Background - ETHPoW and ETH2: The story of miners vs. social consensus
Last week we gave a brief on the Merge: the switch from Proof-of-work (PoW) to Proof-of-stake (PoS) consensus on the Ethereum blockchain. However, not everyone welcomes the switch, and ETHPoW—representing the token for the PoW chain that might continue to exist— is getting increasing attention.On July 27th, Chinese Ethereum miner Chandler Guo launched a campaign to hard fork the Ethereum blockchain. In the beginning, both chains would be identical, duplicating any holdings. However, although the network can be technically duplicated, the value cannot. There will be 2 USDC/USDT for 1 USD held by Circle/Tether. Stablecoin issuers will have to choose which chain stores the actual value, so in theory, they could decide which chain becomes the new Ethereum. However, doing anything against social consensus would be bad for business, and the Ethereum community has decided to switch to PoS. If stablecoins are worthless on the PoW chain, DeFi on PoW crumbles. But some exchanges will list ETHPoW, causing speculation on the asset and a race to extract as much ETHPoW from the dead ecosystem as possible. TL;DR: the trade is already becoming crowded (further expanded on below).There is no community behind ETHPoW, and interestingly, the list of ETHPoW supporters consists of either mining pools or exchanges. Ethereum mining is bigger than bitcoin mining based on revenue, so miners clearly have financial incentives to support an ETHPoW chain.Preview
New trading strategies emerges as Ethereum approaches merge
Instruments for trading the upcoming Ethereum merge and potential proof of work chain split are getting launched as trading strategies amid possible arbitrage opportunities emerge. In a series of threads, Galois Capital has made a case for trading a potential chain split in Ethereum following the Ethereum merge, and now a movement initiated by Guo for Ethereum PoW has gained traction.Galois is trading the merge, and a potential chain split through a delta neutral strategy, holding spot and shorting quarterly futures at equal size. Since announcing its trade, a discount to the spot market has emerged in quarterly ETH futures as illustrated further down in this article. This trade enables exposure to a potential chain split and is based on the assumption that ETHPoW will accrue a share of the current value of ETH. Both Poloniex and BitMEX have launched instruments to trade ETHPoW, with Poloniex launching an instrument for trading PoS ETH (ETHS) simultaneous to launching the ETHW alternative. ETHW at Poloniex currently trades at 0.06 ETH while ETHS trade at a substantial discount to stETH, albeit at low volumes. Nevertheless, a well of arbitrage opportunities seems to be erupting for traders as the situation develops.Preview
Ether futures prices at all-time lows relative to Ether spot
While bitcoin futures trade at a premium to the spot market, Ether futures have started trading at all-time lows relative to the spot market, likely caused by the upcoming merge and a potential chain split on the horizon.Preview
Open interest in Ethereum near all-time highs in notional terms
Open interest in notional terms in Ether futures and perps nears new all-time highs as the Ethereum futures basis decline to all-time lows.Preview