The protocol MakerDAO MKR has identified seven risks it faces if Ethereum ETH is forked.
The protocol says that the protocol's first risk is future backwardation and negative funding.
Spot ETH will get forked PoW token, but those exposed to ETH perpetual contracts and quarterly futures would not.
If this happens, it could cause a decline in the cost of leverage through futures contracts, which will cause competitive pressure on Maker vaults.
AnEthereum PoW hard fork post-Merge could lead to a stETH discount because staked coins are likely to become worthless.
After the network upgrades toEthereum 2.0, StakedEthereum is expected to be unlocked.
With a PoW hard fork, these staked coins would become worthless as they would remain locked until a network upgrade is done.
The above may result in the value of stETH declining based on the expected value of the forked PoW ETH. That represents a higher risk of stETH liquidity risks and downside volatility for Maker.
A discount in liquid staking assets could incentivize leveraged staking behavior, increasing the risk of negative price gaps and raising ETH supply rates on lending protocols. External assets operating on the network are challenged by a forkedEthereum. A fork would force centralized stable coin issuers, cross-chain bridges, and others to pick an Ethereum chain.
Given the level of traction it has gained recently, there is the possibility that others might recognize ETH forks, and some like Chainlink LINK have expressed support for the Merge.
Such actions could make their asset bridged into or out ofEthereum worthless, and any protocol that accepts such assets as collateral can have significant liquidity issues.
The protocol faces an issue that faces the liquidity pool protocols ifEthereum is forked.
If the network is forced, a large number of assets could be useless, leading to insolvency in the lending market.
The protocol faces other risks like oracle networks supplying bad data or network downtime during the Merge period, which could cause insolvency or liquidation of Maker vaults. Replay attacks could become more prevalent on both the mainnet and the PoW chains.
Maker has identified ways to minimize these risks in the post. The risk is the subject of most of the responses to it rely on communicating information about the risks to users.