Original title: "ETHPoW vs ETH2"
Original source: BitMEX Research
Original compilation: czgsws, 0x711, wzp, BlockBeats
Summary
Summary
In this article, we discussed the feasibility of splitting a new chain when Ethereum merges, thus generating an ETH2 Token and a new ETHPoW Token.
As far as the price of Token and the use of the economic chain are concerned, it is almost certain that ETHPoW will be the chain supported by a few people.
overview
overview
After several delays, it appears that Ethereum will finally begin merging in September 2022. Ethereum core developer Tim Beiko atJuly 14, 2022Monday, September 19, 2022 was suggested as a possible merge date in the developer call. The first major part of the merger is to stop Proof-of-Work (PoW) mining. The consensus part of Ethereum chooses which blockchain to follow, which will then move to the already existing proof-of-stake beacon chain. However, the date of September 19, 2022 is far from being finalized, a client with a merge time parameter has not yet been released, and until then there is still a lot of uncertainty about the exact timing of the merge.
After the merger, two Ethereum clients need to be running, the consensus layer client and the execution layer client, such as Geth, which will still verify and process Ethereum smart contracts and transactions. It’s worth pointing out that even after the merger, stakers cannot withdraw their staked ETH back to the execution layer, and the “second merger” may take another 6-12 months.
When discussing the merger, many reported broad support from the Ethereum community for shutting down PoW. At a recent conference Vitalik mentioned that if someone doesn't like it, they can always use Ethereum Classic (i.e. ETC, 2016DAO Warsproducts). However, as one might expect, PoW miners will certainly not support shutting down PoW. Why are they doing this? They will be completely shut out of the Ethereum system.EIP-1559It's nothing compared to this, and this time the possibility of their income from Ethereum has dropped to zero. For months, some miners have been speaking out against the merger behind the scenes, expressing their desire for “who can step up and do something”. Finally on July 29, 2022, one of the largest players in the Chinese mining ecosystem, "Bao Er Ye" (Guo Hongcai), stated that he may plan to continue mining on the Ethereum PoW chain.
If the PoW chain still exists and continues to expand, some speculate that the coin might be called ETHPoW. Whether this chain makes any economic sense is an open question in our view. There is an opinion that the chain can exist for a long time. PoS may have some weaknesses compared to PoW (such as staking derivatives becoming a natural monopoly) that ultimately make PoS chains less attractive than PoW chains for certain use cases. All the smart contract platforms that compete with Ethereum (except maybe ETC) have taken the path of PoS, so the emergence of a new PoW smart contract chain may gain a lot of traction. There are no real candidates other than ETHPoW.
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Ice Age
Vitalik had foreseen this potential problem more than seven years ago, when Ethereum's PoS system was just a series of wacky and broken ideas on the drawing board. And proposed a solution for this, called "Ice Age". In this system, the difficulty of PoW mining the network increases exponentially over time, eventually failing to effectively scale the chain. After the original Frontier client, Ethereum's first major network upgrade is called "Ice Age" and includes the first difficulty bomb. The bomb will "detonate" in 2017, whenSerenity UpgradeWill transition the network to PoS. But in the end the upgrade of PoS was delayed, so the bomb was also delayed by the hard fork.
In fact, the difficulty bomb has been a "dud" many times in the past. For example, in early October 2017, the average block time of Ethereum was about 30 seconds, after which the difficulty bomb system was reset, and the average block time dropped back to the normal 13 seconds. The difficulty bomb has been reset 6 times in the history of Ethereum, six hard forks.
September 2022September 2022estimateestimate, it could take 175 days to reach an average block time of 30 seconds, after which point things should get exponentially worse.
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New ETHPoW hard fork client
With the advent of ice age, the previous PoW chain may only survive for a few hundred days after the fork. If the PoW chain is to exist for a long time, it needs to hard fork a new client to permanently remove the effect of ice age. This has caused some problems for ETHPoW, and perhaps this is what ice age is all about. It negates the legitimacy of ETHPoW to a certain extent. ETHPoW will not be able to claim to be orthodox or the chain that conforms to the original rules. It also requires a hard fork. However, there may not be many Ethereum users who really care about this today, which seemed to be more valued seven years ago.
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ETH locked in stake
Currently, there are roughly 13.2 million ETH staked on the Beacon Chain, or closer to 14 million if you include the actual balance (Ethereum earned through staking plus any deposits above the 32 ETH threshold). From what we understand, at the initial stage of the ETHPoW chain, if a hard fork does not occur, these funds will be lost forever. In contrast, on the ETH2 chain, these ETHs can be sent back to the execution layer at some point in the future. This has several consequences for the ETHPoW chain. First, one might think that since there is a fraction of the supply of ETH on the ETHPoW chain, this could drive up the price of ETHPoW. Alternatively, this could reduce the trustworthiness of the chain and damage ETHPoW as users lose large amounts of funds.
