It’s D-Day in the crypto world.
The highly-anticipated update of the ethereum platform–known as The Merge— finally arrived on Sept. 15 after many years of speculation and preparations.
‘Swapping Out the Miners’
The change did not seem to have much of an impact on prices, however, as ether, the native currency of the ethereum blockchain, was down 7% to $1,473 at last check, according to the data firm CoinGecko.
Ether is the second largest cryptocurrency by market value behind bitcoin, which was also down 2.7% to $19,633. Dogecoin was off 2.6% to $0.059051.
The merge will change ethereum’s transaction consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS). The Bitcoin ecosystem uses proof-of-work.
Winston Ma, managing partner of CloudTree Ventures, said Proof-of-Stake “swaps out miners for validators, potentially saving energy usage substantially.”
Ethereum should now consume far less energy than before, according to the Ethereum Foundation, a group of developers who oversee the blockchain.
“The merge arrives timely because cryptocurrencies such as ethereum and bitcoin are often criticized for the energy-intensive process of ‘mining’ to generate new coins. Just last week the White House released a report warning that proof-of-work mining operations could get in the way of efforts to mitigate climate change,” said Ma, author of “Blockchain and Web3: Building the Cryptocurrency, Privacy, and Security Foundations of the Metaverse.”
Ma noted that while the Merge rally is stumbling in light of inflation reports, “in the long run this is very important for institutional adoption of crypto assets, especially those ESG-sensitive investors.”
“Despite this major milestone,” said Billy Endres, a cryptocurrency expert, with Finder, “earlier in the week crypto markets were spooked by the macro news that US inflation figures continued rise, slightly worse than expected.”
Endres said this led to a simultaneous sell-off across Bitcoin, the S&P 500 and NASDAQ on Tuesday with their respective charts almost mirroring each other.
‘ETH Also a Victim’
“ETH was also victim, but managed to regain some of its losses, likely thanks to hype around the Merge,” he said. “Futures data suggests that ETH traders were nervous about the Merge. On Wednesday funding rates on Binance Futures were -0.216%, approximately 100x its average rate.”
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“This means that traders going short on ETH were paying massive margins to keep their positions open ahead of the Merge, likely heading against any adverse scenarios,” Endres added.
Meanwhile, outside of The Merge, David Lesperance, managing partner of immigration and tax adviser Lesperance & Associates, turned his attention to Binance, the world’s largest cryptocurrency exchange by volume.
“Binance made waves in the crypto market this week by announcing a change in how it will treat certain stablecoins on its exchange,” he said. “Binance, like Coinbase and FTX is pooling its holdings of certain US-dollar stablecoins.”
Binance chose Circle’s USDC, Paxos’s USDP and True USD for pooling, while Tether’s USDT, the largest stablecoin by market value, “was pointedly left out,” he said.
“By pooling several stablecoins into one denominated amount like the dollar, crypto exchanges like Binance hope to acquire greater liquidity to support their customer’s trading activity,” Lesperance said. “Where Binance differs is in how those tokens are pooled, and the advantage that Binance, which accounts for almost half of daily volume of the top five crypto exchanges, gains from it.”
While Coinbase (COIN) now combines USDC with regular US dollars, he added, Binance, which is under investigation by the Department of Justice, said it will automatically convert all user deposits and holdings of select stablecoins straight into BUSD, the exchange’s own stablecoin.
“This action is unprecedented and potentially anti-competitive,” Lesperance said. “However since crypto exchanges and stable coins are not yet fully regulated, it has not been challenged….yet!”
A Binance spokesperson said “this conversion is already an accepted practice in the industry and has proven to be in the interest of users above all”.
“While the ‘B’ in ‘BUSD’ stands for Binance, BUSD is actually a Paxos product and is regulated by the New York State Department of Financial Services,” the spokesperson said, referring to Paxos Trust Co., a New York-based financial institution and technology company specializing in blockchain
The spokesperson added that “as the industry evolves, we will see more regulations around stablecoins and we believe this is beneficial to both exchanges and users.”