A new report suggests that Cosmos, Polkadot and NEAR could fail to take off if they are perceived to have an issue with centralization — as the example of EOS demonstrates.
Non-custodial crypto asset exchange ShapeShift has published a report predicting that Proof-of-Stake scalable smart contract networks Polkadot, Cosmos, and Near will be thoroughly put to the test this year.
The report forecasts the networks’ claims of increased scalability without sacrificing security or decentralization will soon be tested. Shapeshift notes the distribution of Polkadot’s and NEAR’s respective native tokens appears quite centralized as a result of “relatively high insider token allocations,” while Cosmos’ pluralistic architecture requires each of its individual “zones” to recruit independent validators — making it more difficult for each zone to ensure robust security.
Ultimately, the document’s author, Kent Barton, speculates the perceived degree of centralization of the respective platforms will likely determine which blockchain will thrive from those that will fail to gain traction, asserting:
“This dynamic has already played out in EOS, where evidence of validator collusion seems to have played a role in the platform’s anemic developer growth over the past year.”
ShapeShift predicts the promise of smart contract platform interoperability will be put to the test this year, forecasting that “value and data will begin to flow trustlessly between different crypto ecosystems.”
But the report also emphasizes it will be a challenge to design systems that conceal the complexity of blockchain interoperability:
“Wider adoption will likely require that the complexities of interoperability are made nearly invisible to users.”
Noting the absence of a “one-size-fits-all” smart contract solution, ShapeShift predicts that decentralized exchanges and applications will adapt to the unique capabilities offered by different smart contract platforms.
However, the report cautions that the platforms’ innovations will also bring new vulnerabilities as demonstrated by the myriad of flash loan exploits suffered by DeFi protocols in late 2020.
“Emerging blockchain ecosystems will likely have their own version of flash loans—powerful new abilities that expose users to a loss of funds,” said the report.
As decentralized finance grows in prominence, a battle of the DEXs is brewing between several of the top protocols like Uniswap (UNI), SushiSwap (SUSHI) and Curve DAO (CRV) as the growing list of platforms vie for investor liquidity and transactions on the network.
In terms of total value locked, DeFi lending platforms currently dominate the space with the top 3 positions currently occupied by Maker (MKR), AAVE, and Compound (COMP).
Decentralized exchanges hold the next three positions with Curve DAO recently surpassing Uniswap to rank fourth in terms of TVL.
Top 6 DeFi platforms by total value locked. Source: Defi Pulse
The integration is supported by the Web3 Foundation’s Open Grant Program and will bring an added level of interoperability to Curve finance that could boost its TVL as the number of available assets increases with the addition of DOT-based “coins.”
TVL on Curve and the price of its CRV governance token reached a new all-time high on Feb. 9 and data from Defi Pulse shows a steady increase since early January.
Total value locked on Curve Finance. Source: Defi Pulse
When it comes to token value, SushiSwap has experienced the most price growth since Dec. 2020 as its community-focused approach and fee-sharing mechanism have helped increase its popularity amongst the crypto community.
Uniswap has yet to implement a fee-sharing mechanism for its token holders and Curve has been hampered by several noteworthy hacks where manipulation of CRV oracles led to the loss of funds on connected DeFi platforms.
CRV, SUSHI, and UNI (USDT-based pairs) 4-hour chart. Source: TradingView
As the DeFi sector continues to expand, it’s likely that the battle between DEXs will continue.
Furthermore, speculation around what Uniswap v3 will entail continues to grow as platforms like Curve unveil integrations that enable interoperability and aim to reduce the costs associated with transactions on the Ethereum network.
Newly launched projects like Reef Finance (REEF), focus on providing cross-chain trading with the addition of centralized exchange liquidity and these platforms could soon bring added competition to the current top contenders in the DeFi sector.
Solana has announced an upcoming DeFi hackathon offering $200,000 in seed funding from the Solana Foundation.
The hackathon, which is scheduled to take place from Feb. 15 through March 1st, will be hosted in partnership with Sam Bankman-Fried of FTX’s Project Serum.
Bankman-Fried will also offer mentorship to hackathon participants alongside Solana CEO Anatoly Takovenko. Bankman-Fried stated:
“A lot of an ecosystem’s success depends on how much the community builds on it. I’ve been really happy with the growth of Solana so far building out the world’s fastest, most scalable on-chain ecosystem; I’m excited to see some projects come to market!”
