With the successful completion of the Goerli testnet merger, the TTD is set to 5875000000000000000000, and the merger time is tentatively scheduled between September 15-16.

The benefits of mergers have been discussed countless times, but for good reason. The event was one of the most important catalysts in Ethereum history, and it affected the network in multiple ways.

For example, a merger would significantly reduce Ethereum’s energy consumption, allay critics’ concerns about its environmental impact, and make the asset more attractive to ESG-conscious institutional investors.

The merger will also clear the way for Ethereum optimizations at the protocol level, such as the separation of proposers and builders. This helps democratize MEV extraction by separating block production and block validation, as well as EIP-4844, which will reduce transaction costs for rollups by an order of magnitude.

Finally, the merger will greatly increase the attractiveness of ETH assets. ETH issuance will be reduced by about 90%, likely making it deflationary, while also giving investors the ability to earn on their holdings.

The most obvious way to learn about this big event is to buy ETH…but it doesn’t stop there.

Let’s explore four different ways investors can take advantage of mergers.

Special statement, our article is not an investment advice, please readers to think independently, or the same sentence: investment should be cautious, and no one should believe it.

1. Liquid staking tokens

Example: LDO, RPL, SWISE

Liquid staking services are the most immediate beneficiaries of this merger, with non-custodial protocols likely to see significant growth in the months following the transition to PoS.

The value proposition of liquid staking is simple, allowing users to do three things simultaneously: maintain custody of the collateral, earn staking rewards, and deploy assets within DeFi by issuing liquid collateral derivatives (LSDs).

The merger will greatly accelerate the development of these protocols, as it will reduce staking risk by eliminating the technical and execution risks of pre-merger.

Additionally, completing the merger and a clearer withdrawal schedule will also help reduce LSD’s trading discount relative to ETH.

Before the Shanghai network upgrade, the beacon chain will not retreat, but 6-12 months after the merger. But the size of the merger will drive this discount down, leaving stakers with less price risk, making staking with these protocols more attractive.

Additionally, deposits to liquid staking protocols may increase due to the expected increase in staking yields. Today, beacon chain validators can only earn block rewards. After the merger, stakers will be able to receive transaction fees and revenue from MEV. This is expected to significantly boost investment yields to 6-12% from the current level of around 4%.

These growth drivers should also increase the revenue of liquid staking protocols due to deposits, higher yields, and potentially higher ETH prices.

There are currently three liquid staking protocols for publicly traded tokens: Lido (LDO), Rocket Pool (RPL), and Stakewise (SWISE).

Each token can play a different role in a portfolio:

  1. Investors looking for blue chip exposure can opt for LDO as it is the largest staking entity on the Beacon Chain with a 31.2% share of deposits. Lido has greater control in the liquid staking space, with a 90.3% market share in this segment. The token is currently trading with a market cap of $1.48 billion and an FDV of $2.7 billion.
  2. Tokenomics-oriented investors may look to Rocket Pool’s RPL, the second-largest liquid staking protocol with a 1.6% share of beacon chain deposits and a 4.5% share of the liquid staking space , its MC is $467.52 million and its FDV is $519.73 million. RPL has unique token economics, operators or entities verified through Rocket Pool need to purchase RPL worth 1.6 ETH for each of their new validators, which ties the demand for the token to the growth of RPL.
  3. Investors who want to maximize risk and optimize beta can look at (StakeWise, SWISE), which traded at $26.66 million in MC and $198.45 million in FDV. While the protocol only accounts for 0.4% and 1.3% of beacon chain and liquidity staking deposits, it is likely to have the highest beta of the three tokens due to its smaller size and lower float .

2. Event-based DeFi betting

Buying tokens is not the only way to gain combined exposure. There are a variety of different ways savvy market participants can leverage DeFi to “trade the narrative” and express their views on how different markets will react before, during, and after a trade.

Users can do this by lending and borrowing ETH on currency markets such as Aave, Compound, and Euler. During the merger, demand to borrow ETH is likely to grow considerably as investors will want to accumulate as much assets as possible to farm airdrops from a potential PoW-based Ethereum fork.

Since interest rates on these protocols are based on utilization (i.e. how much an asset is borrowed), a huge spike in borrowing demand would result in a staggeringly high interest rate on deposits for lenders. The interest rate curve of ETH on Aave V2 starts to “kink” or accelerates rapidly when usage reaches 70%. This market is currently utilised at 61.56% and has risen sharply since Aug. 8, which is certainly possible.

