ConsenSys finds massive DeFi yields are "number one threat" for Ethereum 2.0 upgrade

The enticing profits could impede the allure of ETH 2.0, Ethereum development lab ConsenSys said in its DeFi report this week.

ETH 2.0 returns are projected to be in the 5%-9% range, popular DeFi projects boast anything from 5% to over 1,000% returns.

"If various DeFi protocols offer higher returns than ETH 2.0 staking, ETH holders may elect to direct their ETH elsewhere, thus leaving ETH 2.0 without the threshold of staked ETH required to render it sufficiently secure and decentralized," the report said.

For the uninitiated, the ETH 2.0 upgrade sees Ethereum shift from its current proof of work design to a proof of stake consensus mechanism, allowing traders to lock up their ETH to generate variable yearly returns.

The new chain will not help scale the network but holders of 32 ETH and above to stake their tokens on the network.

"It is not unreasonable to worry that ETH holders would wait to see how early staking returns compare to DeFi returns, or decide altogether not to 'risk' locking up ETH until Phase 1.5.".

ConsenSys said DeFi projects could offer/issue tokens that represent the value of an investor's staked ETH. This could, in turn, be used as collateral on other protocols to burrow actual ETH which can then be staked on the Beacon chain.

The report displays a massive shift in interest from ETH 2.0 to other DeFi protocols in the past few months, buoyed by higher returns.

As CryptoSlate reported earlier this year, wallets holding the 32 ETH required for staking surged to an all-time high, with over 65% of people, as part of a survey, expressing their interest in staking on the network.

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