Participants will also compete for a $200,000 prize pool, with the event’s judges including crypto-notables Circle CEO Jeremy Allaire, Aave CEO Stani Kulechov, CoinShares CSO Meltem Demirors, and CoinGecko Co-Founder Bobby Ong.
The announcement encourages developers to explore Solana’s bi-directional Ethereum bridge “Wormhole”, in addition to Solana’s new Chainlink oracle integration.
Speaking to Cointelegraph, Takovenko noted his excitement to see what recurring participants who took part in Solana’s Q4 2020 hackathon will build in the upcoming event. Takovenko emphasized that Solana offers benefits to developers through its support for traditional compiler toolchains like Rust, making it “more accessible for folks outside of crypto.”
On the subject of DeFi adoption, Solana’s founder emphasized the need for the sector to “break out among general consumers:”
“This could be as simple as: I get a Wrapped BTC savings account, but in the background, it’s earning a DeFi yield. And the end-user, a general consumer, isn’t really dealing with smart contracts or the complexity of [DeFi], but they actually get access to all of the entire pipeline.”
Takovenko predicts that such a “BTC savings account” could exist within the near future, stating: “That one use-case would require the entire stack to work […] I don’t know if this is going to happen in 2021, but it feels like everything is ripe for that.”
“The tools are much better, key management is much better, you can ship applications on iOS and Android with secure keys […] I’m excited to see who actually pulls it off and scales [DeFi] to one million or ten million users.”
Bitcoin (BTC) has attracted several institutional investors in the past few months, but with the market capitalization sustaining above $700 billion, many more institutions are likely to contemplate buying Bitcoin. Similarly, Ether (ETH) with a market cap of about $180 billion also cannot be ignored by the investors.
The institutional adoption of the top two cryptocurrencies is likely to attract numerous venture capitalists and early investors into smaller projects that have gained a decent size but have not yet reached their full potential. Although the risk is high in such investments, the returns could be equally attractive.
For such investors, there are multiple projects to choose from because over 50 digital assets command a market cap of over $1 billion, giving them unicorn status, a term used in legacy markets for companies with a market cap of over $1 billion.
If large players jump into these unicorns, they are likely to rally strongly, which will benefit the early retail investors who have a head start over the institutions. While these gains may take a long time, traders can benefit in the short term from the sharp up-moves in several altcoins.
Let’s study the charts of the top-5 cryptocurrencies that may resume their uptrend in the next few days.
BTC/USD
Bitcoin broke above the $38,000 overhead resistance on Feb. 5 and followed it up with another up-move on Feb. 6, but the bulls could not sustain the higher levels as seen from the long wick on the day’s candlestick.
The failure of the bulls to sustain the price above $40,000 has attracted profit-booking today and the bears are attempting to pull and sustain the price below $38,000. If they succeed, the BTC/USD pair could drop to the 20-day exponential moving average ($35,386).
If the pair rebounds off the 20-day EMA, the bulls will once again try to resume the uptrend. A breakout of the $40,000 to $41,959.63 overhead resistance zone could signal the start of the next leg of the uptrend to $50,000.
On the contrary, if the bears sink the price below the 20-day EMA, the pair may dip to the 50-day simple moving average ($32,840). If this support also cracks, the pair may drop to the $28,850 support.
The 4-hour chart shows the bulls had pushed the price above the $38,000 to $40,000 overhead resistance zone, but the pair turned down from $40,952.16. This shows the bears are active at higher levels.
The pair has dipped below the 20-EMA and the relative strength index (RSI) is just above the midpoint, which suggests the momentum may be weakening. The pair could now drop to the 50-SMA.
If the pair rebounds off the 50-SMA, the bulls will make one more attempt to resume the uptrend, but if the 50-SMA cracks, the correction could deepen to $32,000.
DOT/USD
Polkadot (DOT) is in a strong uptrend. The bulls pushed the price above the $19.40 resistance on Feb. 03 but they have not been able to build upon the breakout. This suggests the bears are attempting to stall the uptrend.
However, the positive sign is that the bulls have not allowed the price to sustain below $19.40. This suggests traders are not booking profits aggressively and are buying on every minor dip.
