Cryptoverse: Ethereum holds its breath for “merging” blockchain network upgrade

Investors in ether and its troubled twin-stETH are anxiously awaiting a cryptocurrency milestone: the merger.

It is the name of a major upgrade of the Ethereum blockchain network on which many crypto projects are built, aimed at making it slimmer, slimmer and cleaner.

It’s elusive. The merger should have happened many years ago, but has been delayed several times, with developers recently canceling plans to press the button in June, which annoyed investors who began to fear that it would never see the light of day.

Now, however, market participants are betting that the end of the waiting period is near. But there is no slam dunk.

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

The Ethereum Foundation, which uses the analogy to change the engine of a spaceship in mid-flight, says on its website that the merger “sends” around “Q3 / Q4 2022”.

The final merger will prove to be a great relief for ether, which has fallen due to previous delays and declining confidence in the upgrade. The second-largest cryptocurrency was last traded at around $ 1,200, down from just over $ 3,500 in April, although much of the recent pessimism about the upgrade has been flooded by broader market turmoil.

The merger may also represent the end of an ordeal for those investors who have a cryptocurrency derivative called staked ether or stETH, which represents ether locked in a test environment for the upgrade, and which is difficult to redeem on a scale until at least six months after the merger.

But the doubters remain.

“It’s just the mass of the protocol. Ethereum is just so big that I do not think they will reach their deadline in time,” said Brent Xu, founder and CEO of Umee, which is building a base team. blockchain for loans and lending.

“People are just afraid that their stETH is not going to be worth anything because the merger is likely to take longer than expected,” Xu said.

The tripping of stETH

The upgrade will see that ether mining operations move away from the energy-intensive proof of work. Ethereum’s existing execution layer will merge with the new proof-of-stake consensus system.

Any further delays will be bad news for those who have stETH, a symbol created by a crypto project called Lido that can be converted to ether on a 1: 1 basis between six and 12 months after the merger.

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

It reached a market value of 11 billion dollars in May, according to price page CoinGecko, and until last month traded mostly on par with ether.

But when the crypto markets sold out last month, stETH fell in value to trade at around an 8% discount on ether, hurt by big sales from investors such as Celsius and Three Arrows, according to official data.

The price has recovered slightly – stETH is currently trading at a 4% discount on ether – but has not returned to parity, partly due to the impact of the delayed merger.

Major investors in stETH include warring US-based cryptocurrency lender Celsius.

Any recipients for that trade?

The STETH project was popular because while investors can earn interest elsewhere by “stake” their ether, to do so they must lock in at least 32 ethers (currently about $ 38,000) until the network upgrades to the new standard.

Lido instead allowed them to bet as little ether as they wanted in return for dividends, and receive stETH.

Nevertheless, repeated delays in merging are testing the nerves of stETH investors.

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

“You have to find alternative sources if you want to sell a huge amount of stETH,” Shea said, such as putting stETH as collateral in another lending protocol.

“But in this kind of environment where people look closely at mortgage companies, whether anyone will be prepared to take that trade, I do not know.”

(Only the headline and image of this report may have been reworked by Business Standard employees; the rest of the content is automatically generated from a syndicated feed.)