What are the potential opportunities in the crypto market with the Ethereum merger imminent?

On July 15th, Ethereum core developer Tim Beiko said in a conference call that the implementation date of the merged upgrade of Ethereum’s consensus algorithm migration to PoS is expected to be September 19th, and the community has no objection to the timeline proposed.

Following the announcement, the narrative thread surrounding the Ethereum merger in the crypto market became clear:

  • The supply side of Ethereum has undergone major changes, reducing production by 90%, driving the revaluation of the price of Ethereum.
  • The status of Ethereum’s liquid staking protocol has been greatly improved.
  • Ethereum miners withdraw, and some computing power migrates to other networks.
  • L2 Summer。

ETH: Towards a ‘deflationary’ currency

According to the data of ultrasound.money, the current annual circulation of Ethereum is 5.5 M, and the annual burning volume through EIP1559 is 1.0 M. The actual annual inflation rate is 3.7%. After the merger of Ethereum, the annual circulation of Ethereum is 0.6 M, which is 90% lower than the current output. Assuming constant burn, the combined annual inflation rate is -0.3%.

What are the potential opportunities in the crypto market with the Ethereum merger imminent?

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The production of Ethereum is decreasing, but the demand side is increasing day by day. From the earliest gas fee, it gradually expands to more and more usage scenarios such as DeFi, NFT, DAO, NFT, etc., which will bring a new round of price revaluation with high probability.

In addition, the narrative of ETH becoming a global digital bond is being embraced by more people. Bitmex CEO Arthur Hayes detailed the huge value of ETH as a perpetual bond and its potential to replace U.S. Treasury bonds in an April article ” Five Ducking Digits “.

According to ethereum researcher Justin Drake, stakers can expect an annualized rate of return of about 8-11.5% after the merger. Using 5-year, 10-year, 20-year and 30-year yields as a comparison, in extreme cases, even if Ethereum falls by more than 60%, it can still achieve a yield that exceeds that of the US 30-year Treasury bond after 30 years.

What are the potential opportunities in the crypto market with the Ethereum merger imminent?

Ethereum’s Liquid Staking Protocol Becomes the “Miners” of a New Era

After Ethereum is converted to POS, the physical miners will gradually withdraw from the Ethereum network, and ETH will be produced by the node operators of the liquidity pledge agreement. They will replace the miners and become the new masters of the Ethereum POS network.

At present, representative projects of decentralized Ethereum liquidity staking protocols include Lido, SSV Network, StakeWise, Rocket Pool, Ankr network, etc. Among them, the ETH pledged in Lido is more than 4 million, occupying an overwhelming advantage.

What are the potential opportunities in the crypto market with the Ethereum merger imminent?

The business model of a liquid staking protocol is to collect a commission from the stakers. Taking Lido as an example, 10% of the staker’s reward will be charged, of which 5% will be collected by Lido and the other 5% will be given to Lido’s node operators. According to current data, Lido’s annual income is about 15 million US dollars.

Liquid staking protocols usually issue governance tokens, but at present these tokens do not have much more power for holders other than governance functions and rewarding node operators. Just like UNI, Uniswap is a good project, but not a penny of revenue will be distributed to UNI holders.

Nonetheless, we cannot deny the strategic significance of governance tokens, especially the leading projects in the subdivision track. Capital is already ready to go, Dragonfly Capital is buying 10 million LDOs from the Lido DAO treasury at a price of $1.45. At this price, LDO’s fully diluted valuation is $1.45 billion.

The way out for Ethereum miners

There are two parts of the physical mining machine that has withdrawn, one is ASIC mining machine and the other is GPU mining machine. The former can only mine ETC, and the latter can mine other POW coins. This is part of the reason why ETC has been hyped by capital recently. However, since the block reward of ETC is much lower than that of Ethereum, it is difficult to undertake the computing power of Ethereum unless there are funds willing to continue to increase the price.

In addition, these GPU graphics cards can also be used for other high-performance computing services, such as rendering, machine learning, etc. These businesses are not as profitable as the original mining, and it is estimated that they will not attract the attention of capital.

Layer 2 is sought after by capital again

In the opinion of POS supporters, the merger will bring Ethereum one step closer to the sharding chain, and Layer 2 will be positively affected by sharding, with a significant increase in throughput.

In the secondary market, the Layer2 project tokens performed well. The Polygon token MATIC and the Optimism token OP both rose by more than 50% in the past 7 days, significantly outperforming BTC.

After the suspension of Arbitrum Odyssey, although some users pour cold water on Layer2, the Layer2 project is still working hard. On July 18th, Polygon announced that it will launch zkEVM on July 21st, offering an “EVM-equivalent” solution. On July 19, the Layer 2 expansion plan Scroll announced the launch of the pre-alpha testnet. In addition, projects such as StarkWare and zksync are also progressing at full speed, and L2 Summer is more likely.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/what-are-the-potential-opportunities-in-the-crypto-market-with-the-ethereum-merger-imminent/
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