If the bulls can now propel the price above $21.7321, the next leg of the uptrend could begin. The target objective on the upside is $24.08 and then $30. The rising moving averages and the RSI above 61 suggest the bulls are in control.
Contrary to this assumption, if the bears sink and sustain the price below the 20-day EMA ($17.43), it will suggest that the bullish momentum has weakened. The DOT/USD pair could then spend some more time oscillating between $19.40 and $14.7259.
The 4-hour chart shows the formation of a symmetrical triangle, which generally acts as a continuation pattern. The bears attempted to sink the price below the triangle but the sharp rebound off the 50-SMA shows aggressive buying at lower levels.
If the bulls can propel the price above the triangle, it will shift the advantage in favor of the bulls. The pattern target of the break above the triangle is $24.1621. On the other hand, if the bears sustain the price below the triangle, the pair could drop to $15.8379.
LINK/USD
Chainlink (LINK) broke and closed above the $25.7824 overhead resistance on Feb. 5 but the bulls could not sustain the momentum the next day. This shows the bears are aggressively defending the $25.7824 to $27 resistance zone.
However, the long tail on today’s candlestick shows the bulls are buying the dip to the 20-day EMA ($22.83). The upsloping moving averages and the RSI in the positive zone suggest the path of least resistance is to the upside.
If the bulls can drive the price above the overhead resistance zone, the next leg of the uptrend could begin. The next level to watch on the upside is $30 and if that is also crossed, the up-move may reach $33.
On the contrary, if the bears sink the price below the 20-day EMA, the LINK/USD pair may extend its range-bound action between $20.1111 and $25.7824 for a few more days.
The 4-hour chart shows the formation of an ascending triangle pattern. If the pair rebounds off the current level, the bulls will make one more attempt to push the price above the overhead resistance zone. If they succeed, the pair could rally to the pattern target of $31.4537.
Conversely, if the bears sustain the price below the support line, the pair could drop to $22.61 and then to $21.65. The marginally downsloping 20-EMA and the RSI in the negative territory suggest a minor advantage to the bears.
XLM/USD
The tight range trading between $0.325 and $0.35 resolved to the upside on Feb. 6, which shows the bulls have overpowered the bears. If the bulls can now sustain Stellar Lumens (XLM) above $0.40, the next leg of the uptrend could begin.
The upsloping moving averages and the RSI near the overbought zone suggest that bulls are in command. Above $0.40, the XLM/USD pair could rally to $0.50 where the bears may again mount stiff resistance.
If the bulls fail to close the price above $0.40, the pair could again dip back to $0.35. A strong rebound from this support will suggest the bulls have flipped it to support, which will increase the possibility of a break above $0.40.
Contrary to this assumption, if the bears sink the price below the 20-day EMA ($0.315), it will suggest the current breakout was a bear trap.
The 4-hour chart shows the pair has broken out of a symmetrical triangle, which has a target objective at $0.445. Both moving averages are sloping up and the RSI is in the positive zone, suggesting the bulls are in control.
If the price rebounds off the 20-EMA, it will indicate traders are accumulating on dips and that will enhance the prospects of the resumption of the uptrend. Conversely, a break below the 20-EMA will be the first sign that the momentum may be weakening.
THETA/USD
THETA is currently consolidating in an uptrend. The price action of the past few days has formed a bullish ascending triangle pattern that will complete on a breakout and close above $2.51.
The bulls had pushed the price above $2.51 on Feb. 5 but they could not sustain the breakout. This suggests the bears are trying to defend the resistance at $2.51.
However, the positive sign is that the bulls have not allowed the price to dip below the 20-day EMA ($2.09). If the price rebounds off the current levels, the bulls will again try to thrust the THETA/USD pair above $2.51.
If they succeed, the pair could resume the next leg of the uptrend. The pattern target of the breakout from the triangle is $3.56. This bullish setup will invalidate if the bears sink the price below the triangle.
The 20-EMA on the 4-hour chart has started to turn down and the RSI has dropped into the negative territory, indicating the bears are attempting to make a comeback. A break below $2.10 could pull the price down to the support line of the triangle.
