Adapted from Ebunker Chinese
The Ethereum Merge stands as one of the most pivotal upgrades in Ethereum's history, enhancing ETH's deflationary properties while significantly reducing the network's carbon footprint. Although ETH prices have fluctuated within a range over the past year, the network's fundamentals have undergone substantial changes. Post-Merge, ETH issuance dropped by over 80%, staking participation surged by 87%, and approximately 1 million ETH have been permanently removed from circulation.
Since the Merge, ETH supply has decreased by 296,000 tokens.
On September 15, 2022, Ethereum successfully transitioned from Proof-of-Work (PoW) to Proof-of-Stake (PoS), revolutionizing ETH's tokenomics. Daily ETH issuance plummeted from 13,500 to around 2,300 tokens—an 80% reduction. Coupled with Ethereum's fee-burning mechanism, the network now exhibits deflationary tendencies when base transaction fees exceed newly minted staking rewards.
Currently, ETH supply is nearly 300,000 tokens lower than at the time of the Merge. Had PoW persisted, ETH supply would have increased by 3.8 million tokens (worth ~$6.27 billion).
Challenges Posed by Liquid Staking
While ETH's deflationary attributes strengthen, new challenges to decentralization have emerged. The Merge catalyzed the rise of Liquid Staking Tokens (LSTs) in 2023—assets representing staked ETH that are tradable on exchanges or usable across DeFi applications.
April's Shanghai upgrade enabled staking withdrawals, narrowing the price gap between ETH and staked ETH and accelerating LST adoption. Today, liquid staking protocols collectively secure ~10.8 million ETH (42.5% of total staked ETH).
Key Data Points:
- Lido now holds 8.6 million ETH (up from 4.6 million in January).
- Coinbase's CBeth reached 1.17 million ETH since its September 2022 launch.
- Rocket Pool's Reth holds 450,000 ETH.
With Lido controlling nearly one-third of staked ETH, concerns about overcentralization persist. Allen, founder of staking provider Ebunker, notes that Lido is actively pursuing geographic, client, and node operator diversification to mitigate risks.
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NFT Downturn and ETH Market Sentiment
Messari data (September 15) reveals declining Ethereum NFT trading volumes, signaling waning user engagement. Popular PFP NFTs have seen floor prices drop by ≥30%, unsettling collectors and investors. Concurrently, Ethereum's total fee payments hit an 8-month low (GlassNode, September 19), reflecting broader market sluggishness.
On-Chain Metrics:
- Addresses holding ≥1,000 ETH fell to 6,082 (5-year low).
- Addresses with ≥0.1 ETH slightly decreased, possibly due to migration to cheaper L2s like Base.
Layer 2 Adoption Accelerates
Since mid-September, ETH held on Ethereum L2s surpassed 2 million tokens (~2% of total supply). Leading L2s include:
| L2 | ETH Held | Value |
|---|---|---|
| Arbitrum | 1.3M | $2B |
| Optimism | 320K | $504M |
| zkSync | 186K | $293M |
| Base | 143K | $225M |
L2s reduce average gas fees to $0.70—critical for scaling beyond Ethereum's ~15 TPS limit. Emerging contenders like Starknet (60K ETH) and Scroll (pending launch) promise further innovation.
FAQs
Q: How has the Merge affected ETH inflation?
A: Daily issuance dropped 80%, with net supply decreasing by 296,000 ETH post-Merge.
Q: Why is Lido's dominance a concern?
A: Controlling 33% of staked ETH risks centralization. Solutions include diversifying node operators and clients.
Q: Are L2s solving Ethereum's scalability?
A: Yes—L2s like Arbitrum process transactions for under $1, but their performance under bull market loads remains untested.
Conclusion: The L2 Catalyst
Ethereum's future hinges on L2 ecosystems attracting ETH inflows and rejuvenating DeFi. With exchanges like Coinbase enabling direct L2 deposits, adoption barriers will continue falling. If successful, Ethereum could emerge as the foundational layer for a global, decentralized infrastructure—flanked by a constellation of high-performance L2s.