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Ethereum Fork Chain Summary | Potential Chaos and Arbitrage Strategies after a Hard Fork

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Ethereum Fork Chain Summary | Potential Chaos and Arbitrage Strategies after a Hard Fork

The Ethereum final testnet has been successfully merged, indicating a higher probability of the mainnet merging smoothly in September. However, on the other hand, the ETHPoW, which is mainly led by miners, is gradually becoming a certainty. The crypto community, Olimpio, has explained the possible scenarios after the merge and has compiled potential arbitrage opportunities.

The PoW version of the Ethereum hard fork is about to be launched, and speculative operations by some users may include:

  • Holding more ETH "on-chain" before the fork, including withdrawing from centralized exchanges.
  • Borrowing more ETH through lending platforms.
  • Exchanging all forked ERC20 assets for ETHPoW.
  • Having an account ready on exchanges that announce support for this "sh*t-chain" garbage chain.

Understanding ETHPoW from BCH: What's Next?

If you have been involved in Bitcoin forks like BCH/BTG, you are likely familiar with these being among the earliest airdropped coins in history. Now, their current situations are as follows:

  • All three have a total supply of 21 million coins.
  • Bitcoin Cash BCH: Market cap of 2 billion USD, price at 140 USD.
  • Bitcoin Gold BTG: Market cap of 500 million USD, price at 30 USD.
  • Bitcoin BTC: 24,000 USD.

What Will Happen After the Merge?

1. From One Bored Ape to Two

Ethereum is set to merge and transition to PoS. As a result, some miners have decided to fork off a PoW version of Ethereum to squeeze out the last bit of value from their mining rigs before selling them off.

Therefore, all assets held on Ethereum by users before the hard fork will exist simultaneously on both PoS and PoW chains, including:

  • NFTs, assets in wallets
  • Assets providing liquidity on Uniswap
  • Lending assets in platforms like Aave and Compound

All on-chain assets will be duplicated, as Hasu predicted a chain split a long time ago.

Is ETHPoW a free arbitrage opportunity? Paradigm researcher Hasu: Forked chains are a huge trap for retail investors

When this actually happens, there are several potentially disastrous outcomes, especially in the DeFi space:

There will be 20,000 CryptoPunks, BAYC, double the amount of UNI, ETH, WBTC, USDC. Think about USDC, pegged 1:1 to the USD with a market cap of 54 billion USD. Post-fork, there will be a total of 108 billion USDC across both chains, but only 54 billion USD in actual backing. One chain's USDC will nearly approach zero. Which chain do you think it will be?

2. Potential Speculative Operations

Users may likely sell off all forked assets like USDC, USDT, DeFi tokens, meme coins, NFTs, solely to acquire ETHPoW. These actions could occur in the first block of ETHPoW, leading to gas wars, MEV arbitrage, bribes, and all sorts of manipulative behaviors.

Especially in the minutes following a successful fork, everyone will rush for ETHPoW, potentially driving its price momentarily above that of ETH. People might:

  • Convert all forked assets into ETHPoW.
  • Send ETHPoW to centralized exchanges.
  • Cash out or exchange for ETH.

Arbitrage Strategies, Not Investment Advice

1. Maximize ETH Holdings

  • Withdraw all ETH held on exchanges to the chain.
  • If holding stETH, deposit into Aave and borrow ETH, as lending rates may skyrocket.
  • Avoid buying ETHPoW, it may crash.

2. NFTs

  • Research how to connect your post-merge wallet to ETHPoW, as platforms like MetaMask may no longer support it.
  • Cancel all bids on OpenSea, as bids on the ETHPoW chain may be accepted, swapping your ETHPoW instead.

3. DeFi

Withdraw liquidity from pools like Uniswap before the merge, as you may not be able to redeem it in time on the ETHPoW version due to a flood of bots that may drain your ETHPoW.

4. CeFi

Create accounts on exchanges potentially supporting ETHPoW like:

BitMEX has already begun trading ETHPoW futures at around 60 USD. Selling ETHPoW on a CEX may be simpler than on a DEX like USDCPoW, as everything will be chaotic.

My personal opinion:

I support PoS chains and decentralization. Greedy miners want to dump ETHPoW on retail investors. Don't believe any narrative and buy ETHPoW; I will sell off my ETHPoW as soon as possible.