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

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

With the upcoming Ethereum merge, the discussion volume on the hard fork to continue the PoW version "ETHPoW" is gradually increasing. Many researchers have put forward arguments on this issue, and there are mixed opinions on whether there is arbitrage space. However, the market seems to have started speculating on this issue, as Poloniex exchange launched the ETHW/ETH trading pair today, and Curve's stETH/ETH liquidity pool also shows a skew.

Hasu's View on ETHPoW

Paradigm researcher Hasu bluntly stated on Twitter: "Many, including myself, have long expected miners to fork Ethereum to squeeze out the last bit of profit from their investment."

He believes that even if many miners provide hash power to the ETHPoW chain, it will not bring value to this chain. The chance for mainstream stablecoins to redeem on this forked chain is 0%.

What if The Merge encounters issues and cannot be smoothly executed? Hasu believes it will only cause delays until the problem is resolved, and no one other than miners will want to stay on the ETHPoW chain.

Furthermore, Hasu also mentioned that the ETHPoW chain will be a huge trap for retail investors, as miners, exchanges, and traders are discussing this topic solely for their own interests. Unlike forked coins such as ETC, BCH, and BSV, which have their niche supporters and are not held solely for short-term speculation, the ETHPoW chain has absolutely no supporters.

"Although most competing chains come from forking Ethereum, none identify as a fork of Ethereum. Not because they didn’t think of it, but because it’s a thoroughly stupid idea," Hasu stated.

Who Determines ETHPoW Price

Although Hasu strongly disagrees with the speculative behavior on the ETHPoW chain, there have been discussions in the community on how to arbitrage on the ETHPoW chain.

Referring to strategies proposed by dforce founder Yang Mingdao and the BitMEX research team, the simplest approach is to transfer ETH from exchanges, protocols, and other chains to the Ethereum mainnet, then sell it after the fork once centralized exchanges support ETHPoW trading pairs.

By looking at the price trend of previous ETC forks, there is a potential profit of up to 2.5% in ETH, but liquidity issues and significant selling pressure could narrow the profit margin.

"It's not the hash power that controls the pricing of forked coins, it's the exchanges. Once second-tier exchanges list the coin, market prices will pressure top-tier exchanges to support it, further pressuring other protocols like Lido and platforms to support the forked coin," said dforce founder Yang Mingdao.

Chainlink Does Not Support ETHPoW Chain

The decentralized oracle system Chainlink announced today that it will no longer support the ETHPoW chain post-merge, aligning with the consensus of the community and the Ethereum Foundation to only support the PoS consensus layer.

As a bridge between blockchain and the real world, Chainlink has provided data for over 1,000 protocols, and the decision to cease support for the ETHPoW chain post-merge further diminishes the utility of this chain.

"Supporting PoW forked chains is not feasible, as it would not only replicate the LINK token, but the PoW token from the fork is unlikely to have the liquidity needed to feed security data," stated a Chainlink community ambassador.

Curve stETH/ETH Imbalance

However, data on the chain shows that arbitrage opportunities on the PoW chain have led to an imbalance in the Curve liquidity pool.

The current proportion of the Curve stETH/ETH liquidity pool is skewed, with stETH accounting for as much as 76%, where 1 ETH can be exchanged for 1.0378 stETH.

The reason may stem from stETH holders wanting to convert tokens to ETH for arbitrage. Additionally, the stETH issued by Lido on the main chain is what can truly be redeemed for ETH, as there is no staking mechanism on the ETHPoW chain.

Poloniex Lists ETHW/ETH Trading Pair

Poloniex, the exchange created by Tron founder Justin Sun, has now listed ETHW/ETH, where ETHW represents the ETH of the PoW forked chain, with the price of 1 ETHW approximately equal to 0.07 ETH, meaning there is a 7% arbitrage opportunity if this price is maintained post-fork.

However, the trading volume for this pair is currently not high, and it remains to be seen if it has enough depth to withstand significant selling pressure.