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The blockchain network behind the world’s second largest cryptocurrency faces turmoil as it nears the end of a major upgrade.
The final stage of the Ethereum “merge” is about a week away. Due to be completed around September 15th, the transaction processing mechanism will be changed from the current “proof of work” system to a “proof of stake” based method, designed to consume much less energy. It has been. Among other changes, the process of “mining” Ether tokens will be eliminated.
However, the next week could be particularly volatile for Ethereum’s native token, Ether, and related cryptocurrencies.Some Decentralized Finance (DeFi) Trading and Lending Platforms Impose Limits on Ether Borrowing in a rush of activity.
(ticker: COIN) is warning users of the delay. Coinbase informed users on Wednesday that it will temporarily suspend Ether deposits and withdrawals during the merge. ERC-20 tokens are also affected. It is used in the Ethereum network as the basis for trading and lending in “smart contracts” and is used to create non-fungible tokens (NFTS).
According to Coinbase, the suspension also hit transfers on the Optimism and Polygon networks, which could take up to 24 hours to resolve after the merge.
Given the magnitude of the merger’s impact on cryptocurrencies, some confusion is to be expected. Ethereum is the largest crypto network after Bitcoin and is widely used for trading, lending, NFTs and all kinds of his DeFi apps. It also plays a fundamental Layer 1 role in other blockchain projects and networks such as Polygon and Uniswap.
Interest in Ether and related products surged in the months leading up to merge. The token is up about 50% from its June low, while its larger peers
has changed very little.
However, traders who want to hop on the Ether Train may find it difficult to do so while the network is undergoing major changes.
In fact, Coinbase isn’t the only one to warn of chaos.
(hood) announced last week Suspending withdrawals of Ether and 6 other tokens, including ‘memecoin’
“Concerns about trading volatility are certainly reasonable given that the upcoming merge will be a technical overhaul of a live-running global network where hundreds of billions of dollars are stored, traded, borrowed and loaned each month. ,” said Sadie Raney, CEO of the crypto. Hedge fund Strix Leviathan.
“Beyond the technical risks, there are also some adversarial opportunities arising from the event,” added Raney. This includes aggressive trading strategies that can increase the volatility of DeFi borrowing and lending apps.
Crypto miners are left behind in the merge. However, they are not quietly declining and are planning a rival his Ethereum network that can compete with its own associated token. Their network will continue to use the old “proof of work” system, where computers must solve complex puzzles to validate transactions.
This has added to the uncertainty of Ether, prompting several exchanges to state whether they will support rival tokens. Coinbase, Binance, FTX and Bitfinex said they would apply their usual criteria to decide whether to list competing Ether tokens based on competing blockchains. Backers of the Uniswap trading platform and USDC stablecoin have committed to exclusively support the Ethereum blockchain and its tokens.
However, some crypto traders see an opportunity in the emerging “forked” Ether token. Rival tokens are set to trade at around $18 each. based on analysis Futures contracts according to the crypto investment firm paradigm. Rivals may prove worthless, but Ether holders may receive an equal amount of Rival Tokens once the merge is complete.
This is one of the reasons why Ether borrowing has skyrocketed on some DeFi platforms. But if all goes wrong, the platform could face a liquidity crisis, said Raney, of Strix Leviathan, adding that the risks apply to the larger ecosystem.
Some DeFi platforms are currently taking steps to maintain stability. His lending platform Aave temporarily suspended Ether borrowing on Wednesday. Another platform, Compound, capped the amount that Ether traders can borrow and adjusted the rate of the token.
Perhaps the only certainty is that volatility will continue to hit cryptocurrencies until The Merge is completed.
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