A lack of oracle support, the majority of DApps being supportive of the Merge, and Ethereum Classic’s minimal developer activity suggests that PoW hard forks will fizzle.
Ether (ETH) is the second largest crypto by market capitalization and the absolute leader in decentralized applications by deposits. Becoming a victim of its own success, the network experienced a fee hike in November 2021 when the average transaction costs surpassed $50.
That’s precisely why the Merge is a critical step to implementing a fully functional scaling solution. The confirmation of a transition to a proof-of-stake (PoS) consensus was the main driver for the rally toward $2,000 on Aug. 15.
Investors were partially excited about the reduced issuing schedule and likely a transition to a deflationary scenario, but there’s also the expectation of upcoming forks. As a result, hard-forked coins may be awarded to Ether holders on different blockchains, even though there’s no guarantee those will find traction or sufficient liquidity.
From one side, there’s the temptation of free money and even bonus non-fungible tokens (NFTs) as the forked chain will initiate with the same state of the original Ethereum network, meaning each address will hold the exact same contents in terms of tokens and transaction history.
On the other hand, there’s also a sense of disappointment after Ether’s agonizing 29% correction that took place after the $2,000 resistance proved to be more challenging than expected. It’s possible that as investors realized that the practical utility of the forks would be much lower than anticipated, the exuberant expectation of free money dissipated, and reality kicked in.
ETHPoW, for now, is a possible new chain backed by proof-of-work (PoW) miners. Some exchanges have initiated futures trading for the fork chain native asset, ETHW. Markets seem to have given their opinion, as the contract is now trading below $55 at Poloniex and Gate.io.
There’s no backing and oracle support for forked stablecoins
The two leading stablecoins, namely USD Coin (USDC) and Tether (USDT) have officially confirmed intentions to exclusively support the Ethereum Foundation-backed Merge chain. Cointelegraph previously reported that given that the two stablecoins dominate, the issuers’ support “should result in a smooth transition for Ethereum.”
Meanwhile, the core team behind EthereumPoW (ETHW) said they would temporarily freeze tokens in certain liquidity pools of DeFi applications to protect user assets after the hard fork.
The idea of freezing users’ assets without their consent didn’t go well with many. Some users called the Twitter account behind EthereumPoW a scam because the community has voted on no such change.
DApps go beyond merely facilitating transactions because, as they interact with external data, request off-chain computing and this is where blockchain oracle technology comes into play.
Chainlink enhances smart contracts by linking them with real-world data, events, and transactions. In an official announcement on Aug. 8, the protocol revealed that its services would remain on the Ethereum PoS blockchain which is supported by the Ethereum Foundation.
Leading DApps will incentivize users to ditch forked tokens
On Aug. 16, Aave (AAVE) holders were asked to take part in voting to” commit” to Ethereum’s PoS consensus, giving power to an authority to shut down any Aave deployments on any alternative Ethereum forks.
Despite being designed exclusively as an Ethereum application, Aave has become interchain over the years and currently has its official versions running on Avalanche, Arbitrum, Optimism, Polygon, Fantom, and Harmony.
Investors are starting to realize that the DApps and stablecoins will not support forked chains, meaning the “free” tokens and NFTs are less likely to be accepted in marketplaces and leading DeFi applications. Regardless of the ETHPoW token value, the utility of the PoS network supported by the Ethereum Foundation far exceeds the utility of competing chains.
Ethereum Classic never gained traction
Ethereum Classic (ETC) is a pre-existing example that supports the thesis that a competing chain will not undermine Ether’s (ETH) price. The original hard fork followed a 2016 consensus change and aimed to reverse a $60 million exploit. The DApps on this competing proof-of-work (PoW) chain never gained traction despite its $4.5 billion market capitalization.
Current data suggests that Ether traders should disregard the upcoming forks and focus on the roadmap toward scalability and whether or not the network maintains its position as the leader by total value locked.