On the other hand, if the price turns up from the current levels or the support line of the triangle, it will suggest the bulls are buying on dips. They will then again try to push the price above the $2.51 resistance.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Since early 2020 the decentralized finance sector has been recieved a lot of attention due to its cutting-edge innovation and the lucrative high yield opportunities offered to cryptocurrency holders.
Despite these features, this week’s record-high gas fees show that the sector is still having growing pains and the absence of a suitable layer 2 solution could be pushing smaller investors away from DeFi.
Investors attempting to place a trade on Uniswap or simply approve a new token on their favorite DeFi platform will have noticed the dent these actions have put on their ETH wallet.
Data from Etherscan shows that while gas prices have not reached as high as they were in 2020, they are noticeably higher since December of last year. This rise in gas fees also coincides with the surge in Ether price.
Analysis of different time zones shows that the cost for transactions occurring during the Asian trading session are comparable to those during the U.S. trading session. This shows that the fees are a factor of network usage and highlights the 24-hour nature of the cryptocurrency market.
Average Ethereum fees by day in 2020. Source: Flipside Crypto
There is one group, however, that has benefited from the sharp increase in network fees. fees brought on by the rise of DeFi: Whale token holders.
A closer look at wallets that contain at least 20 ETH throughout 2020 shows a higher number of Ethereum transactions than those coming from smaller wallets, which also correlated to an increase in fees.
Number of transfers by wallet size in 2020. Source: Flipside Crypto
Since gas fees are not calculated based on the size of the transaction but rather the cost to interact with smart contracts, large wallet holders are more likely to engage with the protocol during higher congestion times as a larger wallet balance is less affected by raising transaction costs.
Hypothetically, a $200 trade and a $20,000 trade on Uniswap could both cost roughly $50 in fees under current conditions, making it less likely that smaller wallets will engage as the cost of the trade is 25% of the total value traded versus 0.25%.
In order for DeFi to continue its explosive growth, the gas issues seen on the Ethereum network problem will need to be addressed before any level of mass adoption can be achieved.
Ether (ETH) price has rallied by 33% over the last five days and data shows that as this occurred some buyers began to use excessive leverage.
Although this is not necessarily negative, it should be considered a yellow flag as a higher premium on futures contracts for short periods is normal.
ETH/USD 4-hour chart. Source: TradingView
Although Ether’s upward movement has been going for an extended period, it was only in February that Ether finally broke the $1,500 psychological barrier and entered price discovery mode.
To assess whether the market is overly optimistic, there are a few essential derivatives metrics to review. One is the futures premium (also known as basis), and it measures the price gap between futures contract prices and the regular spot market.
The 3-month futures should usually trade with a 6% to 20% annualized premium, which should be interpreted as a lending rate. By postponing settlement, sellers demand a higher price and this creates a price difference.
The above chart shows the Ether futures premium shooting above 5.5%, which is usually unsustainable. Considering there’s less than 49 days to the Mar. 26 expiry this rate is equivalent to a 55% annualized basis.
A sustainable basis above 20% signals excessive leverage from buyers and creating the potential for massive liquidations and market crashes.
A similar movement happened on Jan. 19 as Ether broke $1,400 but failed to sustain such a level. That situation helped trigger the liquidations that followed and Ether plunged 27% over the next two days.
A basis level above 20% is not necessarily a pre-crash alert but it reflects high levels of leverage usage from futures contract buyers. This overconfidence from buyers only poses a greater risk if the market recedes below $1,450. That was the price level when the indicator broke 30% and reached alarming levels.
It is also worth noting that traders sometimes pump up their use of leverage in the midst of a rally but also purchase the underlying asset (Ether) to adjust the risk.
Sellers were not liquidated by the move to $1,750
Those betting on $2,000 Ether should be pleased to know that open interest has been increasing all throughout the recent 33% rally. This situation indicates short-sellers are likely fully hedged, taking benefit of the futures premium, instead of effectively expecting a downside.
ETH futures aggregate open interest in USD terms. Source: Bybt.com
This week the open interest on Ether futures reached a record $6.5 billion, which is a 128% monthly increase.
Professional investors using the strategy described above are essentially doing cash and carry trades which consist of buying the underlying asset and simultaneously selling futures contracts.
These arbitrage positions usually do not present liquidation risks. Therefore, the current surge in open interest during a strong rally is a positive indicator.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
