Analysis: 10 Important Features of a Post-Ethereum Merger
The Ethereum merger, one of the strongest catalysts in crypto history, is fast approaching. As we enter the final stages of ETH under the proof-of-work mechanism, let’s talk about 10 important characteristics of the merged, proof-of-stake ETH:
1. ETH L1 fees will not drop after the merger. The purpose of the merger is to deprecate Ethereum's PoW consensus mechanism and replace it with PoS. Fees are a function of block space requirements, not the consensus mechanism. For lower fees, use L2 (live) execution
2. In the 6-12 month window after the merger, there will be no structural sell pressure from Ethereum issuance, and issuance/block rewards to validators cannot be withdrawn until withdrawals are enabled. However, tips (basefee is destroyed) and MEV can be withdrawn
3. The combined ETH inflation rate dropped from 4.3% to 0.22%. If we assume a 500,000 ETH annual fee, the daily ETH issuance drops from 14,250 ETH/day to 736 ETH/day. 95% less issuance - this means 95% less ETH can be sold per day (after withdrawals)
4. ETH under PoS will have better security than ETH under PoW (the cost of the attack chain is higher)
This question has been hotly debated - but mathematically, ETH under PoS is more expensive to attack than ETH under PoW.
5. Due to the fee burn of EIP-1559, ETH has a deflationary monetary policy in *most* scenarios. In short, even with 100mm ETH staked and 0 fees, ETH inflation is only 1.51%
6. After the merger, the ETH staking yield will increase by 50% (conservative) The current ETH staking yield is 4.2%. After the merger, including transaction fees (tips) and MEV to validators, the staking yield jumps to 6%+.
7. Post-merger, ETH will complement BTC's use case as raw collateral, and as a store of value, BTC solidifies its "digital gold" narrative - which is good, ETH will be both a "digital bond" (collateralized yield = risk-free rate) ) and the main collateral asset of DeFi
8. After the merger, the Ethereum blockchain will be more sustainable than the Bitcoin blockchain
In addition to PoS being more energy efficient than PoW (uses 99% less electricity), Ethereum is also cheaper
9. ETH expansion is coming!
Merge swaps ETH's consensus engine for PoS for increased security. Safe L1 favors L2 rollup - this is where the scaling magic happens
10. ETH’s journey isn’t over after the merger
While L1 ETH will change a lot after the merger, the technology needs to continue to evolve
Data sharding, light clients, stake fetching, state management, and more - it's all coming
11. Worth repeating: The ETH merger was one of the most impressive engineering feats in blockchain history
Under a full PoS regime, #ETH will have an economic structure that improves security, scales through L2, grows its DeFi and NFT platforms, and outperforms #BTC