difficulty of the liquidation process. For example, based on a gas fee of 200 Gwei, a DAI repayment operation on MakerDAO is equivalent to paying about $5.
At the same time, the transfer of the entire ERC-20 token was congested. Since many tokens in centralized exchanges are ERC-20 standard tokens circulating in Ethereum, and because of transaction costs, users have begun to restrict withdrawals. Users of centralized exchanges are unable to withdraw cash, causing many rumors in the market, affecting the confidence of currency holders and further increasing market turmoil.
Obviously, the performance problem of Ethereum has become a fatal bottleneck in the DeFi risk management system. In this extreme market, both Ethereum and DeFi applications are facing a practical stress test. The performance bottleneck has led to an increase in the network transaction rate, a series of chain reactions.
The performance bottleneck of Ethereum is also a problem that all Ethereum users and DApp developers hope to solve as soon as possible.
In fact, cryptocurrency is still a young industry, and DeFi is even younger. At least for now, cryptocurrencies still haven’t really achieved mass adoption, and standard practices need to be further consolidated in decentralized finance and related fields.
