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In a new race for better yields, it appears as if Ethereum would open itself up for more trouble once they shift from the rather secure Proof of Work consensus algorithm to a Proof of Stake system, where node operators have to stake a minimum of 32 ETHs and earn yields in return for securing the network, is completed.


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The rise and rise of DeFi, analysts elaborate, presents a risk to the security of PoS systems thanks to superior yields offered by DeFi applications. Analyzed, DeFi dapps, operating at full throttle and competing with staking systems, will be perilous and a security risk for Ethereum and similar blockchains with a deflationary model.

The Role of DeFi

DeFi, short for Decentralized Finance, is an emerging finance style that takes advantage of the distribution of Ethereum–and other smart contract based platforms, to issue out loans to coin stakes in exchange of loans. According to proponents, DeFi sidelines centralized authorities, including banks notorious for fractional reserving deposits and issuing out loans recklessly via an opaque system where policies are often passed without consideration of the bank account holder.

With DeFi, the lending sphere is completely democratized and open for everyone desirous of operating without a central authority. Better still, it is a grand opportunity for HODLers to lend out their stash instead of staking them on-chain for superior yields at sprouting smart contracts controlled firms as Compound or MakerDAO for example.



What DeFi and Staking Yield Competition will mean for Ethereum

For borrowers, they receive stable coins with ETH as collateral. But there here lies the catch. For economically rational investors, incentivized to stake their coins and secure the network, it won’t make sense to lock their prized coins on-chain if yields are attractive in competing lending DeFi dapps.

In this case, analysts explain, it would make perfect sense to unlock and move coins to a DeFi app. For this, the demand for ETH consequently decrease, weakening the network’s security as a result.


At the time of writing, there are $678.3 million worth of ETH locked up in DeFi dapps. Combined Compound and MakerDAO lock over $420 million with an average daily yield of 0.7%.

Ethereum ETH

Compared, staking yields in Ethereum 2.0-that is when the network would have shifted to a Proof of Stake system, would yield a dismal 4.26% in compensation for the 180-day lock up period if 32 ETHs are staked.

As it is, only time will tell whether the tension between staking and lending platforms will diffuse with time.


Will DeFi Superior Yields Weaken Ethereum’s Security?

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Will DeFi Superior Yields Weaken Ethereum’s Security?


Ethereum, once they migrate to Proof of Stake consensus style, may see its security weakened because of still competition from DeFi apps.


Dalmas Ngetich

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Coingape is committed to following the highest standards of journalism, and therefore, it abides by a strict editorial policy. While CoinGape takes all the measures to ensure that the facts presented in its news articles are accurate.

The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of CoinGape. Do your market research before investing in cryptocurrencies. The author or publication does not hold any responsibility for your personal financial loss.

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Dalmas Ngetich , 2019-12-03 18:30:22 ,

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NewsBlock © 2019 - 2020 All rights reserved.

NewsBlock © 2019 - 2020. All rights reserved.

While Bitcoin’s price seemingly moves without rhyme or reason — collapsing by dozens of percent and embarking on face-melting rallies on a whim — the cryptocurrency market is filled to the brim with fractals.

Related Reading: Analyst: Bitcoin Price Likely to Fall to Low-$8,000s as Chart Remains Weak

A brief aside: A fractal, in the context of technical analysis and financial markets anyway, is when an asset’s price action is seen during a different time. This form of analysis isn’t that popular, but it has proven to be somewhat valuable in analyzing Bitcoin.

One recent fractal popularized by a well-known cryptocurrency trader is implying that BTC is going to return to the low-$7,000s in the coming days.

Bitcoin Fractal Implies Retracement to Low-$7,000s

A well-known crypto trader going by “Tyler Durden” on Twitter recently posted the chart below, which shows that a Bitcoin price fractal may be playing out. The fractal has four phases: horizontal consolidation marked by one fakeout, a surge above the consolidation phase, a distribution, then a strong drop to fresh lows.

If the fractal plays out in full, BTC could reach the low-$7,000s again, potentially as low as $7,100. This would represent a 20-odd percent collapse from the current price point of $8,800.

It isn’t only a fractal that is hinting Bitcoin has the potential to visit its lows. As we reported on Saturday, Bloomberg believes that if the GTI Vera Convergence Divergence Indicator flips red, a downtrend could push the cryptocurrency back to $7,300.

Related Reading: Stephen Colbert Pokes Fun at Bitcoin in Monologue: Mainstream Gone Wrong?

Can Bulls Step In?

But again, many believe it is irrational to have such bearish interpretations of the cryptocurrency’s chart at the moment. As reported by NewsBTC earlier, Popular crypto trader Mayne recently noted that the “people waiting for $6,000” are irrational. He quipped that Bitcoin retracing and consolidating after its fourth-biggest bull move in history ($7,300 to $10,500, a 42% gain) is perfectly par for the course, but noted that it’s totally possible we can go lower from $8,800.

The medium-term technicals support this.

Trader and CoinTelegraph contributor FilbFilb found that by the end of November or start of December, the 50-week and 100-week moving averages will see a “golden cross,” which he claims is far more significant” for the Bitcoin market that other technical crosses.

Also, a Bitcoin price model created using Facebook Prophet machine learning found that the leading cryptocurrency is likely to end the year at just over $12,000. What’s notable about this model is that it called the price drop to $8,000 months in advance, and forecasted a ~$7,500 price bottom for BTC.

To put a cherry on the cryptocurrency cake, Crypto Thies observed that when Bitcoin bottomed at $7,300, it bounced decisively off the 0.618 Fibonacci Retracement of the move from $3,000 to $14,000, which correlates with the two-week volume-weighted moving average. He added that summer 2019’s consolidation was marked by Bitcoin flipping major resistances into support levels, implying that a bullish reversal and subsequent continuation is likely possible in the coming weeks.

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Nick Chong , 2019-11-10 12:00:38

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