24.07.2021

Ethereum or Polkadot, which blockchain will be the backbone platform for DeFi?

Despite Ethereum’s popularity as a platform for decentralized finance (DeFi) applications, the rampant growth in both the number of applications themselves and the number of users has put a strain on the network infrastructure, leading to a number of problems that many Ethereum DeFi users face on a regular basis.

Perhaps the most notable are the scalability and cost challenges.

Since Ethereum is working to the limit of its capabilities, and commissions are breaking all records, other platforms may encroach on its DeFi territory in the near future. In this article, we’ll take a look at the current state of Ethereum and its biggest potential rival, Polkadot.

Ethereum network limitations

In the current iteration, the Ethereum blockchain, when fully loaded, is capable of processing approximately 10-14 transactions per second, and if the blocks are fully optimized, just over 30.

This is due to the fact that the absolute maximum that Ethereum can fit into one block is about 476 transactions, while the block is mined every fifteen seconds. In addition, most ETH transactions are more complex (and therefore larger) than minimum size transactions.

Unfortunately, the limited bandwidth has led to a serious problem that is relevant to most DeFi applications today, namely high fees. Since over the past year, the number of transactions made per day has more than tripled, which was mainly due to the increased popularity of DeFi. The fees required to ensure fast confirmation of transactions have also increased.

Since the usefulness of many Ethereum-based DeFi applications depends on the fast execution of transactions made by both parties (when you trade on Uniswap), and when working with them, users must launch a smart contract, as of mid-January, the size of commissions has reached record highs – on average $ 16 per transaction.

As you might expect, interacting with DeFi apps has become an expensive pleasure that many users simply cannot afford.

What’s more, it is clear that DeFi apps tend to be interoperable. The number of decentralized applications (dApps) is growing more than ever before, striving to use the utility of their fellows and support the tokens of other blockchains. At the moment, this is most often achieved with wrapped assets (backed by other assets) and synthetic assets, but this is still a crude solution since even these projects suffer from exorbitant transfer fees.

These problems, along with a few others, have forced both users and developers to look for an alternative solution.

Polkadot – solution to the issue?

Polkadot was first introduced more than three years ago, and this project has already been heralded as a potential alternative to solve the scalability and fee issues that plague many blockchains, including Ethereum.

Unlike a templated solution like many other platforms, Polkadot’s goal is to allow multiple third-party blockchains to communicate with each other through their central “relay” chain. Various application-specific blockchain implementations can be launched on Polkadot as parachains, while existing blockchains can connect to the ecosystem through specialized adapters known as bridges.

This solution has two main advantages. First, it significantly improves the scalability of the system, since each parachain or its own blockchain (connected via a bridge) acts in the Polkadot ecosystem as a single segment (shard), which significantly increases the overall network bandwidth and, as a result, reduces fees.

While Polkadot has the potential to benefit other blockchains, some believe its parachain technology is the ideal foundation for the future of DeFi, including Clover’s versatile open DeFi platform built on the Polkadot parachain.

“The Clover platform aims to provide an easy-to-use blockchain infrastructure and create a universal EVM (Ethereum Virtual Machine) compatible platform for applications based on Substrate, an infrastructure that enables blockchain creation.”

The Clover project, backed by South Korean cryptocurrency exchange Bithumb, plans to provide infrastructure to make it easier for developers to launch DeFi applications on Polkadot. It will also include various plug and play modules that cover standard DeFi features such as swaps, stablecoins, and governance protocols.

Based on the Polkadot platform, these applications will also benefit from inter-blockchain interoperability, allowing developers to build more powerful DeFi applications than previously possible.

With Polkadot parachains like Clover springing up like mushrooms in the coming months, only time will tell if Polkadot can live up to its lofty ambitions.

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