Watch These Two DeFi Trends This Quarter, Says ConsenSys
A rising number of decentralized autonomous organizations (DAOs) winning high-profile non-fungible token (NFT) auctions and an increasing dominance of flashbots on the Ethereum (ETH) network are some of the trends that could gain strength in the second quarter of 2021, according to a recent decentralized finance (DeFi) report by ETH-focused blockchain company ConsenSys.
The report observes that many DAOs have established themselves as forces to be reckoned with in the market of rare digital art, allowing investors to pool together capital to outbid their competitors. They are quickly becoming a way for distributing ownership of rare art, said the report.
“FlamingoDAO, formed specifically to purchase worthy NFTs, has a treasury of 6,240 ETH. Gaming NFT focused DAOs like Yield Guild Games (YGG), raised the [USD] 1.3m from crypto VCs like Delphi Digital and Scalar Capital,” ConsenSys said.
In what perhaps was the most significant NFT event of the quarter, digital artist Beeple’s “The First 5,000 Days” was sold in a Christie’s auction for a record-breaking ETH 42,329 to MetaKovan, the founder of NFT fund Metapurse. The fund has tokenized Beeple artwork as ERC-20 tokens called B.20, according to the report.
Another significant trend that has been intensifying since last quarter relates to flashbots expanding their foothold on the Ethereum network, the report said.
“In March alone, 12 mining pools accounted for over 58% of Ethereum network hashrate — all using flashbots for mining. This created a lot of discussion over whether these flashbots are contributing gas prices, and the extent by which there is a market-driven separation of the “high-speed” and “low-speed” transaction highways,” according to ConsenSys.
The report argued that, while it is yet to be seen how the forthcoming Ethereum network upgrades that simplify gas fees, such as EIP-1559, will affect these arbitrage and trading strategies, the predatory arbitrage bots monitoring the activities in the mempool are a surging trend that should be closely watched.
Meanwhile, Ethereum researchers, Anicca Research founder Leo Zhang and Paradigm research partner Georgios Konstantopoulos, have released a paper that analyzes the activities of bots taking part in “priority gas auctions,” among others.
The study argues that EIP-1559, which is scheduled for activation this July, “will be the biggest fee market mechanism change to ever happen in a public blockchain,” but also “one of the most controversial topics in Ethereum” as more than 60% of the mining pools have voiced their opposition to the proposal, they said, citing stopeip1559.org.
Per mining pool BTC.com, the pools listed by this website as opposing the proposal, are minor pools holding smaller percentages of hashrate. As reported, the larger pools, were ambiguous or gave no response on the issue.
Meanwhile, Dutch banking giant ING Bank wrote that their analysis suggests that DeFi may offer improved or even new financial services - therefore "centralized financial institutions can learn from DeFi on how to improve existing processes."
However, said the report, there are serious risks in DeFi that should be considered, and centralized financial institutions can help DeFi companies address these.
"Despite that these centralized and decentralized financial services appear to be different, based on our analysis we envision that these two services combined will bring benefits to both centralized institutions, to DeFi, and more importantly, its customers," ING concluded.