August 8, 2022: Merge or Diverge? 🍴🔛

What happens to Curve in a PoW/PoS fork?

Will we get a Merge, Surge, Verge, Purge, and Splurge? Or will we simply Diverge?

The chatter lately is about what happens if Ethereum forks into a Proof of Work vs Proof of Stake chain around the time of the merge?

Jack Niewold 🫡 @JackNiewold

IS A CIVIL WAR COMING TO CRYPTO? Ethereum's merge is coming, and with it comes the risk of a blockchain fork that could split the network in two. So, what are the odds of a viable Ethereum fork? How could it happen? And what does it mean for crypto investors? Read on:

This has protocols weighing in with analyses of their risks should a viable fork occur, often with DAOs announcing support for a chain, (overwhelmingly the PoS one).

Maker @MakerDAO

Recently, there has been an increasing focus on conceivable post-merge PoW Ethereum forks. If those forks do take place, what are the potential risks Maker faces? 🧵 1/

In the case of Curve, the protocol announced it had zero choice in the matter.

Curve Finance @CurveFinance

There is a popular topic of DAOs voting to support or not ETH-PoS / ETH-PoW. For Curve DAO, it is impossible to force the choice of one or another (too decentralized). Fork will inevitably clone DAO and CRV, however only chain chosen by stablecoins will be viable for DAO.

In fact, Curve made the contentious announcement that major stablecoin issuers like USDC and USDT are in control of Ethereum.

Curve Finance @CurveFinance

@nevernudejorter Yes, they are in control of Ethereum, essentially

Some people tried to dispute the point. A good rule of life is that if you find yourself in the position of a reply troll arguing against several of the biggest brains in the room, you might want to step back a minute and rethink.

Fellow big brain Sam K. also echoed the sentiment that stablecoin kingpins have outsized power in the decision.

Sam Kazemian (¤, ¤) @samkazemian

@ameensol Actually Maker (and FRAX) have outsized say in fork-choice because Maker+FRAX hold said fiatcoins. $MKR & $FXS holders can vote the DAO redeem their ETHPoW fiatcoins (if possible) then deposit proceeds into ETH2 backing DAI/FRAX. That's why I proposed this

gov.frax.finance[FIP - 101] Make FRAX stablecoins only redeemable on PoS ETHAuthors Frax Core Team Summary Commit Frax DAO to select proof of stake Ethereum mainnet (PoSETH) after the merge in place of any proof of work alternative fork (ETHPoW). Background Much controversy has been made over what might happen if there is a contentious hard fork at the ETH merge betwee…

The mechanics are not a complicated thought experiment. Imagine I have issued $1MM in stablecoins on a chain backed by $1MM USD. If this chain forks, then 1MM tokens exist on both chains, for a total of 2MM tokens.

Yet the fork didn’t magically double the number of dollars underlying these tokens. All 2MM tokens cannot suddenly be redeemed at parity, since only $1MM USD exists to back these. Either the tokens can only be redeemable on one chain, or their value on each chain is roughly sliced in half.

For the anxious types, we’ll spoil the punchline upfront. Don’t bet on any drama around the upcoming merge. We agree with the consensus opinion that stablecoins will overwhelmingly select the PoS chain as the canonical fork. The PoW chain will need to begin issuing stablecoins from scratch if they want any meaningful adoption.

Hasu⚡️🤖 @hasufl

3. the chance that a major stablecoin will honor redemptions on this fork over eth2 is not 5%, its not 1%, its a cold zero. anyone who says otherwise is a grifter.

Chris Blec @ChrisBlec

The Ethereum PoS fork will be the "canonical" fork that DeFi apps follow and life will go on as usual. The Ethereum PoW fork will be a post-apocalyptic hellscape of unbacked centralized tokens and malfunctioning DeFi apps burning to the ground. Let's ride them both!

While it will be fun to see light world versus the dark mirror universe play out in realtime, there’s plenty of questions for armchair philosophers. What does this mean for the “decentralization” of Ethereum if stablecoin issuers have such power? Could a more contentious fork become an existential threat to DeFi, or finally cause the much anticipated Curve death spiral? What about the poor NFT collectors?

We expand on these nuances for paying subscribers…