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Stablecoin
Many have speculated that in the event of a contentious ethereum fork, the decision would no longer belong to the Ethereum Foundation or Vitalik. They believe that the new kingmaker in this case could be the Stablecoin custodian. These custodians must choose a chain to support, and considering how popular and popular these Stablecoins are, and how interconnected they are with Defi, their decision will determine the winning chain. So maybe Jeremy Allaire (CEO of Circle, USDC issuer) is the most powerful person in Ethereum, not Vitalik.
Of course, Jeremy is the CEO of a company and he has to be responsive to his customers, and not doing so could mean he's not acting in the best interest of shareholders, which could be illegal, so he may not in reality this power. However, if Circle is officially ordered to support one or the other chain for some regulatory reason, that would be a different story. This is also a potential weakness of Ethereum at the moment.
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Sell ETHPoW
Many Ethereum maximalists strongly support the move to PoS, and thus will not like ETHPoW. They probably want the ETHPoW chain to die quickly.
Then there is a layer of thought on top of that. Ethereum maximalists should actually (somewhat paradoxically) want the ETHPoW chain to survive, at least for a while, so they can sell their ETHPoW tokens on the market and get more ETH (or USD). This way they can make money from what they consider "stupid" ETHPoW supporters before ETHPoW slowly dies over the next few years. Therefore, many people may sell their ETHPoW Token as fast as possible, and the price may weaken.
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The value of ETH fork token
In order to sell ETHPoW to obtain ETH, it is necessary to wait for the centralized trading platform to support ETHPoW after the merger. While centralized exchanges like FTX and Binance may launch related products soon, it will still take a while, at least a few hours or days, to support ETHPoW deposits. No matter how well-prepared they are, they need to protect themselves from double-spend attacks as the computing power and block times on ETHPoW can be unstable.
On the other hand, in theory no matter what happens, users should be able to buy ETHPoW on an on-chain decentralized exchange once the merger happens. Regardless of your opinion on ETHPoW, do you definitely think this token is better than all other ERC-20 tokens on the ETHPoW chain?
Let's think about some Tokens on Ethereum today:
USDC on ETHPoW - worthless, because Circle will choose ETH2, so the token will not be redeemable, as stated above.
USDT on ETHPoW - also worthless
Wrapped Bitcoin on ETHPoW - worthless, because the custodian will choose ETH2, so the Token will not be redeemable for Bitcoin
BNB on ETHPoW - Worthless as Binance will choose ETH2
Uniswap on ETHPoW – The long-term viability of tokens on the ETHPoW chain is questionable. Token may collapse faster than ETHPoW
stETH on ETHPoW - Since there is no collateral on this chain, these tokens may be worthless, as mentioned above
All other ERC-20 Tokens on ETHPoW - may have very limited value on the ETHPoW chain
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Merge Trading Strategies
As with these potentially contentious blockchain forks in the past, the Ethereum merger presents an exciting trading opportunity. A possible "risk-free" trading idea is as follows:
1. Convert all your USD to USDC in your own Ethereum wallet before merging
2. Immediately after the merger, sell your USDC on the ETHPoW chain, and exchange for ETHPoW Token on decentralized trading platforms such as UniSwap or Curve
3. Once the centralized trading platform opens ETHPoW deposits, sell all ETHPoW for USD
4. Make a profit
By making the above trades, you have the potential to make a profit with almost zero risk. Zero risk is when only certain types of risk (such as price changes) are considered.
Of course, actually executing the above trade is actually quite complicated and risky, and there are several issues to manage:
Take a short time to trade as there may be a race to capitalize on the opportunity. The funds in the liquidity pool supporting the sale of ETHPoW may dry up quickly.
You need to manage your own keys instead of using a custodian. It is unlikely, if any, that any third-party custodians will support ERC-20 tokens on ETHPoW anytime soon after the split.
Basically the infrastructure for interacting with DEXs is likely to support mergers and only run on ETH2. Therefore, you may need to run your own Ethereum node and directly interact with the trading platform smart contract on ETHPoW. This can be quite complicated for some traders, but this difficulty is where profit opportunities may arise. It may take practice before ETH1 forks.
You may want to make sure your USDC sell/swap order doesn't get replayed on the ETH2 chain. It may be necessary to create split smart contracts.
Liquidity providers may realize this potential risk very quickly and withdraw liquidity before and after the merger. However, some liquidity providers may not do so, creating opportunities.
Many DeFi protocols rely on price oracles, and it may not be clear how these will handle the ETHPoW chain.
in conclusion
in conclusion
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