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Analyze the value and success probability of Ethereum fork Token

22-08-02 19:08

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Original title: ETHPoW vs ETH2

Original source: BitMEX Research

CZGSWS, 0x711, WZP, BlockBeats

(None of the views expressed below should form the basis of an investment decision and should not be construed as a recommendation or recommendation to enter into an investment transaction.)

Abstract

· In this article, we discussed the feasibility of splitting the new chain when Ethereum merged, resulting in an ETH2 Token and a new ETHPoW Token.

· In terms of Token price and the use of economic chain, it is almost certain that ETHPoW will be the chain supported by a few people.

· While the ETHPoW chain may face many technical challenges and questions regarding long-term viability, its existence may provide exciting opportunities for traders and speculators in the short to medium term.

An overview of the

After several delays, it looks like Ethereum will finally start merging in September 2022. Ethereum core developer Tim Beiko is inOn July 14, 2022's developer conference call suggested Monday, September 19, 2022 as a possible merger date. The first major part of the merger was to stop proof-of-work (PoW) mining. The consensus part of Ethereum chooses which blockchain to follow and will then move to the already existing proof of equity beacon chain. However, the September 19, 2022 date is far from finalized, and the client with the merger timing parameters has not yet been released, and until then, the exact timing of the merger remains highly uncertain.

After the merger, two Ethereum clients need to run, namely the consensus layer client and the execution layer client, such as Geth, which will still validate and process Ethereum smart contracts and transactions. It's worth pointing out that even after the merger, the pledgers were unable to withdraw their pledged Ethereum to the execution layer, and the "second merger" could take another six to 12 months.

While discussing the merger, many reported widespread support in the Ethereum community for closing PoW. At a recent conference Vitalik mentioned that if someone doesn't like it, they can always use Ethereum Classic (i.e., ETC, 2016)DAO WarsThe product of). However, as one might expect, PoW miners will certainly not support the closure of PoW. Why do they do that? They will be completely shut out of the Ethereum system.EIP-1559Compared to that, their chances of getting any revenue from Ethereum this time have dropped to zero. For months, some miners have been making noises behind the scenes against the merger and expressing a desire for "someone to step up and do something." Finally, on July 29, 2022, Bao Er Ye, one of the biggest players in China's mining ecosystem, said he may plan to continue mining on the Ethereum PoW chain.

If the PoW chain still exists and continues to expand, there is speculation that the coin may be called ETHPoW. Whether this chain has any economic significance is, in our view, an open question. One idea is that the chain can survive for a long time. There may be weaknesses in PoS compared to PoW (such as a Staking derivative being a natural monopoly) that ultimately make a PoS chain less attractive in some use cases than a PoW chain. All of the smart contract platforms competing with Ethereum (except maybe ETC) are going PoS, so the emergence of a new PoW smart contract chain could gain a lot of traction. There are no real candidates other than ETHPoW.

Regardless, ETHPoW looks likely to generate some interest among market participants amid nostalgia for the 2016/17 Bitcoin/Ethereum split era.

An Ice Age.

Vitalik had foreseen this potential problem more than seven years ago, when Ethereum's PoS system was just a series of wacky and broken ideas on the drawing board. And proposed a solution called "Ice Age". In this system, the difficulty of the PoW mining network increases exponentially over time, and eventually the chain cannot be extended effectively. After the original Frontier client, the first major network upgrade with Ethereum was called "Ice Age" and included the first difficulty bomb. The bomb will "detonate" in 2017, whenSerenity to upgradeWill transition the network to PoS. But in the end the PoS upgrade was delayed, so the bomb was delayed by the hard fork.

In fact, difficulty bombs have been "duds" many times in the past. For example, in early October 2017, the average block time on Ethereum was around 30 seconds, after which the Difficulty Bomb system was reset and the average block time fell back to the normal 13 seconds or so. Difficulty Bomb has been reset six times in Ethereum history, with six hard forks.

The last reset was proposed in June 2022, and the bomb is now expected to be inIn September 2022Mid-year "detonate", it's the perfect time to switch to PoS, just like the original plan back in 2015. Although the bomb will be in September, based on the timing of previous bombs, the impact on the average block interval may take several months to become significant. To calculateestimatedIt may take 175 days for the average block time to reach 30 seconds, after which the situation should get exponentially worse.

