In terms of The Merge’s performance, it is not only a major success for Ethereum, but it is also a significant step forward in the general evolution of the cryptocurrency sector. So that we can examine the methods that will gain the most from The Merge’s success.
What is The Merge?
The Ethereum network’s upgrading to Proof-of-Stake from the Proof-of-Work (POW) consensus method is known as The Merge (POS). The existing Ethereum chain and the Beacon chain will combine to form the Ethereum 2.0 chain after the upgrade is complete.
This could mark a significant turning point in the development of the ETH ecosystem. Improvements in Sharding technology will also enable this chain to scale quickly, easily, and with a minimal loss of confidentiality. As a result, miners won’t be able to mine ETH anymore; instead, they will need to stake ETH into validators in order to receive ETH.
The Merge, the community’s most anticipated event for 2022, finally occurred on September 15 and was a huge success after months of anticipation. Ethereum switched formally from proof of work (POW) to proof of stake as a result.
Protocols gaining from The Merge
Lido and Rocket Pool
Lido and Rocket Pool are [liquid staking] protocols that let investors stake their ETH in the hopes of making money after a merger. These protocols issue tradable derivative tokens that represent staked tokens on the network. Both of these go by the names stETH and rETH.
After The Merge, the Ethereum blockchain will switch from using a PoW consensus technique to a PoS one. This suggests that a team of reliable validators will protect the network. ETH is given to these people as a reward. There are currently about 400,000 validators earning an annual return of about 5%.
The entry barrier for validators is high, requiring a stake of 32 ETH, which is now worth more than $45,000. Staking serves as escrow to ensure correct validator behavior, hence it must be significant.
Lido and Rocket Pool allow users to pool their resources if they are unable to pay 32 ETH. The money is collected by these two protocols, which are then utilised to pay the nodes in respective validating networks. Following that, APY will be distributed to stakeholders.
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Curve Team ETH/stETH
Say you staked some ETH on Lido and received STETH as payment (representing the tokens you staked along with the rewards paid out by the Ethereum network). How does trading work? The simple method is to use ETH/stETH on Curve Finance.
Users can exchange tokens on the well-liked decentralized financial platform Curve Finance for negligible fees and slippage. Using an automated market maker mechanism, the platform enables anyone to deposit liquidity on the exchange and earn trading commissions.
Because curve pools charge fees depending on transaction volume, they will become more expensive for liquidity providers if The Merge increases the number of users looking to trade with the ETH/stETH pool. Additionally, Lido DAO provides an additional 4% APY in LDO tokens to liquidity providers for their ETH/stETH pool.
Optimism and Metis
In order to reduce congestion on the Ethereum mainnet, Layer 2 (L2) projects such as Optimism (OP) and Metis (METIS) are being developed on the Ethereum blockchain. Numerous L2s are already in development, with Arbitrum being one of the most well-known. However, because of their more developed token ecosystems, Optimism and Metis are more likely to profit from price increases based on Merge.
Although Layer 2 doesn’t directly profit from The Merge, its close relationship with Ethereum can provide it some momentum. This is caused by the attention economy effect, which in the crypto sector is generally understood to mean that whatever generates the greatest active attention also generates the largest financial flow.
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