Protocols benefiting from 'the Merge' on Ethereum

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The consolidation and upgrade of the mainnet proof-of-work (PoW) of Ethereum and the Beacon Chain proof-of-stake (PoS) is approaching and will become a blockbuster this summer. The upgrade process has been and is being watched and discussed a lot when the project has been postponed many times before.

Recently, Vitalik Buterin – CEO of Ethereum announced the upcoming and upcoming “The Merge” event to change the consensus mechanism of the Ethereum blockchain. This summer's blockbuster will be a race between computer genius Buterin before supervillain Gary Gensler, Chairman of the US Securities and Exchange Commission, can accuse him of organizing a random ICO. legal. Will Buterin overcome the danger? And now that we have a confirmed date for The Merge event on September 19, what will the upcoming results be? Who will support ETH PoS, who will support ETH PoW?

The developers say that The Merge could potentially spur a 60% rally in the price of ether (ETH) in the weeks following the announcement.

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While everyone is scared about missing out on ETH, I think we can look at some of the protocols in the Ethereum ecosystem that could benefit from the event. As always, this is not investment advice. This is a tour of some interesting projects that I like to call “Community with The Merge”.

Lido DAO and Rocket Pool

Lido and Rocket Pool are [liquid staking] protocols that provide investors with the opportunity to earn future post-merge profits based on their ETH – by staking. These protocols issue derivative tokens that represent tokens staked on the protocol that can be traded. These are called stETH and rETH, respectively. Learn more about Lido here.

When The Merge takes place, the Ethereum blockchain will switch from using a proof-of-work consensus mechanism to a proof-of-stake. This means that the network will be secured by a network of real validators. These people are rewarded with ETH. Currently, there are about 400.000 validators who are making about 5% percent annual return (APY). 

To become a validator, you must stake 32 ETH (currently worth over $45.000), which is a high barrier to entry. Staking acts as escrow, to ensure validators behave properly, so it needs to be a large amount. 

Those who can't afford 32 ETH can pool their resources using Lido and Rocket Pool. These two protocols collect all the funds and use to fund their own validating network nodes. After that, APY will be shared among stakers. 

Curve Team stETH+ETH

OK, let's say you staked some ETH on Lido and in return you received STETH (representing the tokens you staked along with the rewards paid out by the Ethereum network). How to trade? Well, the easy way is ETH+stETH on Curve Finance. looking for more information here.

Curve Finance is a beloved decentralized finance platform that allows users to swap tokens with very low fees and slippage. The platform uses an automated market maker model, allowing anyone to deposit liquidity on the exchange and receive trading fees. 

Curve pools generate fees based on transaction activity, so if The Merge increases the number of people wanting to trade with the ETH+stETH pool, these pools will see an increase in fees for liquidity providers. Furthermore, Lido DAO offers to pay liquidity providers for their ETH+stETH pool an additional 4% APY in LDO tokens. 

Optimism and Metis

Optimism (OP) and Metis (METIS) are Layer 2 (L2), which are meant to be built on Ethereum's blockchain to ease congestion on the Ethereum mainnet. There are a number of L2s already in the works, Arbitrum being one of the most popular, but Optimism and Metis have some of the more mature token ecosystems and are therefore more likely to benefit from price increases based on on Merge. 

While Layer 2 doesn't directly benefit from The Merge, they can get some impetus from their close association with Ethereum. This is due to the attention economy effect, which can be understood broadly in the crypto industry that whatever drives the strongest attention also drives the most capital flow. Indeed, both OP and METIS are up 50% this month.

Author: Nathan Thompson – Bybit Tech Lead Writer

About Bybit

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