What to Expect for DeFi Applications

It should come as no surprise that Ethereum is currently undergoing rigorous preparation for a transition to Proof of Stake via eth2 (or Serenity) in the coming months. We recently saw the introduction of an eth2 testnet block explorer – a good signal that progress is gradually being made. For those unfamiliar with Serenity and what it entails, we recommend brushing up with this resource.

Over the past few months, we’ve seen proposals for what the eth1 to eth2 migration will entail. Without going into too much detail, eth2 is an entirely new blockchain, meaning the core challenge here is how to properly port all of the state, accounts, and metadata from the existing Proof of Work chain (eth1) to a newly launched Proof of Stake beacon chain (eth2).

Similarly, eth2 marks the introduction of sharding, essentially splitting elements of the larger blockchain into smaller pieces to allow for increased throughput. In doing so, many have raised concerns that this dynamic may break the composability of many prominent DeFi applications.

Let’s take a look at what you (as an average user) can expect upon this transition.

ETH1 <-> ETH2

Perhaps the most refreshing thing for non-technical users to hear is that upon a successful transition, Ethereum transactions *should* feel the same.

“The changes and disruptions that you experience will actually be quite limited. Existing applications will keep running with no change. All account balances, contract code and contract storage (this includes ERC20 balances, active CDPs, etc) will carry over. Very different code paths would be used to package and broadcast transactions, but the functionality provided would be the same.”

In the case of something like a Vault in MakerDAO, everything will be handled by the client code, meaning there aren’t any *upgrades* you will have to perform on your end.

New Developments

Vitalik’s most recent post proposes a way to expedite the transition by allowing the eth1 system to “live” as shard 0…

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