DeFi May Threatens The Security Of Ethereum 2.0
Decentralized Finance (DeFi), one of the most promising areas of the Ethereum blockchain, will become a serious threat to network security after the transition to the Proof-of-Stake (PoS) consensus algorithm. This opinion was expressed by the investor Dragonfly Capital Haseeb Qureshi.
— Haseeb Qureshi (@hosseeb) December 2, 2019
The position is based on the research of Tarun Chitra, founder of the Gauntlet analytics platform. The study claims that the DeFi protocols run counter to the PoS network security mechanism.
One of the popular areas of DeFi is loans secured by crypto assets. Just this year, Qureshi recalls, platforms like MakerDAO, Compound, and dYdX issued similar loans worth more than $ 600 million.
The PoS consensus mechanism assumes that the owners of crypto assets participate in the management of the network through staking while receiving a reward. The more users doing this, the more decentralized and secure the network.
The problem is, according to Qureshi, that funds blocked in DeFi lending do not participate in staking and ensuring security. Further development of decentralized finance and asset transfers will make the Ethereum 2.0 PoS consensus protocol weak and vulnerable to attack.
A gradual decrease in the rate of staking reward will also contribute to this, which will increase the financial attractiveness of the DeFi-applications. In turn, an attacker can artificially stimulate the outflow of funds protecting the network by offering the best interest rates.
Qureshi recalled to attack a blockchain network that uses the PoS consensus algorithm, it’s enough to own 1/3 of the assets participating in the stake.
In his view, competitive remuneration rates should be offered to prevent potential security issues with Ethereum 2.0.
Recall, approximately on December 7, the Istanbul hard fork will occur on the Ethereum network, which developers consider as the first phase of the transition to Ethereum 2.0.