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1 Mar 2022

KEEP and NuCypher’s Hard Merge: What’s the Takeaway?

Deepan Datta

Mergers and acquisitions (M&A) are quite common in the business world as they help businesses grow—both organically and inorganically—and unlock value in the process. But the concept was alien to the crypto sphere until recently. Not anymore, though, with the merger of KEEP and NuCypher.

Project teams are calling the merger between the two encryption projects a “hard merge”.

But what exactly do “hard merges” mean? And how will they impact the crypto ecosystem? Let’s find out.

Key Takeaways

  • Keep Network and NuCypher is getting hard merged into one project called Threshold Network
  • KEEP and NU tokens will cease to exist and holders will be issued T Token in the agreed ratio
  • Hard merge will enable both crypto projects to take advantage of each other capabilities and drive synergies
  • Merging crypto projects that are solving similar problem sets will enable projects to have maximum impact on the market and reach an optimum level of decentralization efficiently

What’s a Hard Merge?

A hard merge occurs when two blockchain projects with similar objectives and platform specifications agree to merge and form a new entity. The new blockchain will issue new tokens to the token-holders of the previously unmerged entities at a certain ratio.

For example, crypto projects A and B are merging to form a new blockchain entity C, and are issuing the new tokens of C to the token-holders of A and B in the following ratio: 1C= 2A and 1C= 3B, respectively. So, for every two A tokens, the new entity will issue one C token, and for every three B tokens, one C will be issued.

Hard merges can be understood as the reverse of a hard fork, in which a blockchain protocol goes through radical changes and splits into two new. Learn more about the hard fork here.

Hard Merge

The Keep and NuCypher Hard Merge: An Overview

Keep and NyCypher are two Ethereum-based Layer- 2 solutions dealing in privacy infrastructure projects. They recently merged to form a new entity called the Threshold Network. The new blockchain will issue Threshold Network Tokens (Ts) to KEEP and NU token-holders at a certain ratio.

Because it is a first-of-its-kind development in the crypto market, it has generated interest among investors and crypto enthusiasts.
Before getting into details of the hard merge and the newly created blockchain entity, let’s briefly learn about the pre-merger crypto projects.

What is KEEP Network?

Keep Network is a global decentralized network of computers that securely stores private information in an encrypted format. It builds off-chain containers called Keeps, where data is stored securely and privately.

To store the data securely, the network splits the data into different Keeps, which are randomly allocated to validators, where using Random Beacon encrypts and stores the data securely. The randomness in selecting validators, and splitting the data for segregation into different Keeps, ensures that validators don’t tamper with the data—discouraging what is known as Sybil’s attack on the network.

The network is powered by KEEP tokens, of which there is a fixed supply of 1 billion.

What is NuCypher?

NuCypher has a project model similar to the Keep Network, but it focuses on providing security and privacy layers to dApps built on Ethereum and other blockchain platforms. The platform provides end-to-end encrypted data sharing on public blockchains and decentralized storage solutions. Proxy Re-Encryption (PRE) technology allows users to share private data in public blockchain networks.

The platform uses Umbral—its encryption scheme—and Ursula, a network of operating nodes to perform key functions, namely dynamic access control and the storing of sensitive data.

Umbral is the encryption scheme of NuCypher that allows users to share sensitive data securely. Ursulas are proxy nodes that grant decryption rights to the data receiver and re-encrypt the data for the recipient; they don’t have access to the data itself.

To perform network duties or become proxy nodes on the NuCypher network, Ursulas have to stake NU tokens.

NU tokens power the NuCyper platform, and there is a fixed supply of 3.89 billion of them.

KEANU: The Merger

The merger of both Ethereum-based protocols was in the works for a very long time and was codenamed “Keanu” by the project teams responsible. “Keanu” is an acronym of sorts that uses the first few letters of the names of the projects. Token-holders of both projects voted in favor of merging the two platforms via governance proposals.

How will the hard merge work?

The initial supply of the new token called Threshold, or T, will be 10 billion. Both the projects will get 45% of the total supply at the ratio agreed—meaning, for every 1 KEEP, 4.78 T tokens will be issued. And, for every 1 NU, 3.26 T tokens will be issued.

The remaining, 10% of T tokens, will be set aside for the Keanu Decentralized Autonomous Organization (DAO).

How will hard merge impact the validators on the network?

The merge will mean just a software upgrade for stakers or node operators in both networks and using T tokens to contribute to governance proposals and perform network duties. But for both networks, the merger will be capital-efficient, as they can use each other’s resources to develop new decentralized applications and efficiently scale them.

Acknowledging this, NuCypher CEO MacLane Wilkison said: “This pushes the envelope in terms of what is possible with DAO and community-led governance and opens the door to increasingly sophisticated DAO-to-DAO interactions going forward.”

For instance, post-merger, NuCypher doesn’t have to create a decentralized infrastructure to custody bitcoins, because Keep Network already has it in place and its nodes can share the work. Likewise, for Keep Network to scale up its infrastructure to custody bitcoin on Ethereum once it migrates to the proof-of-stake consensus mechanism, it can rely on NuCypher which currently operates with a higher number of nodes.

Impact of the Hard Merge

Hard mergers are a positive development in the crypto market. One may expect many new mergers to take place now, as networks begin to recognize its advantages.

As many crypto projects are currently working on solving similar problem sets, merging of crypto projects will help them to achieve an optimum level of decentralization, which otherwise would be difficult in this rapidly evolving space. Projects can be able to scale rapidly in a much more decentralized manner.

Hard mergers also solve one of the biggest problems (unnecessarily) haunting the crypto sphere, i.e., massive energy consumption.

Wrap-Up

In the past, we have seen what a hard fork can do—splitting a blockchain and making the market unstable. But, the hard merge is a positive development for the cryptosphere.

It will help the market consolidate, which will indirectly benefit the investors. For instance, we are witnessing hundreds of crypto projects being added to the existing ones every month, making it difficult for investors to spot the crypto projects with potential, increasing the chances of rug pull.

The hard merge between Keep Network and NuCypher has shown how a decentralized ecosystem can arrive at a contentious decision without affecting the market dynamics.

What needs to be seen is how the merger pans out and whether the Threshold Network can achieve the potential synergies efficiently.

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Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Deepan Datta

Content Writer

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