What you should know about The Ethereum Merge on Kraken

Over seven years ago, on August 8, 2015, Kraken was the first exchange to make Ethereum (ETH) available to millions of users. Today, we’re thrilled to announce that Kraken will support the Ethereum Merge that is estimated to take place between September 10-20, 2022.

The Merge marks the end of Ethereum’s proof-of-work (PoW) mechanism and the beginning of its transition to a proof-of-stake (PoS) model. This transition is a two-step process. The first step is a network upgrade, “Bellatrix” (scheduled for Sept 6, 2022), on the consensus layer. “Paris” (expected between Sept 10-20, 2022), the execution layer’s transition from PoW to PoS, will follow.

The Merge is a major milestone for the Ethereum community and Kraken endeavors to support this event in ways that help our clients and Kraken’s mission to accelerate the adoption of cryptocurrency so that you and the rest of the world can achieve financial freedom and inclusion.

General operation: holding, staking

Ethereum PoS will retain the ETH ticker after the Merge and ETH trading markets will remain active and available just as they have prior to the network update. 

In order to ensure a smooth transition, deposits and withdrawals for ETH and all Ethereum-based (ERC20) tokens will be temporarily suspended during the Merge. Visit status.kraken.com for real-time updates.

Your assets will remain safe, as always, and no action is required on your part. There will be no need to convert your existing ETH into anything else before, during or after the Merge. It will continue to be visible as ETH in your balances.

After the Merge, staked ETH (ETH2.S) balances won’t be unlocked or made available to unstake or transfer until a forthcoming update of the Ethereum network (the “Shanghai upgrade”) is complete, thereby enabling those features for the ecosystem. Please note: Kraken has no control whatsoever over this process and no official date has been announced for this upgrade.

Reward rates for your staked ETH are currently estimated at between 4% and 7% annually (RPY); these rewards are locked in your account as ETH2. These rewards will continue as usual after the Merge. Additionally, you will also receive a new set of rewards for on-chain activity post-Merge. These new rewards will be credited to your account as unstaked ETH.

Forked tokens

A fork is an event that takes place when a blockchain diverges into two potential paths forward. In this case, it is possible that Ethereum will fork into a PoW blockchain and a PoS blockchain. 

Kraken will subject any newly forked token(s) that might come into existence before, after or during the Merge to our standard, strict review process before making any token available for trading. We will be paying close attention to the potential forked chains. However, it is not guaranteed that any such forked tokens will be made available for trading, as per our policy. 

In the case that Kraken decides to support trading of ETH PoW (or other forked tokens), new spot markets would be created.

Even if Kraken does not decide to support trading of ETH PoW (or other forked tokens), Kraken may still decide to support custody of ETH PoW (or other forked tokens). In that case, if you hold ETH in your account, we would credit your account with a new ETHW (or other designated ticker) token. 

Please note: it is possible that ETH deposits sent closer to the Merge event may not count toward the snapshot of users’ ETH balances. Only settled account balances at the snapshot time will be considered.

Margin

Traders holding open margin positions during the Merge need to be aware of the treatment of their positions, as forking tokens can impact your account once credited/debited. 

In the event Kraken decides to support custody of ETH PoW (or other forked tokens resulting from the Merge), margin positions will be treated as if the user held the underlying ETH, which means that Kraken will:

• Add the relevant amount of forked tokens to the account for ETH long positions
• Deduct the relevant amount of forked tokens from the account for ETH short positions

Below is an example assuming Kraken supports the custody of an ETH fork token (ETH_Fork):

If a client is long 10 ETH on ETH/USD at the time of the Merge, we will add 10 ETH_Fork to their account once Kraken supports the custody of ETH_Fork (+10 ETH_Fork).

If a client is short 5 ETH on ETH/USD at the time of the Merge, we will deduct 5 ETH_Fork from their account once Kraken supports the custody of ETH_Fork (-5 ETH_Fork).

To reflect that deduction, clients who have a short ETH position at the time of the Merge will see a Negative Balance entry in their account, if and when Kraken supports the custody of  ETH_Fork. Negative balances can be resolved either by depositing the appropriate token and amount, or by purchasing the appropriate token and amount on Kraken.

Clients who are long on ETH/BTC, ETH/EUR, ETH/GBP, ETH/USD or ETH/USDC are Long ETH.

Shorting those pairs would make a client Short ETH.

However, clients who are long on ADA/ETH, LINK/ETH or DOT/ETH are Short ETH.

Shorting those pairs would make a client Long ETH.

This treatment of forked ETH tokens applies to any and all liabilities/borrows across Kraken products.

Why the deduction on short margin positions?

An amount of ETH was provided to you to support a transaction with leverage. To close the position, you must return the same amount of ETH, but you are also responsible for returning any proceeds resulting from a network fork that occurred during the time the ETH was provided to you.

Updates will be provided on our official Kraken blog and official twitter accounts (@krakenfx and @krakensupport) as more information becomes available.

Useful official links

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These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, or hold any digital asset or to engage in any specific trading strategy. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptoasset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your cryptoassets and you should seek independent advice on your taxation position.