Key Ethereum takeaways
- DeFi protocols propel Ethereum
- Upcoming London fork (ETH 2.0)
- The focal point of the fork: EIP 1559
- Growth of scaling solutions.
Yerevan (CoinChapter.com) – Ethereum (ETH), the second-largest crypto by market cap, traded at $2,299 in the London session Wednesday. The most extensive Decentralized Finance (DeFi) platform to date outperformed Bitcoin (BTC) and closed this year’s first half (H1) with a 210 percent gain.
The data comes from an H1 2021 review conducted by Coinbase. According to the research, a confluence of factors fueled Ethereum’s bullish momentum.
#1 Growing usage of DeFi protocols
Decentralized finance is among the most rapidly growing sectors of the crypto market. It expanded as much as 88 times during the past year. The lion’s share of DeFi protocols is built on the Ethereum blockchain, establishing the platform’s status as a global financial utility. For example, Uniswap, one of the most successful Decentralized Exchanges (DEX) built atop Ethereum, closed the last quarter with impressive results. The number 1 DEX squeezed out PencakeSwap and SushiSwap, taking the lead.
Uniswap’s success is partially due to the new updated V3 protocol launch, which hooked users with features like concentrated liquidity. In hindsight, concentrated liquidity is the ability for liquidity providers to make markets within customized price ranges, creating individual price curves in the process.
DEX, as a sector, is growing among its centralized counterparts, exceeding 10 percent for the first time since November 2020.
#2 High hopes for ETH 2.0 success
Another factor fueling the Ethereum rocket is the growing anticipation of the update dubbed London hard fork. It expects to become the beginning of a shift from the previous proof-of-work algorithm to a proof-of-stake consensus mechanism.
The update will go live on block 12,965,000 of the Ethereum mainnet on August 4.
Due to an overload of transactions and congestions on the mainnet, Ethereum is notorious for its high gas fees. The London hard fork will deliver a new “base fee” principle, and solve scalability issues at hand.
The ETH 2.0 will include 5 Ethereum Improvement Protocols (EIPs), including the most controversial EIP-1559, which will burn ETH gas fees, decreasing miner revenue.
#3 EIP 1559, as the focal point of the ETH 2.0
The EIP 1559 is no doubt the cornerstone of the London hard fork. However, the improvement protocol provoked polar opinions. Users of the Ethereum platform are discontent with high transaction fee issues. EIP 1559 proposes to change that by introducing a fee-burning mechanism that removes ETH’s active supply without capping the total coin supply. The protocol also takes a certain amount of ETH out of circulation by locking them in staking contracts.
As opposed to the users, who greatly benefit from the fee-burning mechanism, the miners will face negative repercussions, as EIP 1559 shifts reward dynamics. Instead of a full reward, miners will only receive tips from users through an optional “inclusion fee.” Paying this fee will boost the user’s chances of gaining priority for their transaction.
#4 Growth of scaling solutions
As already mentioned, scalability is a big issue on the Ethereum blockchain due to the ever-growing number of transactions and subsequent congestion. However, several companies endeavor to solve the problem, like Optimism and Polygon.
Optimism is a Public Benefit Corporation dedicated to scaling Ethereum. It raised $25 million in February and was also backed by Alchemy developer platform.
Polygon is another scaling solution on the Ethereum blockchain that solves the issue by introducing off-chain computations. Dubbed “Ethereum’s internet of blockchains”, Polygon has created a favorable, multi-layered, decentralized ecosystem with an impressive backing and performance in the market thus far.
All the reasons listed above have contributed to a 210 percent growth for Ethereum in the first half of 2021. Moreover, some experts expect even more gains because of the looming Delta Variant crisis. For example, Konstantin Anissimov, the executive director of CEX.io crypto exchange, stated that he expects further ETH and BTC price growth, quoting a substantial rise in the Fed balance sheet by $8 trillion.
H2 of 2021 promises to be an intense period for investors and traders, as the threat of the new Covid-19 wave is on the horizon, and there’s much debate among experts as of how to evade the crisis. If traders choose the crypto sector as a haven for their assets, Ethereum could eye further growth and be primed for claiming $2,500 once more.