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Whatever path the issuers of ethereum ETPs choose , market makers will continue to provide liquidity in the ETPs .
pushback over the impact it will have on miners . As a result , there has been some resistance which has manifested as a plan to fork the ethereum blockchain and preserve a proof-of-work network .
If a fork happens , the original chain is now forked into two chains . The original chain transitioning to the new proof-ofstake network ( ETHS ) and the newly forked proof-of-work ( ETHW ) network . The current community sentiment is to support the proof-of-stake network , however , a handful of esteemed investors and miners have voiced their backing for the proof-of-work fork . Stablecoin issuers circle ( USDC ) and tether ( USDT ), with a combined market cap of $ 120bn , announced exclusive support for the proof-of-stake ethereum .
Historically , a hard fork where there was a chain split in the underlying asset of a ETP was in November 2020 , which was the underlying asset of 21Shares Bitcoin Cash ETP . in line with the prevailing sentiment the ETP supported the new forked chain . Days before the hard fork , 21Shares halted creation and redemption mechanisms until after the hard fork the chain was determined stable again . In addition , the airdropped BCHA token was sold on primary markets and value of the sale was passed on to ETP holders at end-of-day close 2 .
Market makers also face an array of challenges with upgrades like the ethereum merge . After seeing two consecutive months of positive inflows , ETP issuers have to decide on what to do during the merge . The aforementioned example is one of the few possibilities issuers could take after the occurrence of the hard fork . It is essential there is transparency for market makers to accurately price products with ethereum as an underlying product during the merge .
Issuers have a wide range of options when it comes to the merge . One option is incorporating both the ETHW and ETHS token as underlying for their issued ETPs , or issue a new ETH proof-of-work product . Another avenue would be
Chapter 2 : Ethereum in focus
to sell the ETHW tokens on primary markets . If they were to choose the latter , they could either pass on the value of the sale to holders of their ETP as 21Shares did in 2020 or alternatively keep it in their own treasury .
Whatever path the issuers of ethereum ETPs choose , market makers will continue to provide liquidity in the ETPs . In order to provide the necessary liquidity and to ensure products accurately track the underlying asset , market makers have various ways in determining the price accurately . Utilising the pricing of Deribit and CME futures , it gives a good indication what the market expects ETHW to be worth on a spot-future basis . In addition , there are also newly-listed ethereum derivative contracts ETHS and ETHW on exchanges such as BitMEX and Poloniex that give an idea of what level the ethereum proof-of-work contract will be trading .
By always providing liquidity , even in uncertain or volatile times , market makers , like Flow Traders , continue to have a crucial role in enabling markets and participants to trade . Even with challenges that can come from upgrades like the merge , market makers have the capability , knowledge and resources to accurately price the products for all market participants .
1
Strack , Ben . “ Crypto Etps Saw ‘ Abysmal ’ Returns in June .” Blockworks , 5 July 2022 , https :// blockworks . co / cryptoetps-saw-abysmal-returns-in-june /
2
21Shares : Bitcoin Cash Undergoes Hard Fork . Bloomberg , 13 Nov . 2020 , https :// www . bloomberg . com / press-releases / 2020-11- 13 / 21shares-bitcoin-cash-undergoes-hard-fork .
Edd Carlton is institutional digital assets trader and Ruben Brons is business developer at Flow Traders
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