November 28, 2023

MakerDAO [MKR] has claimed that the long-awaited Ethereum [ETH] The merger could do more harm than good to its network.

Maker, the creator of the stablecoin – DAI – explained its implications Merge in a long 22-tweet thread on July 5.

Now, of course Proof of Work (PoW) to Proof-of-Stake (PoS) The switch was supposed to solve Ethereum’s scalability problems. However, MakerDAO claimed that the forked tokens could affect its system. So, the question – How?

Not enough was done

The protocol explained that the Merger could result in perpetual underwriting and negative financing; Furthermore, MakerDAO mentioned that the launch itself could cause selling pressure on chains that exist on PoW.

Another risk highlighted was the possibility of assets becoming worthless in already staked Ethereum (sETH). Maker sees this as a major concern as it has operated lending protocols using the system. Additionally, he pointed out that lending protocols are at risk of receiving higher ETH deposit rates due to increased liquidity due to the merger.

Other factors under consideration include potential insolvency with liquidity pooling protocols and the abandonment of stablecoins as Tether [USDT] she seems to be the only one who supports the merger.

There is also the possibility of network downtime because not all Ethereum-based protocols would move to PoS with the Ethereum chain. In fact, Maker noted that this could affect both users and transactions. Likewise, a replay attack on DAI-fork or MKR-fork was not out of the question.

Maker went on to explain that the E1P-155 is not sufficient protection for this as it only works on the PoW chain.

Can’t StarkNet help?

Previously, Maker announced that it is implementing a multi-chain strategy to promote faster downloads on StarkNet.

StarkNet is a decentralized permissionless ZK network that runs on an Ethereum Layer two (L2) network to achieve scalability. However, Maker said it is developing the chain on both Layer one (L1) and L2 DAI systems.

Despite the development, the next version could have proved that the development of StarkNet was unable to solve the potential challenges. Interestingly, Maker didn’t list potential issues without matching them with suggested solutions.

Finally, Maker also noted that monitoring competitive interest rates on ETH protocols could help trigger deposit rates. Also, a possible increase in the liquidity ratio could be a solution to a possible increase in volatility and liquidity risk.

With the Ethereum merger fast approaching, investors may see Maker’s concerns as legitimate. In addition, this can inform other protocols on the ETH chain about the possible effects of the PoS transition.

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