Stablecoins And DeFi Protocols Could Be Affected After The Merge

Stablecoins And DeFi Protocols Could Be Affected After The Merge

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According to the latest DappRadar report, after the successful The Merge event, Ethereum will switch to a Proof of Stake (PoS) consensus mechanism, which could have an impact on the DeFi protocols and stablecoins that are now functioning on this blockchain network.

The use of stablecoins on the Ethereum network, which is an open network, is quite widespread and essential in the operation of DeFi. As is well known, the stablecoin market is very vast as it is a market for keeping enormous sums of investors' assets. Because stablecoins are primarily stored on DeFi applications, it makes sense that The Merge could have an impact on their stability.

The migration strategies for stablecoins after The Merge, however, worry some investors. Additionally, significant stablecoin issuers such as Tether (USDT) and Circle (USDC) have stated their support for The Merge.

MakerDAO

MakerDAO, the creator of DAI, one of the biggest decentralized stablecoins operating on the Ethereum network. In a recent tweet, MakerDAO listed a few potential issues following The Merge and how they fixed them, including:

Grayscale

Along with MakerDAO, the cryptocurrency investment firm Grayscale expressed worry that The Merge would have an impact on ERC-20 tokens. Tokens from one project that are hard forked into another can have undesirable consequences.

According to Grayscale, The Merge might lead to a dangerous situation in which tokens would be locked up in smart contracts and could be locked forever, requiring token holders to periodically liquidate their tokens from now on before The Merge.

In the future

Even without any of these issues appearing, the future of stablecoins will still be a major challenge for DeFi. For no other reason than that stablecoins are centralized coins that dominate DeFi protocols. Since then, Numerous DeFi projects have been considering, researching and developing other algorithmic stablecoins for their respective platforms and protocols.

Having said that, stablecoin regulations will always exist and may have an impact on DeFi protocols after The Merge.

Source: Binance

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