Ethereum

7 steps to fully take advantage of the Merge

The Ethereum Merge is scheduled to take place on 13 September. Christmas season is here again. ETH holders will soon be airdropped ETH PoW tokens. What should you do to best position yourself?

Before we get to the steps, what is happening again? Ethereum is going through an upgrade where it will transition from Proof of Work to Proof of Stake. After the transition, ETH miners can no longer mine. Miners are forking ETH to keep a PoW version so they can continue mining.

1. Centralized Exchanges or Self Custody?

The simplest way to play the Merge is by depositing ETH onto a centralized exchange that has announced it will support the PoW fork. The list below is not exhaustive but are my recommendations:

Currently, it appears that FTX , Binance and Poloniex look the most certain to give users their equivalent ETHW after the Merge. Out of these, Binance will likely have the largest market as it is currently the top centralized exchange by trading volume. 

The best would be to have full custody of your ETH on a hardware wallet. However, the trade-off is that accessing the new PoW chain requires some technical knowledge and could expose users to risk. Those taking this approach will need to add the PoW network to their EVM wallet once it launches. In MetaMask, you can do this by clicking on the network at the top of the browser extension and selecting “Add Network.” You will then need to input the ETH PoW chain’s name, RPC URL, and Chain ID (these details will be announced after the PoW chain launches). The process is relatively simple, similar to adding RPCs for other Ethereum-compatible chains like Polygon or Avalanche. 

2. Bridge all your tokens back to ETH mainnet

You will not be getting any ETH PoW for your ETH held on Optimism, Arbitrum, Polygon, Avalanche or any other Layer 2 scaling solution. Move them back to mainnet before the Merge to get the ETH PoW tokens.

3. Unwrap all WETH to ETH

There will most likely be a DEX on the new ETH PoW chain to help you unwrap your WETH PoW token but why bother searching for it in a new unstable ecosystem? Just unwrap it before the Merge. The best alpha is to get hold of the ETH PoW tokens immediately.

4. Remove liquidity from DeFi protocols

You will not be getting any ETH PoW tokens for ETH that are being used to provide liquidity. I would withdraw now and provide liquidity again after the Merge. There may be a liquidity crunch on DeFi protocols as more folks do this.

5. Borrow ETH from Aave / Compound

You will get ETH PoW for any ETH held during the snapshot. This means it makes sense to borrow as much ETH as possible. Combined with the previous step, I would expect ETH utilization to get close to 100%. Current snapshot of Aave & Compound:

7 steps you may consider to fully take advantage of the Merge
7 steps you may consider to fully take advantage of the Merge

6. Monitor stETH / ETH market

ou could either buy or sell stETH as we get closer to the Merge depending on what others are doing. Would expect some to sell stETH to ETH to get the PoW airdrop. But if selling becomes too strong, you could buy stETH on the cheap. Last 30d chart:

stETH as we get closer to the Merge

7. Buy the rumor, sell the news?

Maybe speculating on ETH PoW is not worth it for you. Currently, ETH PoW IOU is trading at about 2.8% of ETH. ETH will probably be bought up in the hours to the Merge and dumped immediately after. You can choose to sell ETH and take profit then.

ETH PoW
We have about 5 days to go to the Merge. I think many markets and protocols will get volatile, messy, and complex especially in the hours before/after Merge. One or more ETH PoW forks may show up. Dug up our old 2017 crypto report on Bitcoin forks and found this.
 
ETH PoW forks

Will we see another dozen ETH PoW forks coming out? Who knows?  But I do know that if I hold my ETH on my non-custodial wallet, I may be eligible to get all these fork tokens. This doesn’t mean I will claim all airdrops as some could be scams trying to get my signature/keys.

My strategy for these fork tokens is to sell them all immediately. Almost all the fork tokens are now dead as they are created solely to keep miners temporarily occupied with mining and have no incentive to grow their community and usage. There are several strategies you may take for the upcoming Merge. I most certainly would have missed out on some other interesting strategies. Would like to hear from you on what you guys are planning to do for the Merge.

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