4 Crypto Tokens to Buy Before Ethereum Merger: DeFi Portfolio Manager

• Ren Yu Kong is DeFi portfolio manager at digital asset hedge fund BKCoin Capital.
• Current investment opportunities, per Kong, include betting solutions such as Rocket Pool and Lido.
• Ethereum’s Mainnet Merge is currently scheduled for September 15, according to the developers.

Crypto markets have shown continued signs of resilience, with ether and bitcoin up 41% and 14% respectively in the past month, according to Messari. Despite the Federal Reserve’s efforts to fight inflation — and even amid contagion concerns from the demise of major industry players such as hedge fund Three Arrows Capital — large tokens have gained more traction.

Ren Yu Kong, a 25-year-old DeFi portfolio manager, says one of the driving forces behind this surge is the Ethereum network’s highly anticipated upcoming upgrade, Merge.

“There’s definitely a strong outlier that everyone can see, and that’s Ethereum,” Kong, who manages an upcoming DeFi fund for digital hedge fund BKCoin Capital, told Insider. “Crypto is never completely decoupled from stocks or traditional markets, but the merger is definitely a very strong narrative right now.”

The merger, which is the first of five planned network upgrades, transitions Ethereum from the more energy-intensive proof-of-work concept to a proof-of-stake model. Scheduled for mid-September, this will “set the stage for future scaling upgrades including slicing,” and will reduce energy consumption by around 99%, according to a statement from the Ethereum Foundation. Addressing blockchain’s environmental impact could also lead to an influx of both institutional capital and retail participation for the ecosystem.

Kong believes the first obvious buy is ETH itself. But what else is there?

Stacking and scaling solutions as a purchase option

Kong says tokens related to staking solutions such as Lido (LDO) or Rocket Pool (RPL) could have great upside potential in the merger.

Lido allows holders to earn passive income by staking – or validating transactions or contributing to a blockchain in an effort to make it more secure and efficient. Investors of a token can then generate returns without having to sell their holdings. According to Kong, Lido has the largest liquidity available as a staking solution in case an investor wants to exit their staked ETH position quickly. (Lido’s total value locked, or TVL, which measures the amount of user funds invested in a DeFi protocol, is $1.5 billion.)

Second, there is Rocket Pool. This is the second largest staking provider behind Lido, offering an average APR of 4.03% for ETH2 staking. Essentially, the merger should create a more robust industry for staking, resulting in gains for both RPL and LDO token holders.

“Rocket Pool is one of the most decentralized staking solutions, even though they have less than 5% of ETH staked compared to Lido, they have 47 times the number of nodes of Lido,” the 25-year-old said. “These are both definitely very interesting opportunities and should have huge upside as more people bet on ETH.”

Kong says tokens linked to Ethereum scaling solutions such as Polygon (MATIC) and Optimism (OP) could also be attractive investment opportunities. Both are layer-2, which are built on top of Ethereum, but have cheaper gas fees and faster transaction times than the smart contract network.

“Optimism may benefit from the merger due to Ethereum’s ‘Rollup-Centric Roadmap,’ which turns its main chain into a settlement and data availability layer and puts scalability in the hands of layer-2 rollups via ‘danksharding,'” Cointelegraph previously reported.

Although the merger will not affect transaction throughputs or lower gas fees, Kong said the upgrade’s “narrative is strong enough” to boost token prices.

“Vitalik and the Ethereum Foundation have made rollups a key component of Ethereum’s scaling solution. There are a few reasons to be excited about Polygon, one of which is their zkEVM technology that they are working on, and they have one of the strongest business development teams in the space ,” said Kong. “Scaling solutions using rollups like Optimism are also exciting because they have several innovative protocols that are seeing increased user activity and strong developer ecosystems, even in the tough market conditions.”

In a recent note to clients, Fundstrat CEO Sean Farrell also designated OP, MATIC, RPL and LDO as “high-beta plays,” meaning the investments are subject to volatility, with the potential for higher returns in the coming weeks.