Decentralized finance (DeFi) still has a long way to go before it can truly mature, and the slew of smart contract hacks that netted attackers over $3 billion in 2022 is a testament to that. In addition to these exploits, DeFi also faces scaling issues related to the necessary computational power and throughput required to support the worldwide financial system in the coming years. As it remains the current king of DeFi, it’s worth assessing Ethereum’s limitations as they contribute to the industry’s current roadblocks.
At a recent event (Consensus 2023), Piers Ridyard – CEO of RDX Works – sat down with CryptoPotato to discuss how Ethereum isn’t optimized for DeFi and presented some more suitable technology. For example, one issue that Ethereum faces is related to its less-than-ideal programming languages. Solidity, one such language, is “like banging your head against a brick wall” since building assets and financial applications that are highly secure is almost impossible to accomplish in an easy-to-use way for developers. On the other hand, Radix, one of the newly popular smart contract platforms, uses a unique programming language called Scrypto, specifically focused on making financial applications easier to build and use.
In addition to Ethereum’s clunky programming language, the network also has issues related to scaling and consensus mechanisms. Ethereum doesn’t currently allow for the parallel execution of transactions, meaning that all transactions must be ordered, even if they aren’t related to each other. In contrast, Radix uses a mechanism called “Cerberus,” which doesn’t need ordering and allows transactions to start and end when necessary without agreeing on the order of execution. Furthermore, Ridyard noted that proof of work chains, like Bitcoin, solve certain problems present in proof of stake chains, including bootstrapping and randomization.
When it comes to DeFi and blockchains, regulatory pressure (especially from the SEC) is another issue that has yet to be fully resolved. The agency currently seeks to regulate DeFi exchanges under existing securities exchange laws, but Ridyard remains optimistic that DeFi will ultimately adapt to conform to each country’s political and economic will. It’s important to focus on other areas that need improvement in DeFi rather than getting too distracted by the regulators’ interpretation of enforcement rules.
Overall, Ethereum still has many technical limitations that impact its effectiveness and scalability within the DeFi space. Newer blockchains, such as Radix, offer unique solutions and faster throughput, making them promising competitors in the DeFi sector.