(Reuters) – Investors in ether and its troubled twin, stETH, are nervously waiting for a crypto milestone: the merge.
This is the name of a major update to the Ethereum blockchain network, which is the foundation of many crypto projects. The goal of this update is to make the network leaner, meaner, and cleaner.
It’s hard to get. The merger was supposed to happen years ago, but it has been put off more than once. Most recently, developers scrapped plans to push the button in June, which scared investors who thought it might never happen.
Now, though, people in the market are betting that the wait is almost over. But it’s no slam dunk.
On Polymarket, a cryptocurrency site where users can bet with stablecoins on the outcome of future events, investors have given the upgrade, also known as Ethereum 2.0, a 67 percent chance of happening by October and a 13 percent chance of happening by September.
The Ethereum Foundation’s website says that the merge will happen around “Q3/Q4 2022,” which it compares to changing the engine of a spaceship while it is in flight.
If the merge finally happened, it would be a big relief for ether, whose price has gone down because of delays and less trust in the upgrade. The second-biggest cryptocurrency was trading at around $1,200 as of last week. This is down from just over $3,500 in April, but much of the recent worry about the upgrade has been drowned out by larger market changes.
The merge could also be the end of a long ordeal for investors who hold a crypto derivative token called staked ether, or stETH. This token represents ether that is locked up in a testing environment for the upgrade. It is hard to get back at scale until at least six months after the merge.
Yet doubters remain.
“It’s just how many rules there are. I don’t think they’ll meet their deadline because Ethereum is just so big “Umee’s founder and CEO, Brent Xu, said that the company is building a base-layer blockchain for lending and borrowing.
“People are just afraid that their stake won’t be worth anything because the merge is probably going to take longer than expected,” said Xu.
THE stEH STUMBLING
With the upgrade, ether mining will stop using proof-of-work, which takes a lot of energy. The new proof-of-stake consensus system will be added to Ethereum’s existing execution layer.
Any more delays would be bad for people who own stETH, a token made by a crypto project called Lido that can be turned into ether on a 1:1 basis between six and twelve months after the merge.
Until then, the market sets the price of STEEM, and most trades happen on a platform called Curve.
According to the price site CoinGecko, its market cap reached $11 billion in May, and until last month, it traded mostly at the same price as ether.
But when crypto markets dropped last month, stETH lost a lot of value and now trades at about an 8% discount to ether. This was caused by large investors like Celsius and Three Arrows selling a lot of stETH.
The price has come back a little bit. Right now, stETH is selling for 4% less than ether, but it hasn’t reached parity yet. This is partly because of the effects of the delayed merge.
One of the biggest investors in stETH is the troubled U.S. crypto lender Celsius.
Does anybody want to trade for that?
The stETH project was popular because investors can “stake” their ether elsewhere to earn interest, but to do so, they must lock away at least 32 ether, which is about $38,000 at the moment, until the network upgrades to the new standard.
Instead, Lido let them stake as little ether as they wanted and get stETH in exchange for yield.
Still, the merger has been delayed more than once, which is making stETH investors nervous.
Ryan Shea, a crypto economist at the global fintech company Trakx.io, said that the worry is that Curve is quickly running out of cash. According to data from the platform, the amount of stETH on Curve has dropped by more than half since mid-May.
Shea said, “If you want to sell a lot of stETH, you’ll need to find other ways,” such as using stETH as collateral in another lending protocol.
“But in a time when people are paying close attention to crypto lending companies, I don’t know if anyone will be willing to make that trade.”
