The challenges ahead for the crypto ecosystem before the end of the year

Overview of the following points for attention.

The great ecological molting of Ethereum

The big change in the consensus of the blockchain Ethereum, called The Merge and which should reduce its energy consumption by more than 95%, is the most anticipated event of the coming months for several reasons.

Firstly, because this is the first time that a blockchain of this size, managing nearly $400 billion, the consensus is changing in full swing, so technically it’s a leap into the unknown. The complexity of the process is such that the various teams of developers have had to postpone the implementation date of The Merge many times. Anyway, the big Ethereum mutation has never been closer and could be happening as early as mid-September.

It will also be a great test of proof-of-stake consensus (PoS, for “proof of commitment”), which will be the block validation method after The Merge and that of “proof of work” (PoW, before “proof of work”). In the new method, it will no longer be miners and graphics cards that will secure the network, but validators, and the question will be whether they will have sufficient economic incentives to validate the blocks and thus ensure the security of the network.

Regulatory Balance

Globally, the timeline has been accelerated by the demise of the Terra-Luna ecosystem, in which many individuals’ investments have gone up in smoke. “Many new entrants to the market may have been misled into what has been called a ‘stablecoin’ – Terra’s UST – of some sort. I am convinced that in the future, regulators will demand more guarantees and understanding for these types of products”analysis for agefi Elodie Trevillot, Director of Regulations, Compliance and Permanent Control at Banque Delubac & Cie. The systemic effect has led to the collapse of platforms, such as Celsius Network or Voyager Digital, plunging millions of users into uncertainty whose funds are still blocked there pending of legal results.

Europe was the first region to adopt a regulatory framework after the political agreement on the MiCa text (Markets in Crypto-Assets) and the TFR (Transfer of Funds Regulation), notably pushed by France, which wanted a political victory before it entered the presidency of the European Union. “MiCa will not be the last regulatory text. Therefore, crypto players must continue to organize themselves by structuring themselves in the most effective way to engage in dialogue with European authorities, in order to arrive at regulatory texts that protect consumers without hindering innovation., emphasizes Faustine Fleuret, president of the Association for the Development of Digital Assets (Adan). During the discussions, Bercy had confided to: agefi that some actors had “discovered community dialogue”and noted that many major players had made progress in structuring.

Many institutions are waiting for a clearer framework, especially in the United States or Asia, to fully market themselves. Other major players in the crypto ecosystem, such as Binance, are also pushing for regulation, allowing them to continue to gain users by democratizing crypto payments in particular.

The parade against the giant ‘hacks’

The hack spectacular events of recent months, which mainly focus on bridge, have revived the debate over the security of crypto-assets in the ecosystem. At least $1.6 billion has been stolen in decentralized finance (DeFi) since the beginning of the year, according to a tally by cybersecurity firm CertiK, more than the amounts stolen in 2020 and 2021 combined.

The investigations that follow hack often underscore a lack of audits of the code of crypto structures, as shown in particular by a KPMG study published in mid-June. A lack of seriousness that allows “to sort” between the most solid projects and the most “capricious”, according to many DeFi viewers. But these shortcomings are cooling some institutions and slowing down DeFi’s democratization…which isn’t necessarily to the dismay of some purists, whose philosophy is to build an industry that competes with the traditional banking system.

The development of decentralized ‘stablecoins’

After the fall of Terra-Luna, many projects in DeFi were looking for a way to be more resilient. Even if the reflections didn’t appear at the time, the Tornado Cash case further supported the need to make these projects significantly less dependent on a handful of players like Tether or Circle, the entities that make up the two largest stable coins from the market.

With this in mind, Aave has already made a proposal to her community for the launch of the GHO, a stable currency decentralized. Curve, the other DeFi giant, is expected to do the same in the coming weeks. The launch of this stable coins would rival the stranglehold of Tether and Circle, whose stable coins are overwhelmingly used to make DeFi work economically.

Leave a Comment