ETH holders may prefer to place assets in DeFi protocol pools and participate in profitable farming than using their coins for staking when the Ethereum blockchain switches to a new algorithm.
According to the recent report from ConsenSys on the DeFi market in Q3, the high yields offered by DeFi protocols could be an obstacle to the forthcoming upgrade of the ETH blockchain ecosystem to a Proof-of-Stake algorithm. ConsenSys suggests that ETH holders would rather keep ETH in DeFi protocol pools rather than staking them on Ethereum's Beacon Chain.
The report warns that “ETH holders may elect to direct their ETH elsewhere, thus leaving Eth2 without the threshold of staked ETH required to render it sufficiently secure and decentralized.”
The zero phase of the Ethereum upgrade is expected to start by the end of 2020. Last week, ConsenSys developer Ben Edgington announced that the launch of an ETH 2.0 staking escrow account is imminent and that the Beacon Chain launch could happen within the next six weeks. After the launch, ETH holders will be able to send at least 32 coins to a special deposit smart contract and become stakers. But their funds will be blocked for an indefinite amount of time.
“It is not unreasonable to worry that ETH holders would (at best) wait to see how early staking returns compare to DeFi returns, or (at worst) decide altogether not to “risk” locking up ETH until Phase 1.5 (which is likely at least a year away) in case another similar bull run occurs in the meantime.”