The Defi Slack Left by Ethereum Will Be Picked Up by Third-Generation Blockchains

Third-generation blockchain protocols are swiftly catching up to Ethereum as the “go-to” hub for Dapps and Defi, despite the fact that the ETH 2.0 upgrade is still months, if not years, away from a full launch.

Future Defi Growth will be Catalyzed by Blockchain Metamorphosis

Despite the fact that many people are only now learning about blockchain technology, it has been around long enough to have progressed from first to second to third-generation protocols.

Bitcoin, a proposed alternative to centralized financial services’ hegemony, launched the first-generation blockchain. The Bitcoin network set the groundwork for a decentralized financial ecosystem, but it had limited functionality, took a lot of processing power to run, and had a lot of interoperability issues.

As a result, Ethereum was born in 2015, ushering in the second generation of blockchain systems. The introduction of smart contract capabilities on the blockchain by Vitalik Buterin spurred a paradigm shift, allowing cryptocurrencies to migrate from financial instruments to more practical applications.

Ethereum’s issues continue to mount.

By enabling “conditional transfer” of data and value on-chain, Ethereum paved the ground for decentralized finance (Defi). Since then, Ethereum has been on a tear, establishing itself as the go-to platform for creating decentralized applications, network tokens, and Defi protocols.

Developers and early adopters flocked to Ethereum and began creating their ERC20 tokens in such large numbers that social media sites began predicting “the flippening,” in which ETH would surpass BTC in the market capitalization.

Despite its success, though, issues with the Ethereum blockchain surfaced quickly. As more projects joined the Ethereum ecosystem, the network began to experience scalability challenges. Gas prices skyrocketed, and low transaction throughput became a daily occurrence.

Ethereum’s developer, Vitalik Buterin, has also expressed reservations about the platform’s potential to scale, saying “The blockchain design is primarily based on bottlenecks, where individual nodes must execute every single transaction in the whole network. Scalability [now] terrible.”

While the projected Ethereum 2.0 upgrade promises to address the current issues plaguing the Ethereum network, things haven’t gone according to plan. The first phase of ETH 2.0 began in December 2020, after being scheduled for a 2019 launch. With two more phases to go, the prospects of a full release before 2022 are slim to none.

As a result, it’s no exaggeration to say that the network has a long way to go before realizing its fundamental goal of becoming the world’s “decentralized computer.”

Protocols for Third- Generation

Despite the advances that Bitcoin and Ethereum have brought to the table, both chains are hampered by scalability and efficiency difficulties. Both networks, at the same time, necessitate a large amount of processing power to function. All of this has resulted in a never-ending loop of excruciatingly sluggish throughput rates and exorbitant prices.

Many layer-2 scaling methods have been proposed to address Bitcoin and Ethereum’s intrinsic difficulties, with varying degrees of success. Layer-2 solutions have partially addressed interoperability and scalability challenges, but the underlying issues of consensus procedures and mining have yet to be addressed.

Despite the advances that Bitcoin and Ethereum have brought to the table, both chains are hampered by scalability and efficiency difficulties. Both networks, at the same time, necessitate a large amount of processing power to function. All of this has resulted in a never-ending loop of excruciatingly sluggish throughput rates and exorbitant prices.

Many layer-2 scaling methods have been proposed to address Bitcoin and Ethereum’s intrinsic difficulties, with varying degrees of success. Layer-2 solutions have partially addressed interoperability and scalability challenges, but the underlying issues of consensus procedures and mining have yet to be addressed.

Third-generation blockchains enter the scene at this point. While some third-generation protocols can be used to enhance existing blockchain networks, others are entirely new blockchains with a diverse set of features and functions. Third-generation blockchain protocols, with multi-layered designs and unique consensus processes, are not only capable of resolving scaling difficulties as they arise, but are also highly interoperable, quick, and cost-effective.

There is no denying that Ethereum was responsible for the Defi explosion and that Ethereum continues to dominate the Defi market. However, Ethereum’s authority will surely be questioned if new Defi projects based on third-generation blockchain protocols join the picture.

The next “Defi Boom” will most likely come from developing chains that are more nimble and targeted than previous blockchain network breakthroughs as Defi continues to grow its market. However, as the crypto-verse prepares for the “next big flippening,” interesting companies are lining up for newer blockchains.

Cardano, Solana, and Polkadot are the top leaders in terms of market share. Each platform has its own set of capabilities, which is why a slew of new projects are lining up to begin developing their concepts on these networks.

Ardana, Cardano’s Stablecoin and Defi hub, for example, allows Cardano to enter the Defi space. From a Defi macro-perspective, the platform and its constituent protocols are meant to provide users with the needed functionality to assist in the maintenance of all forms of decentralized economies on the Cardano chain. It will serve as a financial foundation layer for Cardano’s decentralized economy, utilizing historically proven protocol models for composability, capital efficiency, and stability.

Ardana will shortly introduce dUSD as part of its strategic roadmap. Users will be able to put their ADA and other supported assets to work with this verified, on-chain collateral-backed Stablecoin. Danaswap, the platform’s AMM dex (decentralized exchange), will be launched for reliable multi-asset pools. Danaswap, according to the Ardana team, will deliver capital-efficient swaps with minimum slippage, allowing liquidity providers to take advantage of low-risk yield opportunities.

Acala, a Defi liquidity center that uses the built-in features of third-generation blockchain technology Polkadot, is another ambitious project that is continuing up where Ethereum left off. Almost every Stablecoin is now built on the Ethereum network, which limits adoption and use. Acala hopes to change this by combining Polkadot’s speed, cross-chain interoperability, and cost-effectiveness to provide a Defi hub with built-in liquidity and ready-to-use decentralized financial apps.

Acala also claims to settle transactions for a quarter of the cost of rival networks, giving it a quantitative advantage in the Defi race. Through Polkadot’s weight-based fee mechanism, the platform will offer micro gas fees that are only slightly affected by transaction complexity. Acala will also include an “algorithmic risk adjustment” tool in its lending and borrowing process, which will automatically alter risk parameters such as interest rates and collateral ratios.

Finally, Atani, the all-in-one crypto trading platform based on Solana’s blockchain network, is another heavyweight challenger to keep an eye on in this ongoing battle for Defi market dominance. The platform offers free crypto trading tools and has worked with leading exchanges such as Kucoin, Binance, Okex, Bitfinex, Poloniex, and others to reduce trading fees for customers.

On Solana, Atani recently unveiled their new dex aggregator, which includes order routing tools as well as add-ons such as portfolio tracking, price notifications, technical analysis, and more. Atani’s objective is to eliminate friction between the fragmented Defi ecosystem by feeding up liquidity from Cexs (centralized exchanges) and Dexs to the Solana ecosystem while ensuring multi-chain support with this aggregator and Solana’s integrated characteristics.

The Journey Ahead

When it comes to unlocking the true potential of Defi, we’ve just scratched the surface. Web 3.0 is gaining traction, and the global village is shrinking. Defi services, on the other hand, are so revolutionary for both the worldwide unbanked and the underbanked that they require more room to expand, just as existing protocols are reaching their capacity constraints.

Polkadot, Cardano, Solana, and several other third-generation blockchain technologies, when viewed objectively, provide much-needed solutions to scalability and interoperability issues that plague legacy chains. They are faster, more secure, cost-effective, and consume fewer resources, allowing them to serve as all-in-one solutions that benefit the whole bitcoin sector. Third-generation blockchain protocols are already here to undertake the heavy lifting and push Defi to the next level, even though Ethereum 2.0 is still a long way off.