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Coinbase Announces Precautionary Measures Regarding Ethereum Merge, Expected To Be One of The Biggest Beneficiaries
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Cryptocurrency exchange Coinbase has notified its users of an interruption when Ethereum's mainnet integrates with Beacon Chain, which has the PoS component. In a blog post published on August 16, Coinbase product manager Armin Rezaiean-Asel outlined the precautions the exchange has taken in preparation for what is thus far the most significant upgrade in the network's history.
No Ether token deposits and withdrawals
The planned delays and pauses will affect consumers of Coinbase services differently. Institutional investors and retail users will not be able to complete deposits or withdrawals of Ether and ERC-20 tokens during the transition. The exchange said this will allow it to verify a successful transition and that users' assets will be safe. An update on when these options will be restored will be communicated via Twitter or the company's status page.
“We do not expect any other networks or currencies to be impacted and expect no impact to trading for ETH and ERC-20 tokens across our centralized trading products.”
Coinbase Prime users should expect temporary delays in custody withdrawal availability of their balances. On the other hand, Coinbase Cloud users will experience downtime during a 10-minutes routine upgrade ahead of the event. Coinbase Commerce customers will not be able to process new payments. Regarding staked Ether in Ethereum 2.0 contract, Coinbase reminded users to be alert against scammers who might try to exploit them.
Post-merge staked Ether will reflect separate from the ‘unstaked' Ether balance in the user's Ethereum wallet. Coinbase joins a list of other exchanges that have issued communications about the upcoming event. Binance is among those that have signaled support for The Merge, adding that it will consider listing any potential forked tokens if they meet the specified criteria.
JP Morgan says Coinbase will be among the biggest beneficiary of the merge
In a client note, JPMorgan analyst Kenneth Worthington penned that Coinbase stands to benefit a great deal from the merge. Worthington explained that the exchange had invested strategically “to maximize the value of Eth staking for its clients” on its platforms and will gain significant revenue from the same.
The exchange supports staking through Beacon Chain validators and accounts for 14.7% of the staked market share per Dune Analytics data.
“We see the staking revenue opportunity bigger (proportionally) than the income opportunity given we expect Institutional staking clients will contribute meaningfully to Eth staking revenue, but much less so for Institutional customers. The vast majority of the economics remains with retail,” he wrote.
Speaking figures, the analyst projected a $650 million increment (estimation based on $2,000Eth and a 5% Eth yield) in annual staking revenue from the mid-September event. Further, he predicted a yearly incremental income between $80 to $100 million of staking income. The note also listed FTX, Gemini, and Binance as other exchanges that will benefit.
Glassnode warns of a ‘sell-the-news' outcome
Last week, Eth devs determined that the transition initially set for September 19 might occur as early as September 15 after fixing the number of hashes left to mine. Bellatrix, the first of two key upgrades, will first interact with Beacon Chain bringing the network to a Merge ready state. The second upgrade, Paris will switch Ethereum's mainnet to the PoS consensus mechanism.
“The terminal total difficulty has been set to 58750000000000000000000. This means the Ethereum PoW network now has a (roughly) fixed number of hashes left to mine [] predicts the merge will happen around September 15, though the exact date depends on hashrate,” co-founder Buterin wrote in a tweet update.
Latest data shows that this upcoming upgrade has created hype around the Ether market. Market intelligence platform Santiment shared an update comparing the price action of Ether to the buzz (social discussions) around The Merge. The brief analysis inferred that the social volume will be a key determinant of Ether's price volatility in the coming days.
The open interest for Ethereum options has been hovering around new peaks on Binance and Deribit. Glassnode shared on August 17 that the Ethereum Futures Contracts Open Interest on Deribit set a multi-week high of $609,642,786. The Ethereum Futures Contracts Open Interest set successive multi-month highs on Binance over the weekend.
In last week's on-chain newsletter, Glassnode analysts reported a $6.6 billion figure for Ethereum options OI and $4.4 billion for Bitcoin's equivalent figure – the first occasion of ETH OI surpassing Bitcoin OI.
Meanwhile, derivates data shows speculators are going for call options to bet on Ether. Citing Glassnode analysts, Bloomberg reported on August 12 that Ether would see a price upswing to around $2,200 ahead of the Merge. The analysts also brought to the fore the “little demand for calls and greater demand for downside protection” that will be felt a few weeks after the upgrade. Basing their argument around this, they opined that the latter would see the token trace a descending path.
Shedding light on expectations post-merge
The mid-September upgrade remains the main topic of discussion despite being at least four weeks away. It is expected to change the consensus mechanism on the chain. However, there have been inaccurate reports and a lot of misinformation about the impact it will have. The Ethereum.org team this week shared a post clarifying what users should expect and what will not be featured in the upgrade.
Some issues the team addressed include the expected difference in gas fees, transaction speed, and Ethereum 2.0 staking. There will be no change, decline specifically, in gas fees charged on the network as that can only be achieved by increasing the network capacity. While transaction speeds will be affected because of adjustments to block and time to finalization, the difference will be unnoticeable on layer 1.
The ETH staked by users will remain locked until the next Phase 1.5 of the merge expected next year. Validators will, however, be able to access fee tips and maximal extractable value credited to their addresses. Users need to lock a minimum of 32 ETH to qualify as a validator on the network. The note also allayed concerns of validator exiting after the Shanghai upgrade, which will allow for withdrawals noting that there is a hard-capped rate of validator exits.
To learn more about Ethereum visit our Investing in Ethereum guide.
