Seven ways to benefit from Ethereum merge
Ethereum’s upcoming merge aims to transition the network from Proof-of-Work to Proof-of-Stake; as a result, Ethereum holders will be airdropped with ETH PoW tokens.
Merge will have major implications for miners, who will no longer be able to mine ETH. They are currently forking ETH to create a PoW version that they can continue to mine.
As Ethereum prepares to undergo a significant change, CoinGecko co-founder and COO Bobby Ong discusses how users can benefit from the proposed merger.
The highly anticipated Ethereum merge will see the current proof-of-work (PoW) main Ethereum blockchain convert to a proof-of-stake (PoS) consensus algorithm.
If a PoW fork happens, anyone who has ETH at the time will have the same amount of ETHPoW on the new blockchain produced by the fork, based on PoW, which has nothing to do with Ethereum’s new PoS-based chain. But what will be required to recover these new tokens after the PoW fork?
First, Ong suggests that users should first hold ETH on a wallet at the time of the PoW fork to get the ETH PoW tokens. He recommends holding them on a non-custodial wallet and, therefore, not on an exchange’s wallet where you may not be able to receive the new tokens.
He adds that those who hold ETH on a wallet of an exchange that does not support the fork will not be able to receive ETH PoW tokens.
Those with ETH on layer 2, such as Optimism, Arbitrum, Polygon, Avalanche, or others, will not be given any new ETHPoW tokens. So it would be better to move them to the mainnet before the merge.
This step is for those who own wrapped WETH. They will not receive any new ETHPoW tokens, so they are recommended to “unwrap” all WETH to Ethereum.
Those with liquidity on the DeFi protocols will not receive the new ETHPoW tokens. In addition, before the eventual PoW fork, there could be a liquidity crisis on these protocols precisely because many may withdraw their ETH. So Remove liquidity from DeFi protocols to earn new tokens.
In this step, Ong proposes borrowing ETH from Compound or Aave just before the PoW fork and returning it soon after. This means more ETHPoW can be obtained, although it is a risk. There is no guarantee that the fork will succeed, and the value of the ETHPoW could therefore be very little. The upgrade to PoS, on the other hand, should have no problem succeeding regardless of what happens to the PoW fork.
Here Ong recommends monitoring the value ratio between sETH and ETH. “You could either buy or sell stETH as we get closer to the Merge, depending on what others are doing. I would expect some to sell stETH to ETH to get the PoW airdrop. But if selling becomes too strong, you could buy stETH on the cheap.”
The last step is a tip: “buy the rumor, sell the news.” That is, consider selling ETH immediately after the fork.
By taking these seven steps, you can make the most of the Ethereum merge and ensure that you don’t miss out on any benefits.