Original compilation: AididiaoJP, Foresight News
Original compilation: AididiaoJP, Foresight News
As the merger continues to advance, rumors of a hard fork of Ethereum have also been discussed intensified. Ethereum mining is a multi-billion dollar industry, generating hundreds of millions to billions of dollars in revenue for miners every month. It is clearly unrealistic for miners to shut down facilities and forego billions of dollars in revenue following the Ethereum merger. In order to be able to maintain their business, they will choose a hard fork as an alternative to the Ethereum merger.
There is already an Ethereum hard forkEthereum-PoW campCreating buzz on Twitter, BitMEX also launched ETHPOW futures contracts, allowing investors to bet on the future price of these tokens.
It's impossible to tell if Ethereum-PoW has value, but the hard fork does present a very unique (and possibly chaotic) state of affairs for the Ethereum ecosystem.
The Wealth Effect of Mergers
Since Bitcoin Cash in 2017, there have been multiple hard forks in Bitcoin. Since a considerable part of the community disagreed with the SegWit proposal to increase the block space, the Bitcoin blockchain was forked, and BTC holders received tokens from the forked chain at a ratio of 1:1.
Although the vast majority of these forked chains have become irrelevant, they have indeed created billions of dollars in wealth for Bitcoin holders. When receiving new tokens with market value, they can choose to sell the new tokens to get more BTC, or they can continue to hold them. This is the very popular fork airdrop in 2017.
And when there is a hard fork in Ethereum, will the same thing happen?
After the hard fork, each ETH holder will receive ETHPOW tokens according to the ETH held at the time of the fork 1:1. However, there is one key difference between Ethereum and Bitcoin, forking Bitcoin is simple because it only exists on the network's native token BTC. Ethereum, by contrast, is the entire economy built on top of it. There are thousands of assets and hundreds of protocols on the Ethereum network. If there is a hard fork, then all these tokens and protocols will also exist on the PoW chain, but without the direct support of entities or communities on Ethereum, the tokens on the new chain will also lose value.
If that happens, it could lead to economic chaos surrounding the merger.
Potential Economic Disruption From Mergers
When Ethereum hard forks, not all assets, protocols or infrastructure can have their community support. It is not difficult to replicate tokens and contracts on the network, but the off-chain things that support them, such as communities, cannot be replicated. Two prime examples: fiat stablecoins and liquid collateralized tokens.
Fiat currencies are more stable than USDC, USDT, etc.
After stablecoins such as USDC and DUDT were copied, the cash in the bank account did not double, and it was obviously impossible to cash out the copied new stablecoins. This means that all stablecoins obtained by the hard fork are effectively worthless. Now that the new USDC is worthless, DAI, a decentralized stablecoin backed by 40% USDC, will also lose a significant amount of collateral. Unless the issuer re-issues, the forked PoW chain stable currency will be zeroed. However, this is obviously impossible, and the end result is that all fiat currency stablecoins on ETHPOW become worthless.
Liquid pledge tokens stETH, rETH, etc.
Another major consequence is that liquid collateral tokens such as stETH on Lido and rETH on Rocketpool lose value. Given that the forked Ethereum chain runs PoW forever, ETH staking will never happen, which will zero out the billions of dollars of liquid staked tokens on the Ethereum PoW chain because they can never actually be exchanged for anything.
other tokens
DeFi protocol
DeFi protocol
Which DeFi protocols will support the PoW version, and which will continue to be fully consistent with Ethereum PoS?
Assuming that a protocol that already has a strong multi-chain ecosystem supports the new PoW chain, the situation will become very complicated. For example, AAVE and AAVE-POW have both the governance and economic rights of the protocols on the network.
A specific example is Sushiswap, if the transaction volume of Sushiswap-PoW is high, then SUSHI-POW holders will get income from staking, while PoS holders will not. In view of Sushiswap's multi-chain protocol, there will be some contradictions. If the Sushi community decides to adopt this version, it must now be resolved through the governance process.
Systemic risk from falling dominoes
MakerDAO relies on USDC to maintain the peg to DAI, Aave has billions of dollars of stETH being used as collateral for loans, and if there is systemic risk to the entire economy, it is easy to imagine massive liquidations, volatility, and what to expect. Due to the existence of MEV robots, all fluctuations will occur within a few blocks before and after the merger.
ideal situation
If the hard fork does not choose to copy the full state of Ethereum, but only copies the economic distribution of Ethereum, and allows builders to opt-in and deploy protocols and applications on the new PoW chain, this will make the Ethereum ecosystem free subject to the economic disruption that may result from the merger.
But whether it happened is still up in the air.
Market opportunities
Back to the key question: how can we profit from chaos?
On the surface, you only need to consider shorting USDC, stETH, or any token that loses value. However, when everyone has this idea, the chances of profit become very slim, because the MEV robot has everything ready. Putting any asset at risk by shorting USDC or stETH is obviously unwise, and there are too many unknowns, and we are likely to lose to the bots as well.
In this potential hard fork risk, the simplest thing that can be done is to hold more ETH in a safe way before the merger. Although it is impossible to confirm how each individual token will perform on the new PoW chain, the legitimate version of ETHPOW may retain some value in the short to medium term.
A Fast Bull Case in Support of ETHPOW
Given the results of other hard forks in the past, many people may want to abandon the Ethereum-PoW chain. But this is not a fork like Bitcoin and Bitcoin Cash. In addition to miners, the Ethereum community is completely consistent on the proof of rights and interests, and there are at least two key points that may promote the basic bull market of ETHPOW
First: If the hard fork is successfully completed, the new ETHPOW network will become more decentralized and secure, providing users with high settlement guarantees.
The ETHPOW network will actually become the third most secure blockchain after Bitcoin and ETHPOS networks. This does not make the ETHPOW blockchain intrinsically valuable, but security is an important foundation for sustainable development.
Second: Ethereum proof-of-work has a long history of success. It has hosted trillions of dollars of economic activity over the past seven years. We choose to merge just because we are very sure that ETHPOS is more efficient, not that ETHPOW is worthless.
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