MakerDAO Discovers Major Risks of an ETH Hard Fork

MakerDAO discovers major risks if the Ethereum (ETH) protocol is forked.
Seven major risks discovered on ETH protocol by MakerDAO.

The unbiased global financial system, MakerDAO, clears about the risk on its ETH protocol. It shared the information on its official Twitter account on August 6.

MakerDAO’s ETH Protocol Risks

As per its Tweet, the first risk is described as “Future backwardation and negative funding.” It explains as, “Spot ETH would receive PoW forked tokens, while exposure to ETH quarterly futures or perpetual contracts would not” in

its Tweet. If it happens then it will decline the cost of leverage through future contracts. Hence, it creates pressure on vaults of Maker.

1️⃣ Futures Backwardation & Negative Funding.
Spot ETH would receive PoW forked tokens, while exposure to ETH quarterly futures or perpetual contracts would not.
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— Maker (@MakerDAO) August 5, 2022

In addition, the second risk is described as, “Staked Ethereum (stETH) Discount.” It states that the ETH POW hard fork after merge affects the stETH discount. And it may because staked coins may become worthless. If the stETH is locked in, the unlock will done after the upgradation on Ethereum 2.0 network. Also, in POW hard fork, staked coins became worthless as they would remain locked until the network upgrade complete.

2️⃣ stETH Discount
stETH is likely to become worthless on any PoW Ethereum fork.
This is because further chain upgrades would be required to unlock staked ETH from the deposit contract, and there is arguably little economic incentive for the fork chain to accommodate this
11/
— Maker (@MakerDAO) August 5, 2022

The next one is described as, “External Asset Fork Choice.” It represents challenges for the operation of external assets on its network. It includes the cross-chain bridges, centralised stablecoins and real world assets. On the other hand, Chainlink (LINK) shows support in the merger. As it is possible for others to identify ETH forks with the level of traction it gained in recent times.

3️⃣ External Asset Fork Choice
Ethereum hosts a broad variety of externally backed assets.
This includes cross-chain bridges, centralized stablecoins, and real-world assets.
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— Maker (@MakerDAO) August 5, 2022

Additionally, another protocol risk that MakerDAO explained is “Liquidity Pool Protocol.” It explains about the significant assets. It describes as if the network is forced then some significant assets may become useless. Hence, it would increase insolvency in the lending market.

1️⃣ Liquidity Pool Protocols.
A significant subset of assets would become worthless in the hypothetical forked chain.
This could cause insolvency in lending markets, and incentivize users to borrow all available ETH as the asset most likely to retain some post-fork value.
4/
— Maker (@MakerDAO) August 8, 2022

The remaining risks that MakerDAO shares about are, “Oracle Networks and Indices,” “Network Downtown,” and “Replay Attacks.” These would cause the vaults of Maker with insolvency, liquidation, in PoW chain or in the mainnet. The Maker are working to solve these risks by identification.

This thread is focused on the following potential fork risks that could impact Maker:
1️⃣ Liquidity Pool Protocols.
2️⃣ Oracle Networks and Indices.
3️⃣ Network Downtime.
4️⃣ Replay Attacks.
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— Maker (@MakerDAO) August 8, 2022

Source: https://www.thecoinrepublic.com/2022/08/10/makerdao-discovers-major-risks-of-an-eth-hard-fork/