As of today, the Merge has been finalized and is now complete, marking an important day in crypto history.
But what is there to prepare for next? Host Laura Shin seeks to find out in episode 395 of the Unchained podcast, featuring Galois Capital co-founder Kevin Zhou, and Wintermute CEO Evgeny Gaevoy.
Read our notes to find out what these talented traders are expecting to happen following the merge.
What Do You Think Will Happen with the Merge?
Kevin
● The merge could be a lot messier than many expect.
● There are a lot of risks with possible technical failures.
● Healthy for the market to be uncertain of how the merge will go.
Evgeny
● There are 3 problems that need to be solved by market makers.
1. He needs to make sure he doesn’t miss something and lose a lot of money.
2. Capture the opportunities on the PoW chain.
3. He has to understand how block building space will change post-merge.
● Evgeny doesn’t think it’s going to be an amazing opportunity in general because a lot of upside has already played out in the futures markets.
Do You Expect the ETH PoW Chain to Emerge Right at the Time of the Merge or Afterwards?
Kevin
● He is trying to prepare for any situation.
● If the fork is on time, there may be a lot more trading opportunities.
● A lot of people currently are dumping their ETH PoW ahead of time.
● There are multiple things the ETH PoW community did that weren’t optimal, E.g., the creation of multisig to fund development. This creates a relatively high amount of centralization.
● The market is already reflecting the issues of ETH PoW.
● There still could be large players like the ETH Foundation or large whales that want to sell but haven’t yet because they have too much size.
● Once these larger whales are done selling we can see a short-term equilibrium price for ETH PoW.
● He is trying to figure out what he should do before, during and after the merge. Planning his long-term post merge actions as well.
Evgeny
● Most likely the PoW chain will release exactly at the merge.
● There are several things for the ETH PoW team to resolve. The right thing for them would be to delay the launch and do it properly.
How Does This Work for the ETH PoW Tokens Available on Exchanges?
Kevin
● The plan is that each token becomes two tokens and exchanges would give it to their customers based on the snapshot right before.
What Do You Think ETH PoW Tokens will be Valued at?
Kevin
● Price might be ~2% of the current value of ETH, as the market is indicating.
● His plan is to send a light bid at 1-1.5% and a stronger bid at 0.5-1% after the fork on the PoW side.
What Will the First Few Blocks of PoW Be Like?
Evgeny
● The first blocks will be very busy and a lot of people will try to rush and sell all their valueless assets.
● This will continue for a while.
Kevin
● There are some relative value trades possible.
● Once ERC20s have been dumped, there may be some interesting plays possible.
What Are the Biggest Signals You’ve Seen on What the Market Is Thinking About This Fork?
Kevin
● If you are risk averse, the safest thing is to avoid as much chaos as possible by pulling out your assets from L2s and DeFi.
● Liquidity will get thinner and liquidations will become more likely.
● We may see many assets trading far away from their short-term fair value.
● Some people are borrowing as much ETH as possible and collateralizing with stablecoins. Other people are doing the opposite.
● ETH PoW team is not going to freeze things on the DeFi side on their own chain.
Evgeny
● It’s hard to separate the ETH price move from the merge news and the macro news.
● Volatility will be massive, and a lot of people will get liquidated.
How Are DeFi Users Trying to Play This?
Kevin
● The only thing people can do right now is split their ETH and pre-sale ETH PoW. Hard to tell what exactly people are doing right now.
● He has noticed some information that he doesn’t want to disclose until after the merge.
● Kevin didn’t share many of his trades. The trades that he did share didn’t have much edge left for his firm to take up more value.
What does stETH and ETH spread widening indicate about how people are thinking about the merge?
Kevin
● stETH receives staking yield, it’s more illiquid, and it’s not going to get the PoW fork.
● On the PoW side, stETH would be whatever value the PoW chain is.
● Kevin was pricing the yield vs. illiquidity side at roughly 2%.
● He thinks the stETH price should be the sum of 2% and whatever the ETH PoW fork is worth.
Replay Attack Protection
Evgeny
● Protect yourself from replay attacks by just not doing transactions on PoW.
● During the first block if you move USDC from one wallet to another and sell during the second block on the PoW chain, nobody can replay it because you don’t have any USDC on PoS anymore.
Kevin
● There is a way of splitting your coins pre-fork, there are certain contracts that could potentially protect from replay attacks but they haven’t been audited.
Price of ETH After the Merge
Kevin
● If the merge is successful ETH might go up a little bit due to hype, however, everyone who likes ETH is already in ETH.
● Price action is driven by demand and the question is, who are the new buyers going to be?
● Depends on the proportion of true ETH believers vs. short-term ETH traders
Evgeny
● His team is thinking more about how algorithms will react.
● If ETH PoW goes to 10% of ETH, still wouldn’t be a sell signal for ETH . ETH PoW almost like a meme coin.
How Does the ETH Merge Affect BTC?
Kevin
● Right now there aren’t that many people to be won over from the BTC camp to the ETH camp.
● Currently, BTC is impacted the most by its own unique events and price action.
● If mass adoption occurs, there will be competition between ETH and BTC.
Evgeny
● The narrative can change so much that people in the future will likely buy ETH more than BTC.
● He doesn’t think that ETH will replace BTC completely.
Important Links
● Follow Revelo Intel for More Notes like this
● Watch the Original Episode Here
● Follow Galois Capital on twitter
● Follow Wintermute on twitter