Another interesting factor is that the transition to PoS is "really here" this time. ETHPoW prices can be low compared to ETH, or they can fluctuate wildly. This may reduce the desire of miners to dig ETHPoW, so accurately assessing conditions during Ice Age may be very challenging.

New ETHPoW hard fork client

随着 ice age 的到来，之前的 PoW 链也许只能在分叉后再存续几百天。如果 PoW 链要长期存在，它需要硬分叉一个新的客户端来永久移除 ice age 的效果。这给 ETHPoW 带来了一些问题，也许这正是 ice age 的存在意义。它从一定程度上否定了 ETHPoW 的合法性。ETHPoW 将不能自称是正统或符合原始规则的那条链。它还需要一个硬分叉。然而，今天可能没有多少以太坊用户真正关心这一点，这在七年前似乎更被看重。

At the same time, any ETHPoW community will need to find developers with technical expertise to write new clients. They also need to solve a Schelling point and agree on a new client and new parameters to remove Ice Age and activate the hard fork. The community then needs to convince the trading platform and custodians to run and support this new client, which may be slightly more difficult than convincing them to continue running the old Geth node next to the new ETH2 infrastructure. In practice, however, these issues can be easily overcome, and the ETHPoW community cannot be particularly large, so this should not be a major issue. There may be some big miners behind the scenes financing the whole operation.

ETH in the locked pledge

目前，信标链上大约有 1320 万枚 ETH 质押，如果包括实际余额（通过质押获得的以太坊加上任何超过 32 ETH 阈值的存款），则接近 1400 万。据我们了解，在 ETHPoW 链的初始阶段，如果不发生硬分叉，这些资金将永远丢失。相比之下，在 ETH2 链上，这些 ETH 可以在未来的某个时间点被送回执行层。这对 ETHPoW 链有几个后果。首先，有人可能会认为，由于 ETHPoW 链上的 ETH 供应量少了一部分，这可能会推高 ETHPoW 的价格。或者，由于用户损失了大量资金，这可能会降低链的可信度并损害 ETHPoW。

If a new ETHPoW client were to be hard-forked, the community would be faced with a choice about how to handle the pledged ETH in order to solve the Ice Age problem. It's a dilemma. One possible outcome is that since it is a PoW coin, the community can lock the pledged Token forever. In the ETHPoW world, pledging is the wrong choice. At least the cumulative pledge proceeds of about 800,000 ETH obtained prior to the merger should be deemed completely illegal on the ETHPoW chain. Therefore, if you are a verifier or own stETH, you may not get extra revenue on the ETHPoW chain.

Stablecoin

Many have speculated that in the event of a controversial Ethereum fork, the decision would no longer belong to the Ethereum Foundation or Vitalik. They think the new kingmaker in this case might be the custodian of the Stablecoin. These custodians must choose a chain to support, and considering the popularity and popularity of these stablecoins, and how interconnected they are with Defi, their decision will determine the winning chain. So maybe Jeremy Allaire (CEO of Circle and publisher of USDC) is the most powerful person in Ethereum, not Vitalik.

Of course, Jeremy is the CEO of a company, and he has to respond to his clients. Failing to do so could mean he's not acting in the best interests of his shareholders, which could be illegal, so he may not actually have that power. However, it would be a different story if Circle were ordered to support one chain or the other for some regulatory reason. This is also a potential weakness of Ethereum right now.

It seems likely that Circle, Tether, Binance, and other Stablecoin hosts will all support ETH2 if a chain forks after the merger. So even excluding the Ethereum Foundation and the community's strong support for ETH2, the outcome of this split is clear, ETH2 will be the winner and ETHPoW will be the loser. On ETHPoW, many of the Defi Apps that rely on dollar stablecoins would collapse economically in a disastrous way. However, this position of Stablecoin issuers has some other implications, which we discuss later in this article.

Sell ETHPoW

Many Ethereum extremists strongly support the shift to PoS and therefore will not like ETHPoW. They may want the ETHPoW chain to die quickly.

And then there's a layer of thought on top of that. Ethereum maximalists should actually (somewhat perversely) want the ETHPoW chain to survive, at least for a while, so they can sell their ETHPoW tokens in the market and get more ETH (or dollars). So they can make money from what they consider to be "stupid" ETHPoW supporters before it slowly dies out in the next few years. As a result, many people are likely to sell their ETHPoW tokens as quickly as possible, and prices may be weak.

