DeFi for the Planet

The Census published in early 2023 highlights that nearly 0.5% of the world’s population uses blockchain today. This mass adoption instigates a pivotal need to reduce energy consumption of the decentralized framework.

Some emerging and promising approaches that can promote sustainable practices within the blockchain industry are analyzed in this post.

1. Layer 2 Scaling Solutions

   One of the main challenges facing the blockchain industry is the high energy consumption associated with its mining and transaction verification processes. According to a report by the Ethereum Foundation, layer 2 scaling solutions like rollups and sidechains have the potential to increase the throughput of the Ethereum network by up to 100x while reducing the associated energy consumption and carbon footprint. Sidechains allow for the creation of parallel blockchains that can process transactions off-chain, reducing the computational load on the main blockchain. Similarly, rollups allow for the aggregation of multiple transactions into a single transaction, reducing the number of transactions that need to be processed on-chain. For example, Optimism, a rollup-based scaling solution for Ethereum, has reported a 100x increase in transaction throughput compared to the Ethereum mainnet.

2. Green DeFi (Decentralized Finance)

   DeFi platforms are an important component of the blockchain ecosystem, allowing for the creation of financial instruments and products without the need for intermediaries. Green DeFi platforms and protocols can specifically focus on sustainable finance, promoting green projects and investments. For instance, they can integrate features that promote renewable energy projects, eco-friendly products, and sustainable businesses. This will allow investors and users to put their money into projects and businesses that align with their values and promote sustainability. According to a report by Morgan Stanley, the total assets under management (AUM) of sustainable funds globally reached a record $2.8 trillion in 2022, with the strongest demand in Europe. A survey by NYDIG found that 80% of institutional investors in the US are interested in investing in Bitcoin, with sustainability being a key consideration for many investors. These two indirectly imply a growing demand for sustainable investment options.

These are a couple of solutions that can help ensure the short-term and long-term viability of the blockchain industry, while also promoting social and environmental responsibility.