Nexo’s Approach to the Ethereum Merge & ETH Fork

Aug 234 min read
Asset Updates
Nexo’s Approach to the Ethereum Merge & ETH Fork
  • Nexo fully supports Ethereum’s new Proof of Stake era and the ensuing improvements.
  • In the event of one or more Proof of Work (PoW) forks, Nexo would support the distribution and trading of the forked tokens directly on the Nexo platform, subject to certain conditions. We will make them available for trading after they start trading on at least one of the leading trading venues we partner with.
  • As a precaution and to ensure funds’ safety, Nexo will briefly pause ETH and ERC-20 token top-ups and withdrawals during the Bellatrix (September 6) and Paris (September 10-20) upgrades.
  • Swapping and borrowing against ETH and ERC-20 tokens and sending/ receiving assets from other, non-Ethereum networks will be possible at all times.
  • No action is required to upgrade on your part and your assets will be secure, as always.

The Merge – the biggest event in Ethereum’s history – is anticipated on or around September 15, 2022. Marking a turning point in its evolution towards a more secure, less energy-intensive, and highly scalable future, Ethereum will migrate from a Proof of Work (PoW) consensus mechanism to the Proof of Stake (PoS) model.

How does the Merge affect Ethereum and your ETH holdings? And what is Nexo doing to prepare you, our clients, for the change? Find out the answers by reading on.

Why Is the Merge the Most Important Advance in Ethereum’s Evolution?

The Merge represents the joining of the existing execution layer of Ethereum, the Mainnet, with its new PoS consensus layer, the Beacon Chain. Among other improvements, it eliminates the need for energy-intensive mining, greatly reduces inflation, and secures the network, giving it a potential environmental, social, and governance (ESG) component.

The Ethereum community has been readying itself for the move for two years, undertaking extensive testing and bug bounties to ensure a safe transition. The final pre-transition trial – the Goerli public testnet merge – was passed in August. The next step is Bellatrix – a Consensus Layer upgrade that will kick off the process of the Merge and set everything in motion.

As DeFi and NFTs have become more popular, the Ethereum network has experienced congestion and skyrocketing gas fees. Even though PoS alone doesn't lower transaction fees, it does enable Ethereum to continue delivering on its scalability roadmap. A true milestone, the Merge will reduce energy consumption for the network by a projected 99.95% in comparison to PoW. Simultaneously, the transition will make Ethereum better for implementing new scaling solutions, allowing more users to participate.

At Nexo, we view this transition as a remarkable step in realizing the vision of Ethereum and decentralized finance in general – economic sovereignty and a more scalable, secure, and sustainable financial system.

What Is Nexo Doing to Support the Merge?

Nexo will fully support the transition to the new PoS chain as the consensus layer for its Ethereum wallets. To ensure all wallets work seamlessly, Nexo has been actively preparing for the Merge and ensuring our customers do not need to perform any additional work.

In essence, nothing changes for Nexo wallets or tokens.

How Would Nexo Handle a PoW Fork?

During the Merge, there are two likely scenarios.

Scenario A: No new tokens are created.

Once we confirm that the Ethereum Mainnet is stable and secure, we will resume ETH and ERC-20 token top-ups and withdrawals (read on to learn more about these scheduled interruptions).

Scenario B: One or more new tokens are created.

In the likely event of one or more PoW forks, Nexo would support the distribution and trading of the forked tokens directly on the Nexo platform, subject to certain conditions.

Nexo will treat the tokens generated on the Ethereum upgraded PoS chain as “ETH” and those generated on the Ethereum PoW chain as forked tokens. Note that forked token creators may take snapshots of your ETH balances. Based on these snapshots, forked tokens will be distributed directly into your Nexo accounts at a 1:1 ratio to your holdings should the network demonstrate* healthy technical parameters, unlock significant value for our users, and comply with security standards.

Before anyone can trade the newly forked tokens on Nexo, we will subject them to the same rigorous review process that we follow before listing any asset on the Nexo Exchange and platform. If the tokens pass our assessment, we will make them available for trading after they start trading on at least one of the leading trading venues we partner with.

Further details regarding the airdrop will be included in a follow-up announcement.

*Evaluation of the network would be based on technical fundamentals, including hash power, safe infrastructure, as well as exchange support in terms of spot and futures trading markets.

For Nexo Pro traders using margin:

With regards to your margin trading positions on Nexo Pro, which involve forked assets following the Merge, please note that your short/ long positions will be treated as credit/debit balances respectively:

- For long positions, the corresponding amount of forked assets will be added to your balance.

- For short positions, the corresponding amount of forked assets will be аccounted to your profile as credit.

How Will I Be Affected as a Nexo Client?

Nexo is fully prepared to support a smooth transition to PoS. The Merge will occur in two steps, Bellatrix and Paris. As a precautionary measure, our team will briefly pause Ethereum (ETH) and ERC-20 token top-ups and withdrawals during both events. All such transactions will be processed once ETH and ERC-20 top-ups and withdrawals are resumed. These scheduled service interruptions will occur as follows:

  • Bellatrix: One hour before the upgrade, which is scheduled for epoch 144896 at approximately 11:34:47 AM UTC on September 6. Transactions will be paused on Ethereum only.
  • Paris: September 15, 2022 (UTC), a few hours before the upgrade, whose precise time depends on the PoW hash rate. Transactions will be paused on both Ethereum and Polygon.

Please note that swapping ETH and ERC-20 tokens on the Nexo Exchange will be possible at all times before, during, and after the Merge.

The Merge should be seamless for our clients, but this downtime is necessary for us to verify that our systems have successfully transitioned. To ensure the security of your assets, we recommend that you deposit ETH to Nexo ahead of time. You will be informed via email and our social media channels (Twitter, Reddit, Telegram) when ETH and ERC-20 tokens are once again available for top-ups and withdrawals.

At all times, you can still:

  • Receive and send all assets from other, non-Ethereum networks that are supported by Nexo and available for top-ups and withdrawals;
  • Swap ETH and ERC-20 tokens on the Nexo Exchange;
  • Swap for other cryptocurrencies and buy and sell with existing funds on the Nexo Exchange;
  • Borrow funds against, use the Nexo Booster, and the Nexo Card with ETH and ERC-20 tokens.

While our role is to protect users’ assets and help ensure a seamless transition across Nexo products, we apologize in advance for any inconvenience that might occur as a result of unforeseen Merge developments. Nexo is here to help you navigate through this exciting transition period which culminates years of work towards a greener and more scalable Ethereum. Onward and upward, Vitalik and team!

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