DeFi
Ethereum’s Dencun Upgrade Will Make DeFi Much Cheaper to Use – DL News
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general manager, Tim here.
Here’s what caught my eye about DeFi recently:
- Lower Ethereum transaction fees are almost here.
- MakerDAO increases borrowing rates to over 15%.
- Jito takes action to stop the Solana MEV robots.
Dencun to Reduce Ethereum Layer 2 Fees
Transactions on Ethereum are about to get a lot cheaper thanks to a new upgrade going live this week.
Cancun-Deneb, or “Dencun” for short, contains nine different EIPs, or Ethereum Improvement Proposals.
Among them, EIP-4844 is the most anticipated. It promises to significantly reduce interaction costs on layer 2 blockchains like Arbitrum and Optimism.
Layer 2 charges will be decrease by a factor of 10 after the upgrade. This means that trading tokens on decentralized exchanges, which currently costs $1-2, is expected to drop to around 20 cents, and could even go down to a single cent on some layer 2 networks like Base.
EIP-4844 will not, however, reduce transaction costs on the Ethereum mainnet.
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By reducing transaction fees, Dencun can also unlock new use cases, such as blockchain gaming, generative art, and artificial intelligence, which were previously impractical due to high transaction costs.
EIP-4844 Ushers In Ethereum “Surge” Phase, As Ethereum Co-Founder Vitalik Buterin specified in its network roadmap updated in December.
The final goal of this phase is to reach 100,000 transactions per second.
After Dencun, Ethereum developers may start considering other improvements, such as allowing users run Ethereum nodes on mobile phones.
MakerDAO is almost out of USDC
Crypto cooperative MakerDAO is making urgent changes to its borrowing rates after the Protocol Stability Mechanism, or PSM, is almost here. I’m short of funds last week.
PSM allows holders of MakerDAO’s DAI stablecoin to exchange it for $1 of other stablecoins, including Circle’s USDC. The main function of the PSM is to help keep the DAI pegged to the dollar.
Because Maker offered low borrowing rates relative to the market, DeFi users locked up assets like Ether and Wrapped Bitcoin to borrow DAI. But because Maker locked the DAI yield at 5%, borrowers swapped it for USDC via PSM, which they were able to use to earn much higher yields in other protocols.
In response, MakerDAO pushed through a proposal to increase lending and borrowing rates for DAI to bring them in line with the broader market.
In ~2 hours, @MakerDAO will implement unprecedented rate movements. There has been some confusion about the cause, reasoning behind and likely effects of these changes. Let’s review them (in this order) 1/n pic.twitter.com/FdNvbNCJ4P
-PaperImperium (@ImperiumPaper) March 10, 2024
According to PaperImperium, a MakerDAO community member and governance liaison for GFX Labs, the higher rates will encourage borrowers to repay their loans, preferably by swapping USDC for DAI for repayment.
Higher yields on DAI should also encourage DeFi users to move funds to DAI, hoping to use PSM.
Jito suspends Mempool after MEV bots scam memecoin traders
Jito Labs, a company that creates Solana Staking and MEV software, has just suspended its mempool, a waiting room for transactions before they are added to a blockchain.
Jito Labs has decided to suspend the mempool offered via the Jito Block Engine due to negative externalities impacting users on Solana.
The decision was made after deliberate conversations with the Jito Labs team and key stakeholders in the Solana ecosystem.
– Jito Labs (@jito_labs) March 8, 2024
Jito Labs said in an article that it made the decision due to “negative externalities” affecting Solana users.
This move makes it more difficult for those using MEV bots to hit unsuspecting traders with sandwich attacks — trade before and after a trade to extract value from price movements.
Sandwich attacks cost traders millions every year. They cause traders to get worse prices on their trades than they otherwise would. The effect of sandwich attacks is much greater on assets with low liquidity, such as memecoins.
Memecoin trading volume on Solana flew last week, reaching $2 billion in 24 hours.
Data of the week
Blockchain data platform Metrika has created a dashboard to track Ethereum’s Dencun upgrade.
It allows users to monitor the upgrade as validators move to the new version of the network. It also provides an estimate of how long it will take for the upgrade to take place.
This week in DeFi governance
VOTE: Aave to add GMX’s gmETH to its Arbitrum liquidity pool
VOTE: Jupiter DAO concludes voting on LFG launchpad candidates
VOTE: Arbitrum votes on new $4 million grant program
Article of the week
Ethereum co-founder Vitalik Buterin slaps user X who complains about high transaction fees.
What we watch
The USDC market on Compound v3 is 99.82% utilized and has only $5 million in liquidity and offers 30% APR
Will we see failed withdrawals soon? pic.twitter.com/jUTF8uxYRA
– Mustafa Al-Bassam (@musalbas) March 11, 2024
Demand for US dollar leverage in DeFi is increasing.
$478 million loan protocol for compound USDC pool is over 99% utilized, meaning borrowers have taken out USDC loans close to the total amount available.
Do you have a tip on DeFi? Contact us at tim@dlnews.com.