How ProgPoW Could Hinder Crypto DeFi Growth
The projected success of how the crypto space will be stimulated in 2020 by the uptake of decentralized finance (DeFi) based on several industry predictions is now being suggested to be threatened by the ensuing debate over the implementation of ProgPoW on Ethereum.
DeFi projects have been growing across the space for the concept’s potential to make crypto entrepreneurs recreate traditional financial instruments in a decentralized architecture, outside of companies’ and governments’ control. Yet, most of the existing DeFi projects are built on the Ethereum network whose community is currently at loggerheads over the proposed implementation of a proof-of-work algorithm designed to close the efficiency gap available to specialized ASICs.
The premise of the concern raised from within the community is that the talk of a split on the Ethereum network could be fueled by the lack of consensus on ProgPoW implementation within its community and if that happens, it could subsequently hinder the success of DeFi by jeopardizing its potential for the industry with a resonating implication.
“DeFi is at risk due to ProgPOW,” shares Cyrus Younessi, the head of risk at MakerDAO, who argues that “an enormous amount of collateral will instantly be liquidated” should ProgPoW be implemented and a contentious split happens with the anti-ProgPoW chain carrying sufficient economic weight even if temporarily. “My number one priority is to prevent a contentious split, not to approve / reject ProgPOW.”
THREAD: DeFi is at risk due to ProgPOW. If you care about collateral-based systems such as Maker / Dai, Compound, dYdX, and more, please consider taking a stance on ProgPOW. My number one priority is to prevent a contentious split, not to approve / reject ProgPOW (PP). 1/10
— cyrus.ismoney.eth (@cyounessi1) February 28, 2020
In an hypothetical split, Younessi adds that the general investor bearishness and panic will “cause the spiral to get even worse” regardless of whether the pro-ProgPoW chain later wins and reclaims 100% of the value.
This view is valid as the push to bring DeFi to masses with ease for users to access multiple financial protocols continues but there are indications that attendant risks to the DeFi movement have been in place even before the ProgPoW debate got louder. Opposing arguments suggest that DeFi protocols themselves have flaws and a potential fork should not be necessarily pinned on the upgrade.
This isn't the fault of ProgPOW and is actually a flaw within DeFi protocols themselves. If DeFi protocols aren't designed to try and mitigate as many threats as possible, including forks, then that's a problem with the protocol, not the upgrade.
— bonedaddy | bonedaddy.eth (@shitbone127) February 28, 2020
Like in their end of the year report, for example, the CoinGecko team expects to see strong DeFi growth continuing in 2020 with DeFi apps appearing on other smart contract platforms. They predict that the total value locked in DeFi apps on the Ethereum blockchain will exceed over $1 bln; and expect over 100 DeFi apps to have sprung up by the end of the year. The crypto data aggregator provider did not leave out the likely risks of DeFi apps though. They caution that at least one DeFi app will get hacked in the course of the year but would strengthen the growth of DeFi insurance/derivative markets to better handle risks.
The issue of risks associated with DeFi seems to have been tapered by the growing investment interest in this growing concept according to the CEO of MyCrypto, Taylor Monahan. She notes that some of the risks to DeFi would be as a result of their smart contracts being upgradeable and because some of the DeFi systems connect, rely on, or build on each other in various ways which could be detrimental to new users which her firm finds are now entering the space.
Ethereum core developers are meeting again on March 6. The agenda for the 82nd meeting includes, as one would expect, the issue of ProgPow and its debated implementation. What to expect from their deliberation is not clear at this point.