“Holders are in for some good news.” The last of the Ethereum testnets switched to PoS

August 10 was another historic moment for the Ethereum (ETH) community and the crypto market as a whole. Goerli, one of the largest and most active testnets, went through the Merge upgrade. Merge is an upgrade to Ethereum that has been underway for years and will switch the network from a Proof-of-Work (PoW) consensus model to Proof-of-Stake (PoS), making the blockchain more efficient and less energy-intensive.

Ethereum acts as the most important commercial backbone in cryptocurrency, and any disruption could potentially cost billions of dollars and affect billions of users. The ETH blockchain supports more than 3 400 active decentralized applications. To prepare for such a massive change, developers have conducted many tests, but the “merge” in the Goerli testnet is the last and most significant test for Ethereum before the transition to PoS in the main blockchain used by everyone takes place.

Technically, after the upgrade, nothing much will change in the services, but the main Ethereum network will work faster and the speed of transactions will increase, explains TTM Academy CEO Stanislav Pankov. Over time, after the implementation of sharding, the network capacity will increase and the fee for transactions will be lower. The new network will also affect the profitability of staking: based on available data, we can predict its reduction to 4-5% in the long term. “Holders of the new Ethereum are in for some good news: the value of the coin will most likely grow due to the new deflationary model,” the expert predicts.

Earlier, one of the Ropsten testnets successfully transitioned to PoS in June, and the next Sepolia network made a similar transition in early July. According to the Ethereum Foundation, the Goerli net merge is a final opportunity for users to make sure their validators are set up correctly before upgrading the core network.

Ethereum developers will need time to confirm whether everything went smoothly, or to identify unforeseen problems when merging testnets. When Goerli's transition to PoS finally happened, it was much easier for them to assess the likelihood of success of the core blockchain upgrade. The core network merge is expected to take place in September, but depending on the results, the date could change. The Ethereum Foundation calls the network's transition to the PoS algorithm “the most significant upgrade in Ethereum's history.”

Market reaction

Immediately after the activation of the Goerli merge, the price of ETH hit a 24-hour high of $1940, according to CoinGecko. As of August 10, 14:00 UTC, the cryptocurrency is trading at $1910. Along with Ethereum, the staking platform's Lido Finance native token is up more than 18%. The LDO token is on the 62nd line of the list of cryptocurrencies by market capitalization, its price at the time of publication is $2,82.

At the moment, almost 30% of all ETH is listed through Liquid Staking protocols, and 60% of them through Lido, Pankov explains, adding that this demand is understandable. Liquid staking allows you to quickly withdraw your assets without a period of locking access to assets and penalties for premature withdrawal, as well as saving on gas, which is especially important for the Ethereum network.

To become a validator of the network, one would have to pay 32 ETH, or about $60 000 at current prices. Lido offers a staking pool with terms suitable for all comers. Instead of 32 ETH, any amount of ETH can be deposited into the Lido pool and receive staking income. Currently, Lido offers a 3,9% annual return on coins in staking, with $8,28 billion worth of cryptocurrency locked up in the pool, according to DefiLlama. According to Dune Analytics, there are 4 881 participants in the pool who have placed 4,14 million ETH in staking.

How to make money with staking. Prospects for Ethereum and cryptocurrencies on PoS

According to the head of TTM Academy, Lido circumvents the well-known difficulties with ETH 2.0 staking, which include low liquidity and poor availability, making them a convenient tool for investing.

Big players' support

Circle, the issuer of the USDC stablecoin, issued a statement that it exclusively supports the “official” version of Ethereum after the network switches to Proof-of-Stake. On the same day, Tether issued a similar statement regarding USDT stablecoin. In the publication, representatives of the company stressed that the transition to PoS should not carry risks that could cause confusion and harm the ecosystem, applications and investors.

The statements by leading crypto market players come amid discussions about the likely emergence of a fork of Ethereum running on the PoW algorithm after the official version of ETH switches to staking. This scenario is of interest to miners, who are deprived of the significant income that the current version of the cryptocurrency brings them.

Splitting into two networks. Will there be another Ethereum after the transition to PoS?

Support from Tether and Circle is critical to the success of the Merge upgrade, since the leading stablecoin issuers are in fact the liquidity providers for most decentralized financial applications (DeFi), notes Pankov. “Their support of the ETH-POS network alone will very likely end the popularity of the ETH-POW network,” the expert adds, suggesting that crosschain bridges could emerge that would allow the transfer of these stablecoins from the ETH-POS network to the ETH-POW network. “However, the question is different: who will use the bridges and transfer their money to the unpopular network when all the major protocols and services will continue to function in the PoS version of the network?”

Along with issuers of leading stablecoins, support from cryptocurrency exchanges and other major projects can weigh heavily on any of the blockchains. Several trading venues, including Poloniex, MEXC and BitMEX, launched derivatives trading tied to likely future tokens of PoW- and PoS-versions of Ethereum. The exchanges Huobi, Gate, Digifinex and OKX are also considering support for a PoW fork. On August 11, Binance released a similar statement.