A DappRadar report notes that Ethereum's The Merge could impact the functioning of some DeFi protocols and stablecoins.
The DappRadar platform has published a report in which they warn that some DeFi protocols and stablecoins could be negatively affected by the Ethereum merger.
The report explains that the stablecoin market has grown in recent years, being one of the vital components of the crypto ecosystem, reaching a market capitalization of over $142.000 billion. Since most of these stablecoins are built using Ethereum’s ERC-20 standard, the merger could cause some issues.
Stablecoins are critical to the functioning of DeFi, as they are often They are used in smart contracts to facilitate negotiation or as collateral for loans.For example, stablecoins are often one of the assets used in digital asset pairs used in automatic market maker (AMM) agreements.
Stablecoins are also often “locked” in DeFi agreements to earn yield on interest payments paid by others who borrow those stablecoins from the agreement for leveraged trading and other activities.
Could The Merge affect stablecoins?
While some major stablecoin issuers such as Tether (USDT) and Circle (USDC) have noted that will support the merger, others like MakerDAO, developers of the stablecoin DAI, have warned about the possibility that The Merge cause problems in the operation and stability of the coins.
In a Twitter thread, MakerDAO identifies some problems that the merger could cause such as: negative funding, perpetual contract rollbacks, network downtime or replay attacks.
Maker believes the move to Proof of Stake could trigger a Sales pressure on existing Proof of Work chains.
Grayscale has also posted a thread on Twitter discussing its concerns about the impact of The Merge in DeFi and stablecoins. According to the company, the merger could spark a new hard fork that creates two separate blockchains, this could create a situation where ETH tokens locked in smart contracts remain blocked forever, forcing holders to liquidate before the merger takes place.
Vitalik Buterin himself warned about the role that stablecoins could have on the Ethereum merger. The Ethereum co-founder believes that centralized institutions like Tether or Circle could choose to use a forked blockchain to satisfy their own needs instead of focusing on proposals from the Ethereum community.
The Merge should not cause any problems
For their part, Ethereum developers have tried to reassure users and explained that All these possibilities have been considered and they are prepared to deal with any problemThey are also convinced that The Merge will be a smooth process and will not cause any major problems.
In this regard, most DeFi protocols, such as Uniswap, have also reassured their users, explaining that The Merge will not cause any problems and that their service will not be interrupted.
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