Cryptoverse: Ethereum Holds Breath for ‘Merge’ Blockchain Network Upgrade

Investors in ether and its troubled twin stETH are nervously anticipating a crypto milestone: the merger.

That’s the name of a major upgrade to the Ethereum blockchain network that many crypto projects are built on, with the goal of making it more efficient, more efficient, and cleaner.

It’s elusive. The merger was supposed to happen years ago, but it’s been delayed several times, with the developers recently scrapping plans to push the button in June, baffling investors who began to fear it might never see the light of day.

Now, however, market players are betting that the end of the wait is near. But it is not easy.

At Polymarket, a cryptocurrency site where users place stablecoin bets on the occurrence of future events, investors have priced a 67% chance that the upgrade, also known as Ethereum 2.0, will take place in October, and a 13% chance for October. September.

The Ethereum Foundation, which uses the analogy of changing a spaceship’s engine mid-flight, says on its website that the merger is “shipped” around “Q3/Q4 2022.”

The merger that would eventually take place would be a huge relief for ether, which has tanked due to previous delays and declining confidence in the upgrade. The second-largest cryptocurrency last traded around $1,200, down from $3,500 in April, though much of the recent pessimism about the upgrade has been overwhelmed by recent broader market turmoil.

The merger could also spell the end of a harrowing ordeal for those investors who hold a crypto derivative token called stake ether, or stETH, which represents ether locked in a sandbox for upgrade, and difficult to redeem on a large scale. up to at least six months. after the merger occurs.

However, skeptics remain.

“It’s just the sheer mass of the protocol. Ethereum is so big I don’t think they’ll hit their deadline in time,” said Brent Xu, founder and CEO of Umee, which is building a base layer. blockchain to borrow and lend.

“People are just afraid that their stETH is worthless because the merger will probably take longer than expected,” Xu said.

The Stumble of stETH

The update will move ether mining away from the energy-intensive proof of work. Ethereum’s existing execution layer will be merged with the new proof-of-stake consensus system.

Any further delay would be bad news for those holding stETH, a token created by a crypto project called Lido that can be converted to ether at a 1:1 ratio six to 12 months after the merger takes place.

Until then, stETH trades at a price set by the market, with most trades taking place on a trading platform called Curve.

It reached a market cap of $11 billion in May, according to pricing site CoinGecko, and until last month traded broadly at par with Ether.

However, when crypto markets sold off last month, the value of stETH plummeted to trade at a discount of around 8% to ether, hurt by huge sell-offs from investors such as Celsius and Three Arrows, according to public data.

The price has recovered somewhat: stETH is currently trading at a 4% discount to ether, but has not returned to parity, in part due to the impact of the delayed merger.

Major investors in stETH include embattled US-based crypto lender Celsius.

Anyone interested in that exchange?

The stETH project was popular because while investors can earn interest elsewhere by “staking” their ether, to do so they must hold a minimum of 32 ether (currently about $38,000) until the network upgrades to the new standard.

Lido instead allowed them to stake the least amount of ether they wanted in exchange for return and receive stETH.

However, the repeated delays in the merger are testing the nerves of stETH investors.

The concern is that liquidity is rapidly drying up on Curve, said Ryan Shea, a crypto economist at global fintech firm Trakx.io. Curve’s stETH liquidity has more than halved since mid-May, according to data from the platform.

“You will have to find alternative sources if you want to sell a large amount of steETH,” Shea said, like putting steETH up as collateral in another lending protocol.

“But in this kind of environment where people are watching cryptocurrency lending companies closely, I don’t know if anyone is going to be prepared to make that trade.”

(Only the headline and image in this report may have been modified by Business Standard staff; all other content is auto-generated from a syndicated source.)

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