Might MakerDAO risk market decline due to Ethereum’s Merge

ambcrypto.com:

MakerDAO [MKR] has claimed that the much-anticipated Ethereum [ETH] Merge could do more harm than good to its network. 

Maker, the builder of the stablecoin – DAI – explained the implications of the Merge in a 22-tweet long thread on 5 July.

• Confirm merge support from key external asset providers that interact with the Maker Protocol and services bridging DAI out to other chains.

22/

— Maker (@MakerDAO) August 5, 2022

Now, of course the Proof-of- Work (PoW) to Proof-of-Stake (PoS) transition was supposed to solve Ethereum’s scalability problems. However, MakerDAO claimed that the forked tokens could affect its system. Ergo, the question – How?

The protocol explained that the Merge could lead to perpetual contract backwardation and negative funding. Additionally, MakerDAO mentioned that the launch itself could trigger selling pressure across chains existing on PoW.

Another risk highlighted was the possibility of assets becoming worthless on already staked Ethereum (sETH). Maker considers this a big concern as it has operated lending protocols using the system. Additionally, it pointed out that lending protocols risk getting higher ETH deposit rates due to increasing liquidity owing to the fork merge.

Other factors considered include possible insolvency with liquidity pool protocols and stablecoins’ neglect as Tether [USDT] seems to be the only one in support of the Merge.

There’s also the potential of network downtime because not all Ethereum-based protocols would move to PoS with the Ethereum chain. In fact, Maker noted that this could affect users and transactions alike. Similarly, a replay attack on DAI-fork or MKR-fork was not left out of the options.

Maker went on to explain