Report Says Ethereum Merge Will Negatively Impact DeFi Stablecoins

by in DeFi News

DeFi stablecoins Ethereum

A new report by Dapp Radar says Ethereum is currently the largest blockchain on which DeFi apps and protocols operate, and the upcoming network upgrade will have an impact on DeFi stablecoins.

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Stablecoins are an essential part for DeFi, as they are often used in deals to facilitate trading or as collateral for lending and borrowing. For example, they are used in Automated Market Maker protocols, creating liquidity for others who want to trade.

Dapp Radar mentions although unverified, industry measures for the size of DeFi participation include the amount of stablecoins "locked" in Ethereum smart contracts. Dapp Radar says the Merge is the most anticipated event in the blockchain history and it is raising many questions about the stability of stablecoins once the switch is done.

As a result of the Merge, Ethereum transactions will be executed on the Proof-of-Stake network.

Circle, the developer of the USDC stablecoin and Tether, the issuer of the USDT announced their support for the Merge. However, others don't find that the Merge is an entirely positive thing. MakerDAO, for instance, which stands behind the development of the DAI stablecoin, tweeted that the Merge could do more harm than good. MakerDAO says it could lead to perpetual contract backwardation and negative funding. Another negative option is that the launch could cause a selling pressure across chains existing on PoW.