DeFi collapse alert: Here’s how to safeguard your funds from failure of Ethereum Merge


  • Ethereum blockchain is heading towards a complication with the approaching Merge. 
  • If the Merge fails, the DeFi ecosystem will be severely affected, users could suffer losses. 
  • An analyst identified the issues in the DeFi ecosystem and revealed a failsafe strategy to secure funds. 

The Merge is a key event for the crypto ecosystem and the DeFi market, especially for cryptocurrencies like Polygon MATIC. An analyst determined the effects of the Merge and explained how users can protect their cryptocurrencies from the event. 

Also read: Ethereum Merge knocking on the door, 30,000 blocks away

If the Merge fails, this happens next

The Ethereum Merge is a complicated event since the network is going through several changes. From change in consensus mechanism to how Ethereum is created, ETH holders will see several changes in the cryptocurrency’s ecosystem. 

If the Merge fails, the DeFi ecosystem will be severely affected. Proponents believe this can be fixed by following a few simple steps to ensure safety of funds in DeFi. Elerium115, a pseudonymous crypto analyst identified a way for users to access both proof-of-work and proof-of-stake chains after the Merge. 

Before the Merge, users should send funds from their main wallet to a temporary wallet. Before the Merge, users need to prepare an empty wallet to use on the Proof-of-Work chain, and the temporary wallet to use on the Proof-of-Stake chain. 

This way two different wallets hold funds for two different Ethereum chains. 

Post Merge scenarios

Post Merge scenarios

Since the upcoming Merge has the potential to disrupt the Ethereum lending market due to the airdrops. Therefore excessive borrowing from ETH lending pools could result in negative user experience. 

Aave, Compound and “blue chip” DeFi lenders have voted to temporarily ban Ethereum lending in light of the upcoming Merge. Since the risks for lending protocols are high, users need to swap out their Ethereum derivatives for ETH. 

Based on data from DappRadar, Ethereum’s market share in DeFi’s total value declined by 11% in August 2022. The Merge has raised alarms for holders in the crypto community and in order to ensure that they receive the airdrop for ETH PoW, there is a decline in inflow by users. 


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended Content

Editors’ Picks

Bitcoin Price Forecast: Chances of pullback increase as miner selling ramps up

Bitcoin Price Forecast: Chances of pullback increase as miner selling ramps up

Bitcoin (BTC) price extends its decline for a second consecutive day on Wednesday, trading slightly down at around $87,600 after a 30% surge since November 5 pushed BTC to a new all-time high at $89,940.

More Bitcoin News
Crypto fraudster pleads guilty of taking part in $73 million laundering scheme

Crypto fraudster pleads guilty of taking part in $73 million laundering scheme

Daren Li, a Chinese citizen, pleaded guilty to conspiracy to help launder $73 million stolen in cryptocurrency scams. Li laundered funds using a network of shell companies and international bank accounts.

More Cryptocurrencies News
Cardano bulls show signs of exhaustion

Cardano bulls show signs of exhaustion

Cardano’s price is falling on Tuesday as it faces rejection around $0.624 and traders engaged in profit-taking following the recent rally. Technical indicators show signs of weakness in upward momentum as the RSI exits from the overbought territory.

More Cardano News
Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC, ETH and XRP could face pullbacks

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC, ETH and XRP could face pullbacks

Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) trade in the red on Tuesday following strong rallies since last week, driven by crypto-friendly candidate Donald Trump's election victory. 

More Cryptocurrencies News
Bitcoin: Further upside likely after hitting new all-time high

Bitcoin: Further upside likely after hitting new all-time high

Bitcoin hit a fresh high of $76,849 on Thursday as crypto-friendly candidate Donald Trump won the US presidential election. Institutional demand returned with the highest single-day inflow on Thursday since the ETFs’ launch in January.

Read full analysis
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

BTC

ETH

XRP