Lex Sokolin said that post-Merge, DeFi projects will have to compete with the returns offered by the core ETH protocol.
As the Ethereum Merge draws near, many are speculating on its economic effects. To provide a clearer view to those who anticipate the major upgrade, Lex Sokolin, the head economist at ConsenSys, shared his insights in an interview with Cointelegraph.
The expert discussed the effect of the EMerge on users, developers and businesses. Additionally, Sokolin also cleared up some misconceptions about the Merge and explained how the new development can have an impact on the price of Ether (ETH).
On the user level, the economist said that the average user will be able to use the chain as they normally do, but one significant impact for users post-Merge is having a less risky way to stake ETH. He explained that:
“Right now, staking on the beacon chain carries the risk that the Merge doesn’t happen. But once it does, participation in staking is more accessible and has less technical risk.”
In terms of effects on businesses and developers, the expert shared that the Merge may standardize the notional interest rate for the entire Web3 space through the ETH yield. This could potentially remove the need for speculative financial engineering projects, according to Sokolin.
“We expect that risks of projects and business opportunities can be evaluated against merely staking ETH on a risk-adjusted basis.”
This may also affect the decentralized finance (DeFi) space significantly as products need to compete with the returns offered by the core protocol. “That should in turn mature the market, and create opportunity costs for investors chasing yield in places with too much risk,” he added.
When asked about people’s expectations and misconceptions about the Merge, the expert highlighted that it will not lower gas fees or solve for massive throughput yet. However, the Merge sets the foundation for these things in the future. Following this, Sokolin mentioned that the Merge will remove one of the less desired narratives for Web3, which is the issue of ESG impact.
Related: Coinbase will ‘briefly pause’ ETH and ERC-20 token deposits and withdrawals during Ethereum Merge
In terms of the Merge’s effects on the price of Ether, the economist believes that all technical developments will somehow affect the value of ETH. According to Sokolin, the crypto-economic changes within the protocol naturally have implications on the supply and value of the asset. “Though, how the market ends up pricing those relative to broader macroeconomic events is still yet to be seen,” he added.