Let’s start by understanding that algorithms and code have the ability to constantly improve. Algorithms learn and improve with use, and code becomes more functional by design as shortcomings and flaws are discovered at the beginning of its integration. With this in mind, it goes without saying that DeFi is full of both technical tools by its nature and composition. The improvement will come from massive use, both by the retail sector and by new players with more professionalism, more capital and a great appetite to export and feel the benefits of working in a capital market directly.
Going to the point of the article, let’s talk about the L2 of Ethereum, which are blockchains that do not have final decision on the validation of transactions, since they only process them. Therefore attacking a L2 network involves attacking the main network, in this case Ethereum, which carries a high economic cost in malicious actions. I highlight at this point the importance of L2 on Ethereum, as it has a great advantage over other L1, L2 on Solana, Avalanche or Polkadot, but not everything goes for DeFi, as billions of dollars are managed daily in different structures and financial products.
On the other hand, Ethereum developers are convinced that RollUps should be the gateway for more users to interact and the network to scale while maintaining a high degree of security and decentralization. These new implementations turn an L1 into a specialized network that stores, preserves and maintains consensus on all data that is generated, without overloading the network.
At this point, it becomes imperative to understand that the shift from Proof of Work to Proof of Stake will not make Ethereum more scalable or cheaper to use, now its future lies in working in conjunction and synchronization with L2s.
The competitive advantage Ethereum needed, given the large number of applications, users and locked money inside, was certainly to achieve 500 to 2,000 transactions per second, without sacrificing security or decentralization (thanks in large part to RollUps). With the arrival of danksharding (within this ETH 2.0 phase), this number will increase to more than 20,000 transactions per second, and this will be the way to a DeFi with excellent bandwidth, where the entire Ethereum ecosystem will be able to work freely without bottlenecks, without theft and with a great flow of capital.
With web3, we are looking for total decentralization within the DeFi sector, or at least a progressive change from a centralized model as has been the web2, to a decentralized model as web3 intends to be. It won’t be easy, but given the latest threats, the censorship that planned throughout the sector, and the bad practices of several companies (CeFI not Defi), splashed the entire ecosystem equally, calling the attention of the regulator, going from being a necessity to a survival action.
This total decentralization model assumes that the Web3 system is a new protocol implemented on a blockchain that already exists, achieving technical decentralization of those layers. This together with decentralized governance (in the form of DAO), moves control of that network to Web3. The result is a high degree of transparency and security for the system, since it is clear that no individual or group of people control the system.
Web3 has had a natural evolution, since technically we could say that most tools and protocols have simple clients, such as frontend websites, which provide only a gateway to the protocol, to interact with users, so however we paint it, they are CENSORABLE COMPANIES. If we fail to eliminate the potential for information asymmetries that DeFi now has, US laws will fall on the protocols without remedy, stoning their business models and the entire industry in general.
To this end, the gateways to the protocol should always be available, regardless of whether the client/web site of the developing company is maintained, so that information about the protocol and its operations is available as transparently as possible. This together with web 3 and its unique approach of having the blockchain on one side and the smart contract on the other (without the control of any group or entity), makes the system fully redundant and no longer dependent on any one company.
“It seems then, that both L2 and Web3, will lead us to the same end, but by different technical paths, we should not look for winners or losers in this evolution of the system, we must support, build and learn fast, to return to where we started with bitcoin, to decentralization, but in this case it is a decentralization without decentralization or to put it more simply, to an “open decentralization”.