last week, Ethereum Prices have risen significantly since the release of Note From the last developer meeting that suggested a timeline for the next upgrade known as The Merge.
This upgrade changes the security methods, energy consumption, and tokenomics of your network. Staking plays an important role in that. So how do investors need to prepare for upcoming events?
What is a merge?
A series of upgrades are taking place on the Ethereum blockchain, changing from Proof of Work (PoW) to Proof of Stake (PoS) consensus mechanism. The milestones to complete this are:
- The Beacon Chain was created and launched on December 1, 2020. Beacon Chain introduces PoS to Ethereum. For this reason, it is called a “consensus layer”.
- Replaces the current chain consensus mechanism from PoW to PoS (current estimate: occurs in September). The existing chain, Mainnet, acts as the “execution layer” because it replaces the current running PoW with a beacon chain. ..
The consensus layer manages the security of your network. The execution layer is where smart contracts are executed and transactions are created.
The upgrade has changed the name of this event from ETH 2.0 to “The Merge” as these two chains are connected to function as one.
Why merging is important
Since the Beacon chain has been in operation since December 2020, a significant portion of ETH supply has already been bet on it and is being rewarded for operating the network. Currently, over 12 million ETH are bet on beacon chain smart contracts.
That number is almost 10% of what it is today ETH supply.. In addition, this ETH will be locked in the long run as there is no date to deploy unstaking functionality under the PoS ETH chain.
How it affects ETH emissions
After changing the PoS, there will be no mining rewards. Therefore, ETH emissions have dropped significantly, with a 10% supply already fixed in staking contracts.
As Every Etherscan, A total of 13,347 ETH was added to the current supply on July 21st. If you remove the block reward (mining) and leave only the staking reward (staking), the net result for the day will be negative. In other words, more ETH than the reward will be burned as a fee, reducing the total supply of ETH.
How to take advantage of this shift
None of the following is intended as financial advice and investors should always take great care when trading cryptocurrencies. Analyzing the data presented, there are several investment strategies that investors can take.
Buy ETH
With the slightly stronger dated release of “The Merge,” ETH supply will continue to grow for a short period of time. After that, it becomes “deflation”. If investors believe that ETH is in the right place in the crypto market and its demand will increase, the price of ETH will rise. We’ve already seen some price behavior happening, but there’s still room for improvement as there is more incentive to increase the amount of ETH bet (and no longer in circulation).
Buy Liquid Stake ETH
The ETH sent to the Beacon Chain Staking contract is locked for an unknown period of time and the minimum amount required to send is relatively high (at least 32 ETH). Pool Created to help users bet on ETH. Some of these pools have created ERC-721 tokens as tradable receipts for their bet ETH.
Examples are Lido’s stETH token and Rocket Poolr ETH. When a user visits the platform and bets on ETH, the tokens are mint 1: 1 against ETH.
However, since it is a receipt for future redemption, it is traded at a discounted price compared to the ETH price. This discount is not fixed.The market determines its value, as we can see Footprint chart below:
When purchasing the bet version, investors are willing to wait for the release of non-betting features after implementing PoS on the Ethereum blockchain, with an additional return of 2-3% and associated accrued interest. You can get it. There is no deadline for this feature to roll out (no bets), but the rough schedule is 6-12 months after “The Merge”.
Important point
In the long run, if Ethereum maintains a relevant dominant position on the blockchain and the blockchain industry continues to grow, ETH prices will rise with the merge as tokens shift from inflation to deflation. increase. This is a logical price behaviour, as supply is shrinking and demand remains the same (and probably increasing).
For additional opportunities to increase profits, if investors can wait more time, buying a liquid stake version of ETH will often be discounted more than the spot ETH price, so additional profits Can bring.
The Footprint Analytics community has this work July 2022 by Thiago Freitas.
Source: merge
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