This Week In DeFi – September 16

This week in DeFi The Ethereum Merge goes live, Compound Finance opens lending to institutions and Maker doubles its stETH ceiling for minting DAI.

Sep 16, 2022

To the DeFi community,

This week, The Merge finally went live on Ethereum, marking one of the most important upgrades in blockchain history. The network completed a successful shift to the planned Proof-of-Stake consensus mechanism, removing the need for mining and reducing Ethereum’s energy consumption by over 99%.

While The Merge itself was several years in the making, the upgrade also represents the beginning of a new journey for Ethereum, as it seeks to improve both scalability and privacy to handle mass adoption.

vitalik.eth @VitalikButerin

And we finalized! Happy merge all. This is a big moment for the Ethereum ecosystem. Everyone who helped make the merge happen should feel very proud today.

Shortly after The Merge, Ethereum Proof-of-Work fork “ETHPoW” was launched – albeit with some underwhelming price action. The chain, which seeks to continue Ethereum without the Proof-of-Stake model, fell from pre-merge predicted prices to as low as $8.75 per token as it hit the market – around just 0.5% of the main chain’s token value.

Eric Wall X 🏴 @ercwl

ETH PoW is trading at $27 (1.7%). The daily rewards are 13100 ETH, $354k instead of $20m. There is no way miners can just ”keep mining” the ETHPoW chain, no matter how you adjust the difficulty. There simply aren’t enough rewards in the system to pay for the electricity bills.

Compound Finance has expanded to institutional lending, as its institutional yield platform Compound Treasury announces that it will offer over-collateralized loans backed with crypto. Institutional clients can now borrow USDC or USD against their BTC, ETH and supported ERC-20 assets for as little as 6% APR, with no repayment schedule.

Compound Labs @compoundfinance

Starting today, to meet the growing demand for liquidity, institutions can now borrow from Compound Treasury, using digital assets as collateral.

medium.comCompound Treasury Launches Borrowing for InstitutionsStarting today, institutions can now borrow from Compound Treasury, using Bitcoin, Ether, and supported ERC-20 assets as collateral.

Maker has decided to double its ceiling for staked Ether (stETH) for minting its Dai stablecoin, in an effort to decrease its reliance on USD Coin (USDC). USDC currently makes up over a third of all collateral in the protocol, attracting a growing amount of criticism. Part of the criticism comes from the recent freezing of USDC tokens by Circle following Tornado Cash sanctions by the US Treasury – demonstrating that Dai collateral is not censorship-proof.

Maker @MakerDAO

Free Dai minting? There is only one volatile-collateral vault type with a 0% Stability Fee — WSTETH-B The latest Executive Vote raised its Debt Ceiling to 200 million Dai, and the Dai minted from this vault type is on its way to filling the available debt, again. ↓

With the Ethereum Merge finally complete, the crypto community can breathe a sigh of joy and relief as the major upgrade appears to have been implemented without a hitch. DeFi project updates and releases waiting on the upgrade – such as Curve Finance’s new stablecoin – are now free to be implemented, without any Merge dangers or overshadowing.

Fears over the potential ideological ETHPoW warfare have also been quelled, as the fork launch looks like it was a dud – gaining little steam or support despite some nervousness.

Focus can now rest on the progression of the new-and-improved Proof-of-Stake chain, including further development and efforts to decentralize the validator ecosystem.

The high concentration of staking power within the hands of a few delegated entities (including three centralized exchanges) isn’t all that reassuring, however a similar phenomenon can be argued as being present in Bitcoin via mining pools – still touted as the most decentralized network on the planet.

On the other hand, the significant drop in the issuance of new ETH may give price a long-term boost, a supply shock that should be on everyone’s radar.

Zooming out to the broader picture, more institutional money may be ready to hit the crypto market as Charles Schwab, Citadel and Fidelity team up to provide liquid institutional exposure. On the other hand, inflation also hasn’t eased up all that much, potentially leading to a larger hike in interest rates later this month.

All of the above provides a very clouded picture for crypto market direction (and in turn, attention and investment) – which forces will prevail in the near-run could be anyone’s guess.