Bankless: What are the profit opportunities for retail investors in the merger of Ethereum?

22-08-12 15:51

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Original title: "A Guide to Winning The Merge"

Original author: Ben Giove, Bankless analyst

Original compilation: Moni, Odaily Planet Daily

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Image source: Logan Craig

The merger may be the most important "catalyst" for the upgrade of the Ethereum network so far One, it will also affect the network in multiple ways, such as:

Significantly reduce Ethereum's energy consumption, alleviating critics' concerns about its environmental impact ;

Clearing the way for Ethereum network optimization at the protocol level, including separating the "proposer-builder" to separate block production from block validation;< /p>

Greatly increase the attractiveness of assets ETH , because the issuance of ETH will be reduced by about 90%, which may lead to currency Austerity, at the same time, the staker can also get the benefits.

So for a wider range of investors, are there any other investment opportunities that take advantage of the Ethereum merger? Here we bring you four investment strategies that take advantage of Ethereum mergers.

1. Liquid pledge Token

Example: LDO, RPL, SWISE< /p>

Liquidity staking services will be the most direct beneficiary of Ethereum's merger, and non-custodial protocols are expected to experience a significant increase.

Actually, the concept of liquidity staking is very simple, it allows users to do all three of Liquid collateralized derivatives (LSD) deploy DeFi assets.

Because Ethereum can eliminate previous technical and execution risks through mergers, the mortgage risk is greatly reduced, which will also promote the development of a wave of protocols accordingly.

Furthermore, after the completion of the Ethereum merger, it will also help reduce the LSD transaction discounts related to ETH . At present, the price of stETH on the DeFi liquidity giant Lido is about 0.963 ETH, but when the Cessius started to thunder in June, the price of stETH once broke the anchor , came to a low of 0.933 ETH .

It is expected that the Beacon Chain will not be withdrawn before the "Shanghai" network is upgraded, but will wait until 6-12 months after the merger. Still, the implications of the merger are significant, and since discounts will be further reduced, there will be less price risk for pledgers, making these staking agreements even more attractive.

Furthermore, as the staking yield rate is expected to increase, collateral in liquid staking protocols may also increase. Now, Beacon Chain validators can only get block rewards, and after the merger, stakers can use the MEV strategy (referring to miners or validators based on their ability to determine the The maximum value extracted in the transaction block) to obtain transaction fees and other income. This shift is expected to significantly increase the staking yield from around 4% currently to 6-12% .

With the arrival of higher yields and higher ETH prices, the income of the liquidity staking agreement will continue to increase, and the income of pledgers will also be further enhanced promote.

So far, there are three liquidity staking agreements that support public trading Token in the market, namely: Lido (LDO), ; Rocket Pool (RPL) and Stakewise (SWISE).

Among them, different Token play different roles in the investment portfolio:

1. If investors seek blue-chip exposure, they can choose LDO , because it is the largest pledge entity on the beacon chain, with a pledge share of 31.2% . In addition, Lido holds the greatest control in the liquid staking industry with a 90.3 % market share. Currently, the market capitalization (MC) of the Token is 1.48 billion US dollars, and the fully diluted valuation (FDV) is 2.7 billion US dollars.

2. If investors value Token economics, they can pay attention to the second largest liquidity pledge agreement Rocket Pool (RPL), It has a 1.6% share of beacon chain staking, a 4.5% share of the liquid staking industry, a market cap of 467.52 $$, and a fully diluted valuation of 5.1973 Billions of dollars. In fact, there are unique Token economics embedded in RPL , due to the fact that mini-pool operators or entities validating through Rocket Pool need to purchase 1.6 ETH worth of each new validator RPL, so Token demand is closely linked with RPL growth.

3. If investors want to maximize the risk and optimize the beta coefficient, they can choose StakeWise (SWISE), whose market value is 26.66 million US dollars, completely The diluted valuation is $198.45 million. Although the protocol's beacon chain and liquidity staking shares are only 0.4% and 1.3% respectively, due to its small size and low volatility, SWISE may be the token with the highest beta coefficient among the three.

2. DeFi investment

Of course, buy Token is not the only way to make money from mergers. Savvy market participants can invest in DeFi in a variety of different ways, reflecting how different markets reacted before, during, and after the Ethereum merger.

One way to do this is to lend ETH in money markets like Aave, Compound , and Euler . This is because investors want to be able to accumulate as much assets as possible in order to get an "airdrop" opportunity in the proof-of-stake-based Ethereum fork ; the demand may increase substantially.

