Data from DefiPulse shows the total value locked across DeFi protocols hovers at $9.19 billion, hitting a record high.
As the DeFi market began to expand, it caused mass withdrawals of ETH from exchanges. Users have started to send their ETH to DeFi platforms to stake or invest in DeFi governance tokens.
Some speculated that the active usage of ETH in the DeFi space could harm ETH 2.0 and staking.
ETH 2.0 is a major network upgrade that would bring Ethereum closer to a shift to a proof-of-stake PoS) consensus algorithm. It would allow users to stake their ETH to participate in the network and receive rewards.
But, a management consultant known as “aftab.eth” said it is a nonissue. He explained:
“People panicking that DeFi use of $ETH is going to kill eth2 staking are missing the point. Staking rewards could be raised to whatever is needed to incentivize participation. The fact there’s so much demand for the productive use of ETH is actually VERY bullish for PoS.”
Zhu, who leads the Singapore-based investment firm Three Arrows Capital, echoed a similar sentiment. He stated:
“Agree with this. Also the fact that shittons of ETH is getting withdrawn from exchanges and being used onchain in DeFi raises average user proficiency levels immensely, which is bullish for decentralization of staking. The idea that everyone will stake on exchanges because ease is stale.”
Heading into 2021, the sentiment around Ethereum seemingly remains optimistic. The price of ETH is at a two-year high, daily transactions are approaching early 2018 levels, and the DeFi market is rapidly evolving.
What’s next for Ethereum?
There are two key catalysts buoying the momentum of Ethereum: ETH 2.0 and DeFi.
In the short to medium term, the two factors would remain as persistent catalysts for Ethereum.
Atop the fundamental strengths of the ongoing Ethereum rally, declining exchange reserves and increasing buying demand on major exchanges indicate growing momentum.