Huobi Ventures Weekly Report #40

Huobi Ventures Weekly Insights

Insight provided by Rachel Zhang of Huobi Ventures

What should we think about the merger?

Ethereum officially released its latest roadmap a few months ago and the zero-knowledge proof track has attracted much attention. It provides us with a hypothesis about utopia, that is, Ethereum can get a new expansion after the merger. A fairer, more efficient, and less expensive world computer is on the horizon. But the precondition for all this is a smooth merger of Ethereum. Just a few days ago, the Goerli testnet merged successfully. The mainnet is expected to emerge in mid-September, and one month after that the crypto world turn out to be very different. So, during that particular month, what will affect the merger, and what will be the impact of the merger?

We need clarification about what will happen after the Ethereum merger. It may be contrary to the intuition of many of us. Although the cost of block production is reduced after the merger, the TPS and handling fees remain the same. The core reason is that the block size and block production speed are unchanged. ETH currently has both issuance and combustion mechanisms, and the overall is micro-inflation; after the merger, due to the reduction in the issuance rate, the overall will show a slight deflation of 1% to 2%.

POW computing power is a coveted benefit and a bomb that can be detonated anytime. There is no doubt that miners are the basis for maintaining the normal operation of Ethereum for a long time. Since the birth of the beacon chain and EIP-1559, the game with the interests of miners has always been a complicated and thorny issue. At present, many mining pools have different attitudes towards it. Some mining pools insisted on forking Ethereum and sticking to the POW chain; some believed that POW should only be part of the historical process. But what is more important to us is whether the ecology of the POW chain can be fully developed in a long term with the support of big miners’ funds. At present, the core of the battle between POW and POS lies in the choice of major wallets, exchanges, defi protocols, and USDC/USDT. As of the date of writing, everything has settled, but whether TVL can be fully migrated in the end needs further observation. In addition, the issue of excess computing power also needs to be considered. Apart from ETC and BTC, another question is how to use this part of the GPU computing power that may be idle. Can it lead to the growth of a new track or a new public chain?

Finally, what effects will this merger bring about? There is no doubt that there is room for risk-free arbitrage in this process, both for retail investors and miners. Cross-chain arbitrage and MEV are well-known opportunities. Short-term ETC and staking tracks still have great profit margins in the secondary market.

In my opinion, the ecology of the POW chain will not make great progress. Their final game may be able to benchmark against ETC, but the ecology of ETC is not very impressive. Ultimately POS chain will have the highest legitimacy, efficiency, and demand.

About Huobi Ventures

Huobi Ventures is focused on growing its venture investment portfolio and supporting blockchain projects through long-term investment strategies.Huobi Ventures aims to identify strategic opportunities across different blockchain verticals to complement and expand Huobi’s product offerings. Acquisitions will be integrated into Huobi’s growing suite of blockchain-enabled applications and services to expand the business into new markets.

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Huobi Ventures

Huobi Ventures

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Focus on Huobi’s venture investment portfolio and supporting innovative blockchain projects through long-term strategies. Twitter:@HuobiVentures