How should investors prepare for The Merge?

Last week, ETH noticed a major uptick in its worth, following the discharge of the notes from the final dev’s assembly that hinted on the timeline for its upcoming improve, often known as The Merge.

ETH price action, previous 30 days - source: Footprint Analytics
ETH worth motion, earlier 30 days – supply: Footprint Analytics

This improve will change how the community is secured, its vitality consumption, and tokenomics. Staking will play a vital half in it. So how ought to the investor put together for the upcoming occasions?

What is The Merge?

A sequence of upgrades are taking place on the Ethereum blockchain to vary it from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus mechanism. For this to be accomplished, the milestones are:

  1. The creation and launch of the Beacon Chain occurred on Dec. 1, 2020. The Beacon Chain is what introduces the PoS on Ethereum. Because of this, it’s known as the “consensus layer.”
  2. Replace the consensus mechanism of the present chain from PoW to PoS (present estimate: taking place in September.) The present chain, Mainnet, will then act because the “execution layer”, as the present PoW operating it is going to be changed by the Beacon Chain.

The consensus layer will handle the safety of the community. The execution layer is the place the sensible contracts run and the transactions are created.

As the improve will join these two chains to behave as one, the title of this occasion was up to date from ETH 2.0 to “The Merge.”

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Why The Merge Matters

Top Depositors by Address
Top Depositors by Address

As the Beacon Chain is already operating since December 2020, a superb a part of the ETH provide is already being staked on it, receiving rewards for operating the community. Currently, there may be over 12 million ETH staked on the Beacon Chain sensible contract:

That quantity is sort of 10% of the present ETH supply. Furthermore, this ETH is locked long-term, as there is no such thing as a date for deploying the unstaking functionality beneath the PoS ETH chain.

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How it impacts the ETH emissions

After the change for PoS, there will likely be no extra mining rewards. Therefore, the ETH emissions will drop considerably, on prime of that 10% provide already locked on the staking contract.

Total ETH Supply
Total ETH Supply

As per Etherscan, a complete of 13,347 ETH was added to the present provide on July 21. If we take away the Block Rewards (mining) and go away solely the Staking Rewards (staking), the day by day internet consequence could be destructive. That signifies that extra ETH could be burnt as charges than rewarded, decreasing the ETH whole provide.

How to Capitalize on This Shift

None of the next is supposed to be monetary recommendation, and buyers ought to at all times proceed with excessive warning when buying and selling cryptocurrencies. Analyzing the information offered, there are some funding methods that an investor might take:


With the discharge of a considerably agency date for “The Merge,”  there’s a quick interval the place ETH provide will proceed to develop. After that, it would change into “deflationary.” If the investor believes that ETH can have a related place within the crypto markets and its demand will enhance, the ETH worth will rise. We noticed some worth motion already taking place, however there may be nonetheless room for extra upside, as the motivation to extend the quantity of ETH staked (and out of circulation) will rise.

Buy liquid staked ETH

As the ETH despatched to the Beacon Chain staking contract is locked for an unknown interval, and the minimal quantity wanted to be despatched is comparatively excessive (at the very least 32 ETH), pools have been created to assist customers to stake their ETH. Some of those swimming pools then created an ERC-721 token as a tradeable receipt of that staked ETH.

Examples are the Lido’s stETH token and the Rocket Pool rETH. When the person accesses their platform to stake ETH, their token is minted 1:1 to ETH.

Source: Lido Finance
Source: Lido Finance

However, as it’s a receipt for future redemption, it’s traded with a reduction in comparison with the ETH worth. This low cost shouldn’t be mounted; the market determines its worth, as we will see in the Footprint chart below:

ETH and stETH price action, previous 30 days - source: Footprint Analytics
ETH and stETH worth motion, earlier 30 days – supply: Footprint Analytics

Buying the staked model would give the investor an additional 2-3% return and the accruing curiosity that comes with it if he’s prepared to attend for the discharge of the unstaking function after the implementation of the PoS on the Ethereum Blockchain. There isn’t any due date for the deployment of this function (the unstaking), however the tough timeline is 6-12 months after “The Merge”

Key Takeaways

In the long run, the ETH worth will rise with The Merge—if Ethereum retains its related and dominant place in blockchain and the blockchain business continues to develop—because the token will shift from an inflationary emission to a deflationary one. With the provision shrinking and the demand staying the identical (and almost definitely rising), that is the logical worth motion.

For additional alternatives to extend the positive aspects, shopping for a liquid-staked model of ETH can deliver further earnings if the investor can wait extra time, because the staked model usually has a reduction over the spot ETH worth.

The Footprint Analytics group contributes this piece in July 2022 by Thiago Freitas.

Data Source: The Merge

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