While Ethereum 2.0 is only two months away, the community already wonders how much of an impact the scalability solution will have, especially on the derivatives market.
The long-awaited network upgrade will start out small at first, working side by side with Ethereum. However, experts still expect noticeable differences in how the cryptocurrency market behaves as soon as ETH 2.0 launches.
As Defiye previously reported, the first stage of ETH 2.0 launches in December this year with a small PoS rollout. It’s known as Phase 0, the initial stage will feature a beacon chain that implements the Proof-of-Stake consensus mechanism. The very first validators that join the network will manage the new network upgrade. However, users must first stake at least 524,288 for the genesis block to be created.
After successful completion, the first stage will set the foundation blocks for the final version, which is to come in December 2021. To provide a better view of what Ethereum 2.0 is and how it will affect markets, we will discuss the fundamental features that the network upgrade offers.
First, the core feature of the future Ethereum network will be scalability. As PoS-based blockchain networks are less resource-intensive and consume less energy, Ethereum can scale with the help of staking. The main problem and reason why the new network upgrade has been pushed away for so many years is the difficulty of successfully operating such a launch.
Developers plan to launch the first version of ETH 2.0 simultaneously with the old network. By doing so, users can still use Ethereum while they slowly migrate to the new network at the same time. But how will this affect the state of the market and the ETH token supply?
Ethereum 2.0 supply reduction might cause retail FOMO?
While there is no definitive answer to how the new network upgrade will affect markets, we still have a handful of theories that indicate how the situation might play out.
The first popular theory is that Ethereum 2.0 will cause a supply shock for the Ether token. Since the new network is based on Proof-of-Staking, holders will be incentivized to move to the new network and stake their assets for a long time. In this case, the circulating token supply would be severely reduced.
In return, the price of ETH could catapult to new highs considering that there is more demand and fewer tokens on the market.
We can anticipate this demand by analyzing the number of wallet holders that contain exactly 32 ETH. Note that ETH 2.0 requires a minimum of 32 Ether for users to actively stake.
As per the statistics from Glassnode, we can see that there is an exponential rise in such addresses. The number of wallets that hold the exact number required for staking increased by 15.5% compared to 2019.
The sentiment regarding the network’s launch can be seen in the markets themselves. For example, Skew statistics showing aggregated open interest for ETH Futures paints a similar picture.
Since the first half of 2020, the OI for Ether grew considerably. The number almost quadrupled on Binance since May this year. According to this information, we can expect that investors are betting long-term on the future of Ethereum.