ETH PoW is already dead

The ETH merge seems to finally become a reality. With that, miners will become obsolete. However, nobody likes to lose their source of income of course. Miners could continue to mine on Ethereum Classic, or many other PoW chains (Although all popular new coins seem to be PoS). But as we all know people, for unknown reasons, are rallying behind a PoW fork. It seems like a silly idea, but it also seems like it will happen. Futures and spot IOUs are already trading at 2-3% of ether value.

The PoW fork has been criticized by many, and deservingly so. The biggest two ERC20 tokens, USDT and USDC are both centralized fiat-backed coins. The intrinsic value of these coins will drop to $0 in a single block, as only their PoS variant will be redeemable. The damage this does to the eco system is unimaginable. DAI, which at this point is just an USDC wrapper, will be worthless too. With the three biggest stables down, all major lending platforms will be insolvent.

One might be optimistic about projects like liquity or reflexer, purely eth-backed stables. But these will be instantly insolvent as well, due to the price of the ether collateral dropping to $50 in an instant.

And its not just stables, cdps and lending platforms. Link will not support the PoW oracles, rugging another important DeFi pillar. I could go on, but I think at this point it is very obvious that with all major projects and coins instantly rekt, all others will fall like dominos.

What should be done instead

With that out of the way, it seems like at this point Ethereum is unforkable. Fear not, let me introduce my idea for a successful Ethereum fork.

  • – Start a completely new, fresh chain. No previous state.
  • – Airdrop all user accounts(so no contracts) their Ether balance in EthPoW 1:1
  • – Airdrop all user accounts holding ERC20 tokens with its value in EthPoW

This way we can fork off into a new state, but keeping the current players incentivized. I believe this is the best way forward.

The first two points seem obvious enough; but this last point deserves some extra attention. You can not just airdrop any ERC20 holder as for many of these tokens their actual value is hard to estimate. So instead I propose the following:

  • – Every token with a V2 style pool that has >10M in liquidity is on the airdrop list.
    • You’d need to recursively calculate its value in ether. ETH/USDC pool is trading at $2000, so holding 1 USDC gets you an 0.0005 EthPoW airdrop.
    • Most big coins will have an ether pair, but if for example they only have an USDC pair, you could use the fair USDC price to calculate the fair price of this third token.
  • – Every LP token of the big dexes represent their underlying. We can do this because the pool itself is a contract and will be wiped in the new chain
  • – IOU tokens or other project specific tokens could be considered on a case by case basis. It does not have to be perfect, the goal is to cover the biggest projects

Doing this you end up with a new clean PoW chain. We can build up DeFi from the ground up again, we can redeploy most contracts in a fair manner. Eventually we could even build bridges to bridge over assets like NFTs that did not receive any airdrop, inviting these owners to the network too.

As much as I would love to see the complete and utter chaos of a chain fork, I believe it would fundamentally undermine the project. There is no recovery from the total collapse that will happen. People will exploit AAVE and others by depositing worthless stables, withdrawing massive amounts of EthPoW and dumping the price to $0. This is not what we should want.

I do not believe there is any real utility in copying over the old state, but I do believe there is big value in keeping the current players invested. This is why I plead for this airdrop mechanism instead. I believe starting afresh without the centralized stablecoins will offer an amazing opportunity to rebuild DeFi, but this time actually have it decentralised. The fact that Tether and Circle are deciding the real chain is beyond pathetic. Please, if we are going to do this, lets do it properly and actually try to build a functioning chain.