Ethereum's transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) introduced "staking" as a new method for block validation—but it also brought fresh challenges around centralization and censorship. Here are the five most critical insights from the past year.
1. Ethereum’s Energy Consumption Dropped by 99.9%
The Merge overhauled Ethereum’s consensus mechanism, eliminating the energy-intensive mining system that once powered the network.
Pre-Merge Energy Footprint:
- Comparable to a small country’s energy usage.
- A major point of criticism for NFT and DeFi detractors.
Post-Merge Impact:
- PoS reduced energy consumption by 99.9%.
- Emissions plummeted, silencing environmental concerns.
👉 Explore Ethereum’s sustainability journey
2. Staking Distribution Sparks Centralization Fears
Despite PoS’s goal to democratize participation, barriers like the 32 ETH minimum stake (~$50,000) and technical complexity pushed users toward intermediaries:
- Lido Finance: Dominates 32.3% of staked ETH, nearing the 33% threshold—a potential security risk.
- Coinbase: Centralized exchanges control significant staking shares.
Key Issue:
A small group of entities could gain disproportionate control over block validation.
3. MEV and Censorship Concerns
Maximal Extractable Value (MEV):
- Validators profit by reordering/inserting transactions.
- Acts as an unseen "tax" on users.
Flashbots’ Role:
- MEV-Boost software optimizes MEV extraction (used in 90% of blocks).
- Controversial for centralizing relay power—raising censorship fears when Flashbots blacklisted Tornado Cash addresses.
Recent Progress:
- Non-Flashbots relays now reduce censored blocks to 35% (down from 78%).
4. Liquid Staking Tokens Dominate ETH Markets
Post-Merge, Liquid Staking Tokens (LSTs) surged as tradable alternatives to locked staked ETH:
- Market Size: $20B+, led by Lido’s stETH (72.24% share).
- Why Popular: Enables DeFi use (e.g., collateral) while earning staking rewards.
👉 Learn how LSTs are reshaping ETH staking
5. ETH Supply Turns Deflationary
Post-Merge Tokenomics:
- EIP-1559: Burns transaction fees, reducing supply.
- Current Data: 0.24% fewer ETH in circulation YoY.
Investor Sentiment:
Deflation could boost ETH’s value, though macroeconomic factors remain influential.
FAQ
Q1: Is Ethereum truly decentralized after The Merge?
A: Centralization risks persist due to dominant staking pools like Lido and Coinbase.
Q2: How does MEV affect everyday users?
A: MEV can lead to higher transaction costs or frontrunning, but tools like MEV-Boost aim to mitigate harm.
Q3: Are liquid staking tokens safe?
A: LSTs carry smart contract risks but offer flexibility for DeFi participants.
Q4: Will ETH’s deflationary model increase its price?
A: While scarcity supports value, market demand and broader crypto trends play larger roles.
Ethereum’s PoS transition solved energy woes but introduced new trade-offs—centralization, MEV, and censorship resistance remain top priorities for developers.