Of course, this strategy is not without risk. In extreme cases where borrowing demand is very high, this means that there is little ETH liquidity in Aave, and lenders may be temporarily unable to withdraw assets until borrowers repay or more deposits flood the protocol.

A second way to use DeFi to express views on merger-related events is to use the Voltz Protocol, an AMM for interest rate swaps that bet on LSD’s staking yield.

Since the combined staking returns are likely to increase, market participants can use Voltz to make this point by placing ETH as margin and buying variable-rate stETH or rETH tokens. Users can use leverage to amplify their returns, although of course this comes with more risk. Always be careful when using leverage of any kind!

3. PoW Airdrop Farming

With multibillion-dollar interests involved in the mining industry, as Lucas wrote earlier this week, some instances of Ethereum’s PoW will almost certainly exist after the merger. Numerous prominent industry figures such as Justin Sun and his exchange Poloniex have pledged to support the hard fork and plan to list the ETHPOW token.

While it’s unclear if the forked chain will have long-term viability, or how much value ETHPOW will hold, there are still a number of different ways that users can get their hands on the seemingly inevitable airdrop.

The easiest way to get an empty investment slot is to put ETH into a non-custodial wallet (Metamask, Coinbase wallet, etc.).

But if you’re looking for a riskier opportunity, one way is to borrow ETH in the money market to make a bet on the other side, and you can make a profit if the value of the airdrop is greater than the cost of borrowing ETH. However, this strategy also carries considerable risks. Not only are lending rates likely to outweigh the benefits of the airdrop, if the price of ETH spikes, or the value of its collateral falls, borrowers can be liquidated. Investors will need to proceed with great caution given the high likelihood of massive volatility on the day of the merger.

Another way investors can airdrop without taking any price risk is to create a delta-neutral ETH position using perpetual futures. To do this, users will buy spot ETH while shorting the equivalent ETH using PERP on a CEX or DEX. In this way, users have exposure to ETH so they can receive airdrops without taking the price risk that comes with holding the asset. This strategy can be profitable if the value of the airdrop exceeds the cost of maintaining the position.

However, there is no free lunch in the world. There’s a lot of risk to this strategy, as funds (like borrowing rates) could skyrocket with the merger. Any leveraged strategy like this, coupled with volatility, puts users at a huge risk of being liquidated.

Please proceed with caution!

4. Other Benefit Opportunities

A merged Ethereum will have a transformative impact on other areas of the Ethereum ecosystem.

One of the beneficiaries is L2, as the transition to PoS will pave the way for scalability upgrades (e.g. EIP-4844), which will drastically reduce end-user transaction fees at the time of aggregation by reducing the cost of storing call data on-chain . This reduction in fees should help boost L2 adoption by increasing the number of users who can transact on the network and unlocking the ability to create new, novel dapps.

Investors can (and have started to) take advantage of this by investing in the entire L2 ecosystem, such as the L2 base layer (OP), or L2-native DeFi projects like Synthetix (SNX) and GMX (GMX), or more native-to-different ecosystems. Small-cap projects. There is also L2-enabled infrastructure such as fast bridging services such as Synapse (SYN) and Hop Protocol (Hop).

Another area that will change after the merger is MEV. The competitive dynamics of MEVs will change dramatically with the implementation of proposer-builder separation, which will separate block production from validation.

There are many projects in the MEV stack that use publicly traded tokens such as Manifold Finance (FOLD) Rook Protocol (Rook) and Cow Protocol (Cow) that could provide a way to gain exposure to this transformation.

These coins have been doing pretty well in recent weeks, but they are still expected to be long-term beneficiaries of PoS Ethereum.

Special statement, our article is not an investment advice, please readers to think independently, or the same sentence: investment should be cautious, and no one should believe it.

Summary: Choose Your Adventure

The merger is coming quickly and is expected to bring major changes to the Ethereum economy and cause short-term on-chain chaos.

The safest way to invest is to buy ETH.

But it’s not the bear market of 2018 anymore, we live in the world of DeFi, so there are many other ways investors can participate in the merger, whether by investing/trading liquid staking protocols, or using DeFi to earn yield.

What would you choose to do?