The ongoing debate surrounding the Ethereum hard fork is intensifying. Following the Merge, a hard fork appears inevitable. If such a fork occurs, you, as an ETH holder or investor, might be considering how to:
- Maximize control by moving ETH off centralized exchanges.
- Take out loans using ETH as collateral.
- Sell all Proof-of-Work (PoW) assets ahead of the potential ETHPoW fork.
- Maintain an active exchange account ready to interact with the forked chain.
What is the most likely outcome of an Ethereum hard fork? Looking at historical precedents like the Bitcoin forks—Bitcoin Cash (BCH) and Bitcoin Gold (BTG)—can provide some clues. These were among the first major "free airdrop" events. Their current market states are telling:
- Bitcoin Cash (BCH): Market Cap ~$2 billion | Price ~$140
- Bitcoin Gold (BTG): Market Cap ~$5 million | Price ~$30
- Bitcoin (BTC): Price ~$24,000
Notably, BCH, BTG, and BTC all share the same maximum supply of 21 million coins. This historical performance suggests a possible trajectory for any new Ethereum fork.
The Mechanics of a Post-Merge Fork
After the Merge, Ethereum transitions to Proof-of-Stake (PoS). However, miners may choose to fork the blockchain to continue a Proof-of-Work (PoW) version, creating two distinct chains: ETHPoS and ETHPoW.
Crucially, every asset you hold on the current Ethereum chain would be duplicated on both new chains. This includes:
- NFTs and tokens in your self-custodied wallet.
- Provided liquidity positions (e.g., on Uniswap).
- Active loan positions (e.g., on Aave or Compound).
This duplication creates significant, disruptive arbitrage opportunities, particularly in DeFi. Suddenly, there would be two versions of everything: 20,000 CryptoPunks, two types of UNI tokens, two versions of ETH, two wBTC, and crucially, two versions of stablecoins like USDC.
The Stablecoin Problem
USDC is currently pegged 1:1 to the US dollar, backed by $54 billion in real-world collateral. After a fork, the total circulating supply across both chains would appear to be $108 billion USDC, but only $54 billion in collateral exists to back it.
Consequently, the USDC on one chain will rapidly depeg and trend toward zero. Market consensus strongly suggests that the PoW fork chain will be deemed illegitimate by stablecoin issuers like Circle, meaning USDC on the ETHPoW chain will become worthless.
Users will likely rush to sell all assets on the PoW chain (USDC, USDT, DeFi tokens, NFTs) for the only asset with any speculative value: ETHPoW. This is expected to happen within the first few blocks, leading to gas price wars, intense MEV (Maximal Extractable Value) activity, and potential bribes to validators/miners. The price of ETHPoW might even briefly exceed that of ETHPoS due to frantic trading activity.
The likely result? Most retail users will end up providing lucrative opportunities for trading bots, essentially "giving money to robots for free," as the market rapidly corrects.
As one commentator noted, "The application layer of a DeFi Proof-of-Work ecosystem would effectively divide by zero. It will implode."
How to Prepare for a Potential Hard Fork
The following strategies are for informational purposes to help you understand the landscape. They are not formal investment advice.
Strategic Moves Before the Fork
- Self-Custody Your ETH: Move your ETH from centralized exchanges to a private wallet you control. This ensures you have claim to any potential forked tokens.
- Manage stETH Positions: If you hold stETH (which may be one of the first assets sold on a PoW chain), you could use it as collateral to borrow other assets on Aave. Monitor borrowing rates (APY) closely, as they could spike dramatically.
- Remove Liquidity: withdraw your assets from liquidity pools (e.g., Uniswap v2) before the Merge. It's better to hold bare ETH and USDC on the PoW chain than an illiquid LP token that may be impossible to trade later.
- Cancel Open Bids: Cancel any active bids on marketplaces like OpenSea. These bids could be accepted on the low-value PoW chain, resulting in you spending your valuable ETHPoS for an asset on the worthless chain.
Actions to Consider After the Fork
- Sell, Don't Buy: The general consensus is to sell any forked assets (ETHPoW) immediately rather than buying them, as their value is expected to plummet rapidly.
- Access the POW Chain: Research how to manually connect your wallet (like MetaMask) to the new PoW chain RPC after the fork, as wallets may not support it automatically.
- Prepare for Exchange Trading: Ensure you have an account at an exchange that has announced support for trading the potential ETHPoW token. This will give you a direct avenue to sell the asset. 👉 Explore more strategies for managing digital assets
- Utilize ETH Loans: Using platforms like Aave or Compound to take an ETH loan before the fork could maximize your exposure to the subsequent ETHPoW airdrop. However, be extremely cautious, as APYs could become volatile and unsustainable.
For many in the community, the focus remains squarely on the success of the ETH PoS chain, viewing the PoW fork as a short-lived speculative event driven by miner interests.
The Ethereum Merge is a landmark event. Whether these predictions fully materialize remains to be seen, but being informed is the best preparation.
Frequently Asked Questions (FAQ)
What is an Ethereum hard fork?
A hard fork is a permanent divergence in a blockchain's history, creating two separate networks with a shared past but different future rules. In this case, it would be a split between the new Proof-of-Stake chain and a continued Proof-of-Work chain.
Will I get free coins from an Ethereum hard fork?
If you hold ETH in your own private wallet (not on an exchange) at the time of the fork, you will likely have a balance on both the new PoS chain and any resulting PoW chain. Exchanges may or may not support the forked token.
Is the forked ETHPoW token expected to have value?
While it may have initial speculative value, most analysts expect it to decline rapidly. Key factors against its long-term value include a lack of developer support, the abandonment by major stablecoin issuers, and a potentially insecure network with low hash power.
What is the biggest risk to DeFi users during a fork?
The duplication of assets and debt positions across two chains creates massive arbitrage and liquidation risks. Stablecoins on the minority chain will likely become worthless, and liquidity pools will be broken, making it difficult to exit positions.
Should I move my ETH to an exchange to handle the fork?
No, it is generally advised to do the opposite. Moving your ETH to a self-custody wallet before the event ensures you control the private keys and can interact with both chains independently, rather than relying on an exchange's policy.
How can I stay safe during the fork?
Be highly cautious of scams. Never enter your private key or seed phrase on any website. Double-check all information and RPC settings when trying to connect to a forked chain. Verify announcements directly from official project sources.