Twitter Spaces Recap Ep.1 — The Merge Aftermath

Did you miss our Twitter Space session on the aftermath of the Ethereum Merge? No problem, check out our recap here, and listen to the recording!

WhaleFin Twitter Spaces is a new series discussing current events from the crypto industry and their implications.

In this first episode, we discuss the aftermath of the Ethereum Merge, the transition from Proof of Work to Proof of Stake of the largest smart contract platform.

The speakers from WhaleFin and Amber Group were Austin Muñoz, US head of Principal Strategies Group, Justin d’Anethan, head of institutional sales, and Ross aka Lao Bai, blockchain infrastructure expert.

Below are some highlights from the discussion. For the full discussion, the recording is available here.

Question 1 — Energy Consumption

One of the things that the Merge did was to reduce energy use of the Ethereum network by >99.9%. Is this an important feature? For adoption, use, investment, perception, and the planet?

It was an amazing feat to smoothly transition and to now accomplish something at less than 0.1% of the electricity that it previously required. This should be a helpful narrative for institutional players who have to be cognizant of the reputational and environmental impact of their investments in addition to the financial aspects.

The reduction in energy use, however, was more of a side effect than a purpose for The Merge. With the progress that the transition to PoS represented for scaling in the Ethereum roadmap, it would have been necessary with or without the efficiency benefit.

Question 2 — Protocol Emissions

Another significant immediate impact was a meaningful reduction in emissions, or new Ethereum issued, potentially even to the point to make it deflationary. Has this happened as expected?

The transition to PoS did reduce the inflation rate from around 5% to 0.5%, though in order to become deflationary gas fees have to remain between 15–20 gwei, which currently isn’t consistent due to the bear market. Fee burns are tracked on ultrasound.money, and were already in place from EIP-1559, a proposal to stabilize gas markets. Over the last month, the Merge reduced the number of new ETH issued from >400,000 to 4,000, essentially translating into more than $0.5 billion dollars that isn’t sold.

Question 3 — Price

In spite of these positive updates, ETH has been underperforming several other L1s from the date of the Merge. Any thoughts on why that may be or any other comments on price action?

Since ETH trades like other long-duration, risk-on assets like the Nasdaq or the ARK ETFs, a beta-adjusted Long ETH / Short ARKK position can be prudent to hedge macro risks.

A common trade leading into the Merge was buying spot ETH and shorting futures in order to create a delta-neutral position that would accrue an ETHW dividend, and in the wake of the event, those positions unwinding could have suppressed short-term ETH price action. However, reduced emissions and other benefits will continue in perpetuity, so the benefits will be long-term.

“Buy the rumor, sell the news” does tend to be a reliable strategy in crypto, but we don’t have to read too much into only 1 month of price action. Other smart-contract platforms outperforming BTC and ETH over that time period could just be the cyclical nature of markets.

Question 4 — ETHW

What about ETHW? Are people still using it? Do people have NFTs on 2 versions of Ethereum now?

ETHW is trying to build out an ecosystem, but it doesn’t seem to have much activity, and the price has gone down substantially. It does seem like most people just sold what they received. Crypto is about network and community, and the vast majority of applications and people are aligned with ETH, so ETHW will have a difficult time rebuilding from essentially zero.

NFT holders would have a copy on the ETHW chain in addition to on ETH, though without the support of key apps like Opensea, the ETHW NFTs will likely have very little value.

PoW Ethereum or ETHW is a forked version of the Ethereum blockchain created by a Chinese miner after the Merge of the execution and consensus layers. Read more about it here.

Question 5 — Centralization and Regulation

It’s been posited that the merge had a centralizing effect, as supposedly 7 custodial entities control 2/3rds of the stake.

Another potential issue is that several of these custodians are in the USA. Does this pose meaningful regulatory or centralization risk?

If most significant validators are based in the US, local regulators could pressure those entities to reject certain transactions. If this happens, the core value proposition of decentralization essentially goes away. However, there is good work being done on decentralized validation mechanisms, and PBOS and crList.

Regulatory risk is hard to gauge, but if local authorities censored validators, as long as there are validators in other jurisdictions, the transactions could still be processed.

WhaleFin, powered by Amber Group, is an all-in-one digital asset platform designed to empower you to diversify, manage and grow your wealth digitally in a secure manner. On WhaleFin, you can buy, sell, trade, and invest in crypto with ease.

Download the app here.

Amber Group is a leading digital asset platform operating globally with a presence in Asia, Europe, and the Americas. We provide a full range of digital asset services spanning investing, financing, trading, and spending, backed by some of the best investors across the world such as Sequoia Capital, Temasek, and Tiger Global Management.

For more on WhaleFin’s announcements and news, please follow us on social media:

  • Twitter: @WhaleFinApp
  • Facebook: @WhaleFinApp
  • Instagram: @WhaleFinApp
  • Telegram: t.me/WhaleFinApp
  • YouTube
  • LinkedIn: WhaleFin App

For support and assistance, please contact us at service@whalefin.com

This material is for informational and educational purposes only. Any information provided is not intended to be and does not constitute financial advice, investment advice, or trading advice. The information discussed is not intended to provide a sufficient basis on which to make an investment decision.

The trading of Bitcoin and other cryptocurrencies has potential rewards, and it also carries potential risks. Trading may not be suitable for all people, and anyone wishing to invest should seek his or her own independent financial or professional advice.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store