Ethereum Merge: What Will Happen To Tokens, NFTs, DeFi Staked ETH After Hard Fork?

Several holders of Ethereum (ETH) have now been left wondering as to what will happen to their crypto holdings, with cryptocurrency exchanges, such as Binance, Coinbase, FTX and WazirX suspending trading of both ETH and ERC-20 tokens till the Ethereum Merge gets completed.

The Ethereum Foundation has been working on the Merge for almost two years now. The upgrade will make the transactions faster and will reduce energy usage by 99.9 per cent, as ETH moves from the proof-of-work to the proof-of-stake stage.

However, this could lead to a hard fork as some miners might continue on the proof-of-work Blockchain. 

In that case, there will be a split. 

Says Dileep Seinberg, founder and CEO, MuffinPay, a bill payment and utility company: “Crypto miners could revolt over the new software upgrade and continue to mine the old proof-of-work-backed Ethereum after the hard fork chain split. There are chances of a split and the creation of two Blockchains, but we believe that it will be minimal, as we already have an Ethereum Blockchain (Ethereum Classic) on the proof-of-work consensus mechanism.”

What Will Happen To ETH and ERC-20 Tokens?

Even though a lot of cryptocurrency exchanges have suspended the trading of ETH and ERC-20 tokens, investors can still access the tokens kept in hot and cold wallets. 

In case of a hard fork after the Merge, investors will receive the same amount of the ‘forked’ token on the new proof-of-stake chain that they presently own in the proof-of-work chain in the case of a hard fork event. Investors will then have an equal number of Ethereum tokens across two distinct Blockchains.

“Investors’ funds won’t be impacted during the Merge event. However, it’s advisable that investors refrain from executing trades involving Ethereum to avoid any losses arising out of unforeseen glitches during the Merge period,” says Sharat Chandra, vice-president, research and strategy of EarthID, a decentralised identity management company.

What Will Happen To ETH-Based DeFi Products?

To earn interest on crypto, investors have the option of staking their crypto, which locks the crypto amount for a certain period of time, and provides an annual percentage yield (APY) on the crypto. 

Various exchanges have different parameters regarding staking, and offer varied APY. 

Says Minal Thukral, executive vice-president, growth and strategy, CoinDCX: “In case of a hard fork, staked ETH will continue to remain staked. Listing of the forked token for trading will go through the 7M listing process of CoinDCX, as it may expose retail users to short-term risk.” 

Regarding the effect of hard fork on the yield, Thukral adds: “Yield is definitely going to increase because ETH will stop being inflationary. This upgrade is a step in the direction of a highly scalable ETH chain. Hence, more adoption will lead to more transactions, and hence higher real yields.”

What Will Happen To ETH-Based NFT Products?

If the upcoming Ethereum Merge results in the Blockchain getting split into two Blockchains, as the same happened in 2016 due to ‘THE DAO’ hack, then it could result in duplication of non-fungible tokens (NFTs).

According to Amanjot Malhotra, country head of Bitay, the Indian subsidiary of Turkish crypto exchange: “In any case, duplicate NFTs will exist due to the ETH proof-of-work chain and other potential forks, and there’s likely to be some level of confusion around which assets are ‘official’ or ‘authentic.’ Even so, there could be a frenzy for these copies, as NFT owners attempt to flip the proof-of-work versions of their valuable tokens.”

Malholtra further added that the market could see “a wave of NFT sales on the proof-of-work chain, but if there’s little social sentiment about the value of assets on the chain, then there may be little demand for them, and hence, prices for duplicated assets are likely to be a fraction of the real deal when it comes to popular projects.”

What Will Happen To ETH-Based Gaming Products?

Axie Infinity, an Ethereum-based gaming application said on Twitter that they “will support Ethereum proof-of-stake (ETHPoS) after the Ethereum Merge.”

They also said on Twitter that to be on the safe side and ensure the integrity of the Ronin Bridge (a critical wallet protocol of the game), they will “pause it 24 hours before the Merge and open it once we have validated support for the Merge.”

Regarding support for the older proof-of-work Ethereum version, Axie Infinity outlined on Twitter that “Ethereum proof-of-Work (ETHPoW) will not be supported.” They further advised users “to withdraw their Ronin WETH to Ethereum before the Ronin Bridge is paused, if they want exposure to ETHPoW.”

So if you are using an Ethereum-based gaming application, then make sure to contact the game developer regarding their stance on the Ethereum Merge, so that you don’t lose access to the game and to your funds.