Might MakerDAO risk market decline due to Ethereum’s Merge

ManufacturerDAO [MKR] claimed that the long-awaited Ethereum [ETH] Merge could do more harm than good to his network.

Maker, the builder of the stablecoin – DAI – explained the implications of the Merge in a long thread of 22 tweets on July 5.

Now, of course, the Proof of Work (PoW) at Proof of Stake (PoS) transition was supposed to fix Ethereum’s scalability issues. However, MakerDAO claimed that the forked tokens could affect its system. So the question – How?

Not done enough

The protocol Explain that the merger could result in perpetual contract rollover and negative funding. Additionally, MakerDAO mentioned that the launch itself could trigger selling pressure on existing chains on PoW.

Another risk highlighted was the possibility of assets becoming worthless on already-staked Ethereum (sETH). Maker sees this as a big concern as it has loan protocols in place using the system. Additionally, he pointed out that lending protocols are at risk of getting higher ETH deposit rates due to increased liquidity from the fork meltdown.

Other factors considered include possible insolvency with liquidity pool protocols and neglect of stablecoins as Tether [USDT] seems to be the only one supporting the merger.

There is also a risk of network downtime as not all Ethereum-based protocols would switch to PoS with the Ethereum chain. In fact, Maker noted that it could affect users and transactions. Likewise, a replay attack on DAI-fork or MKR-fork was not left out.

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

StarkNet can’t help?

Previously, Maker announced that it was implementing a multi-channel strategy to drive faster withdrawals on StarkNet.

StarkNet is a permissionless decentralized ZK network, which runs on an Ethereum Layer Two (L2) network to achieve scalability. However, Maker said it is rolling out the chain to Layer 1 (L1) and L2 DAI systems.

Despite the rollout, the follow-up build could have proven that StarkNet’s development was incapable of resolving potential challenges. Interestingly, Maker didn’t list possible issues without matching them to the proposed solutions.

Finally, Maker also noted that monitoring competitive rates on ETH protocols could help address the deposit rate challenge. In addition, a possible increase in the liquidation ratio could provide a solution to a likely increase in volatility and liquidity risk.

With the Ethereum merger fast approaching, investors may consider Maker’s concerns legitimate. Also, it could update other protocols in the ETH chain on the likely implications of the PoS transition.

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