Cryptoverse: Ether holds its breath for the lean, mean ‘merge’

Investors in Ether and the troubled twin STETH are anxiously anticipating a major cryptocurrency milestone: a merger. This is the name of a major upgrade to the Ethereum blockchain network on which many crypto projects are being built, aimed at making it leaner, leaner, and cleaner. It is unattainable. The merger was supposed to happen years ago but has been delayed several times, with developers recently canceling plans to push the button in June, alarming investors who are beginning to fear it may never see the light of day.

Despite this, market players are now betting that the end of the wait is near. But it’s not slam dunk. At Polymarket, a crypto site where users place bets with stablecoins on future events, investors have priced a 67% chance that the upgrade, also known as Ethereum 2.0, will happen by October, and a 13% chance by October. September.

The Ethereum Foundation, which uses the analogy of changing the engine of a spacecraft in mid-flight, says on its website that the merger is “shipping” around “Q3 / Q4 2022.”

The merger that finally happens will prove to be a huge relief to ether, which has been dented by previous delays and waning confidence in the upgrade. The second largest cryptocurrency 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 clouded by recent market turmoil on a larger scale.

The merger could also mark the end of an ordeal for investors who own a crypto-derivative token called Staked ether or stETH, which represents ether locked into a test environment for upgrade, which is hard to redeem on a large scale until at least six months after the merger takes place.

However, skeptics remain.

“It’s just the massive block of the protocol. Ethereum is so huge that I don’t think it will reach its deadline in time,” said Brent Xu, founder and CEO of Umee, which builds the core-tier blockchain for lending and borrowing.

“People are just afraid that their dwelling will not be of value because the consolidation process will likely take longer than anticipated,” Shaw said.

stith stumbles

The upgrade will see ether mining move away from energy-intensive proof-of-work. Ethereum’s existing execution layer will be integrated with the new Proof of Stake consensus system.

Any further delays would be bad news for those holding stETH, a token 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 occurs.

Until then, stETH is trading at a price determined by the market, with most trades happening on a trading platform called Curve.

It reached a market cap of $11 billion in May, according to pricing site CoinGecko, and until last month it was trading on a par with ether.

However, when the cryptocurrency markets sold off last month, stETH’s trading value plummeted at around 8% off ether, weighed down by major selling by investors such as Celsius and Three Arrows according to public data.

The price recovered a bit – stETH is currently trading at a discount of 4% of ether – but has not brought it back to parity, in part due to the impact of the late consolidation.

Major investors in stETH include US-based crypto lender Celsius.

Which takers for this trade?

The stETH project was popular because while investors can earn interest elsewhere by “pooling” their own ether, to do so they must secure at least 32 ether (currently about $38,000) in order for the network to be upgraded to the new standard.

Instead, Lido allowed them to get as little ether as they liked in exchange for the return, and get stETH.

However, frequent delays to the merger test the nerves of stETH investors.

The concern is that liquidity is drying up quickly at Curve, said Ryan Shea, crypto economist at global fintech firm Curve’s liquidity has more than halved since mid-May, according to platform data.

“If you want to sell a huge amount of stETH you will have to look for alternative sources,” Shea said, such as putting stETH as collateral in another lending protocol.

“But in this kind of environment where people are looking closely at crypto lending companies, I don’t know if anyone would be willing to do this trade.”

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