Categories: Economic News

Economic Design Changes Will Affect ETH Value After Merger, ConsenSys Executive Says

As the Ethereum merger approaches, many are speculating about its economic effects. To provide a clearer view to those anticipating the major update, Lex Sokolin, Chief Economist at ConsenSys, shared his insights in an interview with Cointelegraph.

The expert talked about the effect of the merger on users, developers and companies. In addition, Sokolin also cleared up some misconceptions about the merger and explained how the new development may have an impact on the price of Ether (ETH).

At the user level, the economist said that the average user will be able to use the chain as they normally do, but a significant impact for users after the merger is to have a less risky way to participate in ETH. He explained that:

“Right now, staking on the beacon chain carries the risk that the merger won’t happen. But once it does, staking is more accessible and has less technical risk.”

Regarding the effects on companies and developers, the expert shared that the merger can standardize the notional interest rate for the entire Web3 space through the performance of ETH. This could eliminate the need for speculative financial engineering projects, according to Sokolin.

“We hope that project risks and business opportunities can be simply assessed against ETH’s stake on a risk-adjusted basis.”

This can also significantly impact the decentralized finance (DeFi) space, as products must compete with the returns offered by the core protocol. “This in turn should mature the market and create opportunity costs for investors chasing yield in places with too much risk,” he added.

When asked about people’s expectations and misconceptions about the merger, the expert emphasized that it will not yet reduce gas rates or solve a massive yield. However, the merger sets the stage for such things in the future. After that, Sokolin mentioned that the merger will remove one of the least desired narratives for Web3, which is the question of ESG impact.

Related: Coinbase to ‘Briefly Halt’ ETH and ERC-20 Token Deposits and Withdrawals During Ethereum Merger

Regarding the effects of the merger on the price of Ether, the economist believes that all technical developments will somehow affect the value of ETH. According to Sokolin, crypto-economic changes within the protocol naturally have implications for the supply and value of the asset. “However, how the market ends up pricing in relation to broader macroeconomic events is yet to be seen,” he added.


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