The highly anticipated Ethereum merge is shaking up the cryptocurrency world.
After the world’s second-largest cryptocurrency by market capitalization transitions from PoW (proof-of-work) to PoS (proof-of-stake), an entire community of Ethereum’s community will become obsolete.
Given that after the merge, Ethereum will no longer need any mining in order to build new currency, the Ethereum mining community instead of becoming obsolete, will likely transition to a new token.
A “forked” version of Ethereum, dubbed ETHPOW (Ethereum-Proof-of-Work) will be created as the result of the Ether transitioning to a mining-less token.
Ethereum’s Fork Token Price Value Expectations
The seven-year-old ether (ETH), which was most recently traded at around $1,570, will remain the native token of the Ethereum blockchain using the PoS consensus method.
A new token called ETHPOW would be used by the PoW chain, which stands for the group of cryptocurrency miners opposed to the upcoming Merge or transition to PoS.
The expectation of the group of Ether miners is that they will receive ETHPOW free of cost.
According to Paradigm, an investment firm focused on supporting crypto/Web3 companies and protocols, one way to access the potential market value of ETHPOW is to take the difference between spot ether and futures prices.
Because spot equals the sum of PoS and PoW, while in the future will be only PoS, we can determine from this equation how much the market anticipates ETH PoW will be worth.
This estimates that ETHPOW will be priced at around $18, which is roughly 1.5% of ETH’s market capitalization.
“Traders are buying spot ETH and selling futures against it.” Paradigm wrote on its publication. “This gives participants the ability to hold ETH and eventually receive their ETH PoW without downside price risk.
Finally, participants are specifically selling both December and September contracts because of the slight possibility that the merge doesn’t happen on time (it has been pushed back before.) “
ETHPOW Transition Risks
Traders who keep ETH stand to receive ETHPOW for free. Meanwhile, those who risk taking bullish exposure through the futures or options market receive nothing.
Therefore, the price of ether may be seen as the value of both ether and a prospective ETHPOW token.
Holding on to ETH in order to earn ETHPOW is not completely risk-free. Traders will be subject to Ether’s price volatility which is likely to happen during the following hours and days after the merge.
Holding ETH to earn ETHPOW, however, means being exposed to ETH’s price volatility. A decline in ETH’s price would eat into money made from receiving ETHPOW for free and liquidating in the spot market.
If ETH drops dramatically after the merge, the benefit of gaining ETHPOW for free could not make it worth it.