Another major network congestion due to Xinjiang grid blackouts
Bitcoin’s total hashrate has dropped by more than 40% due to blackouts and “safety inspections” in China’s Xinjiang Uyghur Autonomous Region. Since Bitcoin’s difficulty adjustment happens approximately once in 2 weeks, the average time between blocks has significantly increased, which resulted in fewer transactions being included into the blockchain.
As it was expected, Bitcoin’s mempool started rapidly approaching 200K unconfirmed transactions, forcing users to over-bid each other, which pushed the average transaction fee above $66 — which are levels that the network hasn’t seen since December 2017. Back then, severe network congestion coincided with the peak of the bull market, which was followed by a 2-to-3-years-long bear market.
The recent drop serves as a great reminder about how much of Bitcoin’s hashrate resides in just one region in China.
If you’ve been reading our newsletters for awhile, you may remember that during Ethereum network congestions many users that couldn’t bear the fees flocked to other more centralized smart contract networks, like Binance Smart Chain.
Well, a similar story is currently taking place in Bitcoin right now. Users that were left behind in a “fee race” had no choice but to switch to alternative blockchains with much lower fees such as Litecoin (LTC) and Bitcoin cash (BCH).
Since January, both LTC and BCH experienced a sharp rise in network activities with Bitcoin Cash surpassing Bitcoin by the amount of daily transactions.
DAI bridges DeFi with TradFi
MakerDAO, the decentralized autonomous organization behind stablecoin DAI, approved via a community vote the addition of real estate-backed token NS-DROP (New Silver Drop) as a collateral type for DAI loans.
This long-awaited introduction of physical assets as collateral for DAI should help bridge DeFi with traditional finance (TradFi), allowing companies to source credit from DeFi protocols using real estate-backed securities.
As for the security of DAI’s peg to the US dollar, the impact of the recent decision will be seen during the next stress-test. For example, after the market crash in March 2020, the protocol ended up with a $4 million hole in its vaults due to over-reliance on ether (ETH) and other correlated assets. As a result, MakerDAO had to bail out the protocol by auctioning its native token MKR in exchange for DAI in order to recapitalize the under-collateralized $4 million debt.
From one side, new non-correlated yield-generating assets like NS-DROP should provide more stability to DAI’s price during a next crypto market crash. On the other side, though, the value of such real world assets-backed securities depends on traditional trust-based mechanisms, which introduces more risks to the DAI stablecoin.
It’s fair to mention that NS-DROP will not be the first trust-based collateral token in DAI’s vaults. In fact, the stablecoin protocol has long been criticized for accepting the centralized USDC token as a collateral, which can be frozen due to a law enforcement request.
After the approval of NS-DROP, MakerDAO has opened 7 more governance polls in attempt to drastically expand collateral types for minting its stablecoin. If passed, DeFi users will be able to take DAI loans by providing collateral in MCO2, eETH, 1INCH, bBADGER, as well as three SushiSwap’s and Uniswap’s LP tokens.
In other news
Ethereum’s Berlin upgrade went live, incorporating four Ethereum Improvement Proposals (EIPs) with the aim to introduce gas optimization and improve network security. Some high-profile Ethereum services experienced outages for several hours shortly after the upgrade.
Despite the overall crypto market correction, Dogecoin (DOGE) briefly became the fourth largest crypto by market cap, setting its new all-time-high above $0.41 on April 20, also referred as #DogeDay on Twitter due to its cannabis reference in US-style date format - 4/20. The meme-based cryptocurrency was created as a joke in 2013 with five addresses controlling 40% of DOGE circulating supply.
The Central Bank of the Republic of Turkey has banned the use of cryptocurrencies for payment, citing significant risks due to high volatility of crypto assets. In March, Google searches for Bitcoin in Turkey skyrocketed more than 5 times after the Turkish lira lost 17 percent against the US dollar in one day.