Ethereum Merger Could Affect Stablecoins and DeFi Protocols, Says Report

Ethereum’s transition to a proof-of-stake (PoS) network could affect DeFi protocols and stablecoins running on the blockchain network, DappRadar has revealed in a new report.

According to reportThe market for stablecoins is huge and its use on public blockchains like Ethereum has grown significantly, making it an integral part of DeFi operations.

The report notes that Ethereum Merge could affect the stability of stablecoins as it hosts the majority of DeFi applications. The merger, scheduled for September 15, will see the Ethereum blockchain transition from its PoW to PoS consensus mechanism.

Major stablecoin issuers like Tether (USDT) and Circle (USDC) have already revealed their support for the merger. However, some members of the community are still concerned about this planned migration.

MakerDAO, Grayscale Concerns

MakerDAO, the creator of DAI, which is one of the largest decentralized stablecoins on Ethereum, Underline several issues that could arise with an Ethereum merger.

The tweet about the potential issues also explained how he plans to fix them. Some identified issues include negative funding, perpetual contract rollover, network downtime, replay attacks, etc.

Additionally, digital currency investment firm Grayscale has also expressed concerns that the merger could impact ERC-20 tokens. This is especially possible if there are hard forks, which will likely occur.

According to Grayscale, the merger could lead to a situation where tokens locked in smart contracts could be locked forever, forcing holders to start liquidating their tokens before the merger.

Ethereum merger not expected to affect network operations

However, the Ethereum developers seem to have considered all of these possibilities and made arrangements for them. There is a strong belief that the merger will not affect the network as it will occur on the base layer.

Moreover, most DeFi protocols are also not concerned about these potential issues. Uniswap is one of them as it has stated that its service will not be interrupted by the merger.

The Future of Stablecoins Remains Controversial

Even if none of these issues arise, the future of stablecoins still poses a major challenge for the DeFi sector.

With centralized stablecoins dominating decentralized protocols, many DeFi projects have considered algorithmic stablecoins, according to the report.

But there are still potential regulations for stablecoins that could impact DeFi after the Ethereum merger.

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