And on top of that there's another layer of thought, a third layer. What practically everyone should do (with or without Ethereum) is buy ETHPoW tokens as soon as possible after the merger occurs. This will be explained below.

Value of the ETH fork token

In order to sell ETHPoW to obtain ETH, you need to wait for the centralized trading platform to support ETHPoW after the merger. While centralized trading platforms like FTX and Binance may launch products soon, it will still take some time, at least a few hours or days, to support ETHPoW deposits. No matter how well prepared they are, they need to protect themselves from double-flower attacks because the computation power and block time on ETHPoW can be erratic.

On the other hand, in theory, no matter what happens, once the merger happens, users should be able to buy ETHPoW on a centralized trading platform on the chain. No matter how you feel about ETHPoW, are you sure that this Token is better than all the other ERC-20 tokens on the ETHPoW chain?

Let's consider some tokens on Ethereum today:

· USDC on ETHPoW -- worthless since Circle will select ETH2 and therefore Token will not be redeemable, as mentioned above.

· USDT on ETHPoW -- also worthless

· Wrapped Bitcoin on ETHPoW -- no value because the trustee will select ETH2 and therefore the Token will not be convertible to Bitcoin

· BNB on ETHPoW -- worthless because Binance will select ETH2

· Uniswap on ETHPoW -- The long-term viability of tokens on the ETHPoW chain is questionable. Token may crash faster than ETHPoW

· stETH on ETHPoW -- Since there is no collateral on this chain, these tokens may be worthless, as mentioned above

· All other ERC-20 tokens on ETHPoW -- may have very limited value on the ETHPoW chain

So the best strategy may actually be to buy as much ETHPoW as possible before trading on a centralized trading platform. ETHPoW was then sold on a centralized trading platform. It's like a free call option on ETHPoW.

Merger Trading Strategy

As with these potentially controversial blockchain forks in the past, the Ethereum merger offers an exciting trading opportunity. One possible "risk-free" trading idea is as follows:

1. Before merging, convert all of your dollars to USDC in your own Ethereum wallet

2. Immediately after the merger, sell your USDC on the ETHPoW chain and exchange ETHPoW tokens on a decentralized trading platform like UniSwap or Curve

3. Once the central trading platform opens ETHPoW deposits, sell all ethpoWs for dollars

4. Make a profit

It is possible for you to make a profit with almost zero risk. Zero risk is when only certain types of risk (such as price changes) are considered.

Of course, actually executing the above trades is actually quite complex and risky, and there are several issues to manage:

· Transactions need to be made within a short period of time as there may be a race to take advantage of the opportunity. The liquidity pool supporting the ETHPoW sale could quickly dry up.

· You need to manage your own keys instead of using a custodian. It is unlikely that any third-party custodians, if any, will support ERC-20 tokens on ETHPoW soon after the split.

· Basically the infrastructure used to interact with the decentralized trading platform is likely to support merging and only run on ETH2. Therefore, you may need to run your own Ethereum node and interact directly with the trading platform smart contract on ETHPoW. This can be quite complicated for some traders, but this difficulty is where profit opportunities may arise. Practice may be needed before ETH1 forks.

· You may need to ensure that your USDC sell /swap order is not repeated on the ETH2 chain. Split smart contracts may need to be created.

Liquidity providers may recognize this potential risk and withdraw liquidity very quickly around the time of a merger. However, some liquidity providers may not do so, creating opportunities.

· Many DeFi protocols rely on price prognostic and it may not be clear how these will handle ETHPoW chains.

There may be more advanced strategies to try in DeFi, including leverage, borrowing, or providing liquidity, which we will not discuss for the moment.

conclusion

Any chain forks that occur when Ethereum merges could be an interesting throwback to the 2016/17 era. Despite the many technical challenges ETHPoW faces, as long as the chain survives, there will be a positive narrative around its Token and leading centralised trading platforms will likely open up its trading. The crypto space is still full of narrative and noise. ETHPoW has a lot to be excited about, and we expect the ETH/ETHPoW trade pair to be a popular post-split trade pair, at least until another interesting development emerges. Looking forward to the game!