Defi test amid crypto crash - cryptomaniac.in

Defi Test in Crypto Market Crash – Problems and Solutions

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On 13th march due to increased panic of corona virus in world led to sudden crash of stock market and crypto market. Bitcoin crashes to as low as 3800 usd in Binance. Though it recovered up to 5k levels but still down more than 40% a week earlier when it was trading at 9k level. It tested the Defi ecosystem which was on verge of collapse if price would have tanked further.

Alts and Eth too crashed as whole crypto markets follow BTC as its heavily correlated with BTC. ETH crashed to below 100 usdt levels and recovered to 120 usdt levels after crash was over.

Bitcoin 1week chart source-coindesk

Defi market leaded by MakerDAO was on verge of shutdown but sailed through as ETH didn’t go below 80 Dollars mark where they wanted to shut as collateral was not enough to cover debt.

Ethereum 1 week chart- source Coindesk

They also faced 5 Million Dai collateral shortage due to gas price issues and blockchain congestion and price crash issue. They have put an auction to cover this and many defi projects and prominent defi community members are participating which is a good signal on governance level.

Dharma and Pardigm has joined the auction to cover the debt shortfalm of 5M dai.

Total value locked in Defi has come down to around 650 million USD which earlier had crossed 1 billion USD mark. To make mainstream adoption possible and gain users trust that is more transparent and safer than tradotional financial systems and banks we have to address the problems and find solutions.

Problems

  1. Ethereum blockchain is slow which makes blockchain clogged in time of increased activity and heavy trading and volatility and smart contracts can’t function normally.
  2. Mismatch between oracles of data feed, price feed.
  3. Crypto market is highly volatile and choosing ETH as collateral which is very volatile asset for now creates a huge problem
  4. Smart Contracts are inter linked in many applications and fault in one smart contract can cause chain reaction
  5. Gas fee is very high for small and recurrent transactions
  6. Crypto market filled with scammers and manipulators

Solutions

  1. Scalability and Security must be top most priority for Ethereum developers and ETH 2.0 should be brought as fast as possible but with fully tested and secured way, NO DAO hack type recurrence please
  2. Correlation from BTC needs to minimised by favoring trading in stable crypto coins like usdt,dai,usdc etc
  3. Any project which is dependent on smart contracts and data of other projects must do thorough check and build fail safe mechanism in case of bugs and problems in third party contracts and data
  4. Every smart contract must be more than thousands of times (specially if its a finance related application) tested and certified by security audits before deploying in main net and also have a fail safe mechanism built in for any bugs and problems and an insurance policy is must.
  5. Must have special decentralised project to tackle scams, manipulation on chain and off chain
  6. Education and awareness so that more and more common people join this space

Conclusion

Defi was on verge of collapse due to high volatility , ethereum gas and oracle feed issues.

it sailed it through luck, good governance and commitmemt by community and have got some time to address the issues so that we can truly become our own bank in near future. The volatility is still high and they need to come up with a backup plan soon.

What do you think about future of defi ecosystem , tell in comments.

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