A new report by decentralized application information platform DappRadar is warning that Ethereum’s (ETH) upcoming Merge could cause harm to one key sector of the crypto industry.
Citing crypto investment giant Grayscale, the report says that stablecoins, which currently enjoy a market cap of $142.82 billion, could be an unintended casualty of Ethereum’s transition to a proof-of-stake mechanism.
“Grayscale expressed concerns over the potential impact on the Merge, especially on tokens that run natively on Ethereum. The crypto investment firm believes that the Merge may lead to a fork that might have unexpected and unfavorable outcomes.
Grayscale’s concern is that the Merge might create a scenario where stablecoins and tokens locked in smart contracts might not be redeemable.
The crypto investment firm also notes that token and stablecoin holders might panic and start liquidating their holdings. Such an outcome would create a substantial amount of sell pressure.”
According to the report, decentralized autonomous organization MakerDAO (MKR) is another party that is pessimistic about the Ethereum Merge.
“MakerDAO (MKR), the builder of the stablecoin DAI, has claimed in a Twitter thread that the merge could do more harm than good.
They explained that the Merge could lead to perpetual contract backwardation and negative funding.
Additionally, MakerDAO mentioned that the launch could trigger selling pressure across chains existing on proof-of-work.”
Backwardation and negative funding refer to a market situation where futures prices are lower than the expected spot prices.
According to the DappRadar report, MakerDAO is also worried that the Ethereum network’s security and performance could be negatively impacted by the upcoming upgrade.
“There’s also the potential of network downtime because not all Ethereum-based protocols would move to PoS with the Ethereum chain. Maker noted that this could affect users and transactions alike. Similarly, a replay attack on DAI-fork or MKR-fork was not left out of the options.”
A replay attack is an exploit on a blockchain where two forked crypto assets are considered valid across chains.
Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
Featured Image: Shutterstock/YanaBu/VECTORY_NT