Decentralized-finance investors are betting on the changes to be made to the software.
The Defi sector, where investors earn yields by trading and staking cryptocurrencies without centralized intermediaries, has declined sharply following the collapse of the TerraUSD stablecoin and as soaring inflation puts the Federal Reserve on a path of monetary tightening. One of the few catalysts that could give DeFi a much-needed lift is the technical upgrade to the ether.
Vitalik Buterin said the upgrade is set to take place in August, despite multiple delays. Proof-of-stake will be the new method of order and validation for transactions on the Ethereum platform. The miners are replaced with ether holders.
The biggest event in the space this year will be the Merge, according to the co-founder of Framework Ventures.
Defi investors say that fewer new issuances of ether, a smaller carbon footprint, and higher yields will boost the industry.
The Defi fund has been risk-off the market all year and now for the first time we are risk-on because we have been accumulating ether every single day.
The transition will eliminate tens of millions of dollars of fees that are paid to miners.
After the upgrade, ether holders will be more likely to hold on to their rewards and stake them for higher yields, as opposed to miners who tend to sell their mined Ether to cash out or cover operational costs, further reducing the supply of the currency.
The cost of operations for a miner is much higher than for a validator.
Staking rewards, which are what validators receive in return for putting their assets on the block, will be higher after the merger.
If a slump in prices leads to another round of sell-offs among miners that have large holdings, the selling pressure on ether could be less. Riot Blockchain started selling mined coins for the first time earlier this year.
If you are in the middle of the bear market and the miners are selling, you will need a lot more money to maintain your position than if you are in the middle of the ether.
The bullish sentiment around the Merge is unlikely to spread to the broader market, where interest-rate hikes and a weak economic outlook have kept investors away from riskier asset classes.
There is a potential security threat to the beacon chain. The chain underwent a reorganization on Wednesday. The price of ether plunged as much as 11% on Thursday before paring losses to around $1,843, well below its benchmark.
Nerves, Reorg, the Merge: Reasons Why Crypto Is.
A network failure or malicious attacks from miners with high resources may have caused the glitch.
The impact on the timing of the Merge is still unknown, according to a research associate at CoinShares.
There are other technical problems on the testnets.
Read more about the lead by ether and alt coins.
If the Merge does happen, it could cause problems for other projects within the DeFi sector, including layer 1 projects. The term layer 1 is used to describe a base layer of the network.
It's going to suck the air out of a lot of the other markets.
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