10 Important Characteristics of the ETH-Merge

The Ethereum Merge is one of the most powerful catalysts in crypto history, and it is quickly approaching. As we reach the endgame for ETH under the proof of work regime, let’s address 10 important characteristics of ETH-Merge, proof of stake ETH.

1. Post Merge, ETH L1 fees will NOT come down

The purpose of the Merge is to deprecate Ethereum’s PoW consensus mechanism and replace it with PoS. Fees are a function of blockspace demand, NOT consensus mechanism. For lower fees, use the L2s (already live) for execution.

2. For a 6-12 month window post Merge, there will be no structural sell pressure from ETH issuance

Staked ETH and issuance/block rewards to validators cannot be withdrawn until withdrawals are enabled. However, fee tips (basefee is burned) and MEV can be withdrawn.

3. ETH inflation drops from 4.3% to 0.22% post Merge

If we assume 500,000 ETH annual fees, daily ETH issuance drops from 14,250 ETH / day to 736 ETH / day post Merge. That is a 95% reduction in issuance – meaning 95% less ETH that can be sold daily (post withdrawals).

4. ETH under PoS will have better security (higher cost to attack the chain) than ETH under PoW

This has been debated to death – but ETH under PoS mathematically costs more to attack than ETH under PoW. Vitalik Buterin
describes it best HERE.

5. Due to EIP-1559's fee burn, ETH has a deflationary monetary policy in *most* scenarios

Since a picture is a thousand words and tweets are limited – see issuance scenarios below: In short, even with 100mm ETH staked and 0 fees, ETH inflation is only 1.51%.

ETH inflation

6. Post Merge, ETH staking yield increases by 50% (conservatively)

The current ETH staking yield is 4.2%. Post Merge, with the inclusion of transaction fees (fee tips) and MEV going to validators, staking yield jumps to 6%+ See staking yield scenarios below:

ETH staking yield

7. After the Merge, ETH will complement BTC's use cases as pristine collateral and a store of value

BTC has cemented its narrative as “digital gold” – and that’s great ETH’s will be both a “digital bond” (staking yield = risk free rate) and DeFi’s main collateral asset

8. Post Merge, the Ethereum blockchain will be more sustainable than the Bitcoin blockchain

In addition to PoS being more energy efficient than PoW (99% less electricity usage), Ethereum also costs less. Ryan Berckmans explains this articulately in this Tweet.

9. ETH scaling is here!

The Merge swaps out ETH’s consensus engine to PoS to increase security. A secure L1 benefits L2 rollups – where the scaling magic happens Scaling is full steam ahead with Polygon, Arbitrum, OptimismPBC, StarkWareLtd, Zksync and more

10. Post Merge, #Ethereum's journey will not be over

Although L1 ETH will greatly ossify after the Merge, technology needs to continue evolving Data sharding, light clients, staking withdrawals, state mgmt, and more – all coming. From Vitalik:

10 Important Characteristics of the ETH-Merge

Share this post

Leave a Comment

Your email address will not be published. Required fields are marked *

Shopping Cart
Scroll to Top