Why the Ethereum Merge Will Cause Price Volatility on ETHPoW

Stablecoin providers have mostly chosen to back Ethereum Mainnet

article-image

Source: Shutterstock

share

key takeaways

  • Uniswap will still be able to operate on the ETHPoW chain
  • ETH PoS and ETH PoW can be the differentiated by different ChainIDs after the Merge

As the hours tick down until the Ethereum Merge, the plans of die-hard proof-of-work advocates are coming into focus — as are the growing prospects for volatility for the up-and-coming token.

The Merge is set to transition the Ethereum blockchain’s mechanism for processing and validating transactions from proof-of-work — a similar mechanism to that of Bitcoin, albeit technically distinct — to proof-of-stake, likely sometime early Thursday morning ET. 

A relatively small, but vocal, minority of ether miners preparing to fork the protocol recently tweeted “ETHW mainnet will happen within 24 hours after the Merge.”

“The exact time will be announced 1 hour before launch with a countdown timer and everything including final code, binaries, config files, nodes info, RPC, explorer, etc. will be made public when the time’s up,” the tweet said.

Not everyone is as optimistic about the contrarian project’s viability — over the short or long term.

ETH holders will be airdropped ETHPoW tokens at a 1:1 ratio, but the token will have very limited places where it can be spent or used, making it obsolete.

Sunny Aggarwal, co-founder of Osmosis Labs, told Blockworks “most of the tokens on ETHPoW are going to go to zero.” 

Circle, the issuer of USDC — the largest dollar-backed stablecoin issued on Ethereum blockchain with a market capitalization of more than $45 billion — confirmed that the company plans to fully support the PoS chain post Merge. DeFi projects employing USDC for collateral, as such, ought to have virtually zero value on the PoW chain.

Instead, its staking-friendly counterparts are primed to reap the benefits, according to Kiril Nikolov, part of Nexo’s strategy team.

“The Merge is not only making the network more secure and eco-friendly — it’s also making ETH better money and a better store of value,” Nikolov told Blockworks. “With its staking yields, it will generate an infinitely scalable, long-term source of revenue for digital asset institutions, lenders and exchanges.” 

The Merge is expected to bring 7%-14% yields on its first day, Tom Dunleavy, senior research analyst at Messari, tweeted.

Even still, Aggarwal said the ETHPoW token will likely still have some element of intrinsic value. 

Decentralized protocols, such as Uniswap that don’t run via oracles — or bridges between a given blockchain and other asset classes — are supposed to continue to function on ether’s proof-of-work version.

“Uniswap doesn’t require oracles,” Aggarwal said. “It doesn’t have any dependencies, so it can still keep working,” he said. 

Loading Tweet..

After the Merge, a simple way to be able to differentiate between ETH PoS and ETH PoW will be by examining chain ID, or a unique series of numbers that effectively tells a smart contract what blockchain in question a given asset originates from.

When Ethereum Classic and Ethereum went through a hard fork — a foundational event that triggers a crypto protocol to splinter into two or more blockchains — in 2016, developers for both parties were reluctant to alter their respective identification mechanisms. The move allowed for so-called “replay” attacks, where transactions on the former ledger were also deemed valid on the latter.

But, in the Merge’s case, that’s unlikely. Proof-of-work developers have already confirmed the plan is to use a more-modernized verification solution as a viable workaround.

Article updated at 4:19 am, Sept. 15 to correct Nikolov‘s role.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Permissionless is a conference for founders, application developers, and users. Come meet the next generation of people building and using crypto.

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

4.png

Research

This months PPGC covered four main areas. Firstly, debriefing the progress and status of the mainnet implementation of the Ahmedabad hard fork. Secondly, a retrospective on the testnet phase of the Ahemdabad Hard Fork. Thirdly, an update on PIP-36 which involves replaying failed state syncs. Lastly, PIP-47 which pushes upgrades to the Polygon Protocol Council.

article-image

Various factors are likely to temper strong jobs data-spurred optimism in the short term, industry watchers say

article-image

Sygnum’s head of investment researchthinks Solana can pass Ethereum by drawing institutions for tokenization platforms and stablecoins

article-image

Plus, NFT trading volumes are seeing all-time lows

article-image

And could BitGo’s offering dump the entire stablecoin market on its head?

article-image

Institutions to test out the settlement of “digital assets and currencies” on a network that annually carries more than 5 billion financial messages