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26th August 2022 > > The Merge.


The potential ETH hard fork is already increasingly being marginalised.

Market Snap

Market Wrap

For most of the last two months, BTC has ranged between $20k and $22k, with the occasional threat to break out both to the upside and the downside. On-chain metrics and google searches appear to indicate that retail involvement remains low, suggesting that a large proportion of BTC trading is failing to provide any price discovery at all.

Curious Cryptos’ Commentary – Ethereum hard fork update

On the 15th and 17th August, the CCC explored the possibility of a hard fork of the Ethereum blockchain post The Merge on 15th September, when ETH is planned to transition away from proof-of-work (POW) to proof-of-stake (POS) consensus mechanism.

The potential for a hard fork is created by the desire of some miners to keep a POW chain in existence, resulting in both ETHS (*) and ETHW.

The current price of ETHW is just 3% of the price of ETH, and the sum of ETHS and ETHW is within a couple of dollars of ETH.

Call me a sceptic if you will, but the driving force behind forking and creating a new ETH still based on POW in my opinion is a concern by miners that their investment in ETH specific mining rigs is going to look a little foolish in a few weeks’ time.

I read that most issuers of fiat backed stablecoins – the largest of which are USDT and USDC – are refusing support for a new ETHW.

Wrapped coin protocols are also expressing support for ETHS over ETHW.

Cross-chain bridges are making the same decision.

Decentralised finance (DeFi) protocols utilising price feeds (often from Chainlink whose native token LINK is a perennial favourite of the CCC) are likely to only function properly for the new POS chain – lack of visibility and excessive volatility for the POW coin could potentially trigger cascading liquidations in the POW environment.

Some Decentralised Autonomous Organisations (DAOs) have already voted to sell ETHW to add the funds to their treasury.

I am increasingly of the view that the stampede to sell ETHW – if it comes into existence – makes its current price of 3% of ETH an overstatement of where it will trade initially.

The key point to remember however, is that the safety and security of your ETH stack is more important than any potential windfall from ETHW.

If you have staked ETH to receive stETH it seems likely you will not play a part in the hard forked POW chain.

Exchanging stETH for ETH in Curve’s stETH-ETH liquidity pool is a way around that problem, but does come with some significant risks, with a non-immaterial probability of a significant discount for stETH to ETH in the lead up to The Merge if ETHW does prove to be valuable. I would prefer to be a buyer of stETH, not a seller, in that scenario.

If you own ETH on-chain (i.e. not on a centralised exchange), I strongly advise you to wait at least 48 hours after The Merge before selling your newly acquired ETHW, regardless of the price action. You may be giving up some of your windfall gains, but that is a small price to pay to be sure that your ETH stack remains safe.

If there are any material changes in the run-up to The Merge, the CCC will tell you all you need to know.

(*) ETHS is the nomenclature used today to describe ETH post The Merge. After that event, it will continue to be called ETH, but for now we need to distinguish between ETH today and the two ETHs that are likely to be in existence soon.

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