Bloomberg News reports that decentralized finance investors are pinning their hopes and betting on the revamp of Ethereum to help in thawing out the two-month-long crypto winter.
The revamping of Ethereum
The DeFi segment, where investors are earning yields by trading and staking digital currencies without centralized intermediates, has declined steeply due to the collapse of the TerraUSD stable coin as surging inflation has put the Federal Reserve on the way to monetary tightening. The so-called “Ethereum Merge“, one of the significant upgrades in technicalities to the blockchain technology ever since it was set up in 2015, might be one of the lesser catalysts that could offer DeFi a much-required lift.
Despite multiple delays, the core developers have progressed, and the co-founder of Ethereum, Vitalik Buterin, revealed that the upgrade is expected to occur in August. The Merge will allow Ethereum to shift to proof-of-stake from a proof-of-work mechanism where miners use powerful computers to place orders and validate the transactions for the users. This new mechanism will replace miners with Ether holders that perform similar tasks.
The Merge will be a crucial and most important event in the crypto space in the current year by far, stated Vance Spencer, co-founder of venture capital company Framework Ventures.
Risk-off to risk-on
Fewer issuances of Ether, a smaller carbon footprint, and more yields are among the outcomes of the upgrade that investors of DeFi say will ignite an Ethereum rally and boost the industry.
Bloomberg News reports that the transformation will also do away with tens of millions of dollars as fees of Ether daily. According to Jaran Mellerud, Arcane Crypto mining analyst, Ethereum miners have earned as much as $42 million on average daily in 2022.
Ether holders slated to become validators following the upgrade will most likely hold on to their Ether rewards and stake them for higher yields, compared to those miners that tend to sell off their mined Ether to redeem cash or cover operational costs, further dropping the supply of currency.
Another side of the coin
The Merge is one of the most anticipated events in the crypto industry in 2022. The bullish sentiment associated with it is most likely to spill over to the broader market, where interest rate surges coupled with an economic outlook that is not very strong have kept the investors away from investing in those assets that are risky.
A potential security threat to the beacon chain of Ethereum at the beginning of this week is also likely to defer the timing of the Merge. The chain, which is the main element in introducing the new proof-of-stake mechanism, was found undergoing reorganization in the blockchain on Wednesday. Ether dropped by 11% Thursday before paring losses at approximately $1843, which is much below the benchmark of $2000.