Since the interest rate of these agreements is based on utilization efficiency (such as how much assets are borrowed), borrowing A huge spike in demand would result in very high deposit rates for lenders. We see the interest rate curve for ETH on Aave V2 begin to spike rapidly. The market is currently at 61.56% utilization, but has seen a significant spike since August August 8 with a continuing trend.

Image source: Aave docs

Of course, this strategy is not without risk. In extreme cases where borrowing demand is very high, meaning there is little ETH liquidity in Aave lenders may be temporarily unable to withdraw assets until borrowers repay or more deposits are flooded into the protocol.

Another method is to use Voltz ;protocol, an AMM for interest rate swaps designed to bet on LSD mortgage yields. Since Staking returns may increase post-merger, market participants can use Voltz By placing ETH as margin and purchasing variable rate stETH or rETH Amplify their returns by using leverage, but be aware that this comes with a greater risk of liquidation, use any form of leverage very carefully!

3. PoW airdrop revenue mining

Liquidity mining contains With billions of dollars in "staking opportunities", it is almost certain that there will still be some PoW instances in Ethereum after the merger. Many well-known industry figures such as Justin Sun and the trading platform Poloniex have pledged to support this hard fork and It is planned to list ETHPOW Token.

While it is unclear whether the forked chain has any long-term viability or how much value ETHPOW will have in the future, users do not have to give up this "Fork opportunities", at least a variety of different ways to earn airdrops that seem likely to happen (tip: the easiest way to qualify for airdrops is to keep ETH in a non-custodial wallet, such as ;Metamask, Coinbase etc.)

If you're looking for a riskier investment opportunity, here's one way: Borrow ETH on the money market , if the value of the airdrop is greater than the cost of borrowing ETH , then it may be profitable. However, this strategy comes with considerable risks. Not only could the borrowing rate exceed the airdrop yield, but if the ETH price spikes or the value of the collateral falls, the borrower will be liquidated. Investors need to make this choice very carefully given the high likelihood of large volatility on the day of the merger.

If you are afraid of high risk, you can also create an ETH position in perpetual futures. In this case, users can buy spot ETH, and at the same time short the same amount of ETH using perpetual contracts on CEX or DEX . In this way, users can obtain both investment exposure of ETH and airdrops without bearing the price risk of holding assets. This strategy will be profitable if the value of the airdrop exceeds the capital (the cost of keeping the position open).

However, there is no such thing as a free lunch. This strategy is also risky, as financing yields (such as lending rates) could spike following a merger event. Either leverage strategy, coupled with volatility, puts users at significant risk of being liquidated.

So, proceed with caution.

4. Other benefit opportunities

In fact, the merged Ethereum is expected to transformative impact on other areas of the economy.

The first to benefit should be Layer 2. After the transition of PoS EIP-4844) paves the way, and the aggregated transaction fees for end users on the chain will be greatly reduced, which means that more users will be attracted to conduct transactions on the network, and it will also drive more Dapp innovations - the reduction in fees will have a positive effect. Help to "stimulate" the popularization and application of Layer 2.

In the context of mergers, investors can (and have already started) investing in the entire Layer 2 ecosystem, such as the Layer 2 base layer (OP), and Synthetix (SNX) and GMX (GMX) Layer 2 native DeFi projects, and some supporting infrastructure for Layer 2 , such as fast bridging services like Synapse (SYN) and Hop Protocol (HOP) .

Another area that will change after the merger will be MEV. MEV's competitive dynamics will change dramatically as the "proposer-builder" is gradually separated, which will separate Ethereum block production (determining which transactions go into a block) and block validation. There are also noteworthy projects in the MEV area that are expected to break through in the consolidation process, such as Manifold Finance (FOLD), Rook Protocol (ROOK) and Cow Protocol (COW), which ;Token has been operating quite well in recent weeks, and is expected to become a long-term beneficiary of PoS Ethereum in the future.

Conclusion: Focus on risk, do your research, take risks

Mergers are coming, nothing Undoubtedly, this will be an important milestone in the development of Ethereum, and it will also bring major changes to the Ethereum economy.

If you are worried about risk, a safer way is to invest in ETH directly, but now is very different from the 2018 bear market, we live In the DeFi world, investors can therefore participate in mergers in a number of other ways, whether by investing in/trading liquidity staking protocols, exploring Layer take profit.

But no matter which way you choose, please pay attention to the risks, do your research, and finally choose to take risks.