The profound impact of Ethereum upgrade on the DeFi ecosystem

The upgrade of Ethereum has had a profound impact on the DeFi ecosystem, which is reflected in four levels: technology, economy, application and governance. At the technical level, upgrades improve network performance and scalability, enhance security, such as improving transaction processing speed and reducing transaction latency through sharding technology, and optimizing consensus mechanisms to enhance security. At the economic level, upgrading reduces transaction costs and may increase the value of ETH through deflation mechanisms. At the application level, upgrades have promoted the development of new DeFi applications and have promoted the optimization and upgrading of existing applications. Finally, at the governance level, upgrading has enhanced the importance of community governance and increased the need for cross-project governance collaboration.

Ethereum upgrade has had a profound impact on the DeFi ecosystem in many aspects, mainly reflected in the following aspects:

Technical level

• Improving performance and scalability: Ethereum upgrades such as introducing sharding technology have improved the scalability of the network, increased the number of transactions processed per second, and reduced the transaction confirmation time. This allows DeFi applications to carry more users and transactions, reducing transaction congestion and delays. For example, transactions that had previously had to wait for a long time to complete during peak periods can be confirmed faster after upgrading, improving user experience.
• Enhanced security: During the upgrade process, the consensus mechanism is optimized, and the transformation of PoW to PoS is made, making the network more secure and reducing the risk of being attacked. For example, the possibility of attacks is reduced by 51%, which ensures the security of user assets on the DeFi platform and enhances users' trust in the DeFi ecosystem.

Economic level

• Reduce transaction costs: Optimization of transaction fees after upgrades, such as the implementation of EIP-1559, has changed the calculation and payment methods of transaction fees, and to a certain extent reduces the cost of users using DeFi services. This makes small transactions, high-frequency transactions, etc. more feasible, promotes the popularization and innovation of DeFi applications, and attracts more users to participate in the DeFi ecosystem.
• The deflation effect brings value improvement: the deflation mechanism generated by Ethereum's upgrade has increased the scarcity of ETH, which may drive its price to rise. This has increased the asset value for ETH holders and projects with ETH-based assets in the DeFi ecosystem, attracting more funds to flow into the DeFi field, providing more financial support for the development of the DeFi ecosystem.

Application level

• Promote the development of new applications: The upgraded Ethereum provides DeFi developers with a stronger technical foundation and broader innovation space, and promotes the emergence of more new DeFi applications, such as privacy DeFi applications based on zero-knowledge proof, cross-chain DeFi applications, etc., enriching the application scenarios of the DeFi ecosystem.
• Promote application optimization: Existing DeFi applications can take advantage of the upgraded advantages to optimize and upgrade to improve service quality and efficiency. For example, lending platforms can process lending transactions more quickly, and DEX can achieve more efficient transaction matching and asset redemption, improving user participation and stickiness.

Market competition level

• Enhance competitiveness: Ethereum upgrade makes its leading position in the DeFi field more stable, attracting more DeFi projects and users, and forming differentiated competition with the DeFi ecosystem of other public chains. For example, it attracted some projects and users originally on other public chains to return, further expanding the market share of the Ethereum DeFi ecosystem.
• Promote industry innovation and competition: The upgrade of Ethereum has also prompted other public chains to accelerate the pace of technological upgrading and innovation, promote the continuous development and improvement of the DeFi ecosystem of the entire blockchain industry, form a healthy competition situation, and provide users with more and better choices.

Governance level

The importance of community governance has increased: the upgraded Ethereum pays more attention to community governance, and the governance of DeFi projects has also been affected. Community members have more say in the development direction and parameter adjustment of the Ethereum network and DeFi projects, and participate in governance through voting and other means, promoting the decentralized development of the DeFi ecosystem.
• The demand for cross-project governance collaboration has increased: With the continuous development of the DeFi ecosystem, interaction and collaboration between different DeFi projects are becoming more and more frequent. It is necessary to establish a more effective cross-project governance mechanism to coordinate the interests of all parties and jointly promote the healthy development of the DeFi ecosystem, such as governance collaboration between different lending projects, DEX and money storage, etc.

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