Despite ether’s recent price action, the network has been thriving since the “merge” – and could just be getting started. A year ago Ethereum underwent a major technical transition that was meant to improve its security in an energy efficient way that many hoped would lead to higher price s and, separately, would open a new yield-generating opportunity for investors. The price of ether is down over the past six months, but it’s still up 8% over the past year and nearly 35% year-to-date, according to Coin Metrics. With the crypto market as a whole suffering from low liquidity and volatility amid regulatory uncertainty, the incremental regulatory and technical developments in Bitcoin and Ethereum haven’t been enough to push prices to new highs after the banking crisis-fueled rally earlier this year. Still, market participants are seeing and feeling the success of the Ethereum merge. “ETH’s transition to proof-of-stake created a more composable, cheaper and less energy-intensive network that currently yields stakers about 4%,” said Matthew Sigel, head of digital assets research at VanEck. “But with T-bills yielding 5% and the U.S. regulatory onslaught ongoing, investor and developer interest has been insufficient to pump the token much in recent months.” “Ethereum daily gas fees are languishing near 2023 lows and daily trading activity at 2-year lows,” he added. “We look forward to Ethereum protocol upgrade EIP-4844 in Q4, which should enable much cheaper transactions on Ethereum-compatible layer 2s and potentially catalyze wider adoption of stablecoin and loyalty applications.” Here’s how Ethereum is doing on some of its post-merge goals: Yields Ether’s staking reward reference rate was 5.854% per annum on Sept. 15, 2022, according to Ethereum data provider Beaconchain. It spiked to about 8% after the fall of FTX and in May following JPMorgan’s takeover of First Republic. Yields were last at 3.9%. The yield changes based on participation levels in staking and Ethereum’s process of validating transactions. It is expected to fall as more stakers come onto the network. (For more on staking check out our guide here .) More validators The amount of staked ether has been rising steadily over the past year with investors keen to earn extra yield on their assets. While the merge gave investors the opportunity to earn yield – by locking up their funds – this year’s Shanghai, also known as Shapella, upgrade gave them the ability to unstake their funds. The Shanghai upgrade was widely seen as an event that would bring more liquidity to Ethereum. “While the market has been really stagnant across digital assets, staking has been one of the few areas that have seen constant growth in this period,” said Andrew Ballinger, head of staking solutions at Canadian investment firm 3iQ. “About a week after [Shanghai] happened in April, we started to see assets coming into the network to be staked outpacing assets being withdrawn,” he added. “That really demonstrates the immediate interest from people who were sitting on the sidelines, who hadn’t been staking until this point to start doing so.” The percentage of ether supply being staked has risen from 11.99% on Sept. 15, 2022, to 20.46% on Aug. 30 of this year. Burning fees and decreasing supply Ethereum has a mechanism programmed in to regulate the network’s notoriously high transaction fees, called gas fees, by “burning” them. Everyday new ether is emitted into the market and if demand doesn’t match the supply level, the price goes down. After the merge, investors expected there to be less supply in the market, and if demand stayed constant, that the price would rise. Since the merge, the supply of ether has fallen 0.248%, according to data provider Ultrasound Money . About 681,449 ETH have been issued while 981,427 have been burned. “The ETH supply is now kind of dependent on the usage – the more usage, the more ETH that’s burned,” said Maria Shen, a general partner at Electric Capital. “Right before the merge, the supply of ETH peaked, and now we are on a flat, deflationary supply curve.” “Whenever someone does a transaction, they pay a fee,” she explained. “Part of that fee is now being burned, and whenever you do that, the supply of Ethereum shrinks. So you have effectively a deflationary supply of ETH” – meaning the supply over time will begin to decline as opposed to increase, which is historically what it’s always done – “as long as people keep using the network.” The next upgrade The merge was just the first step in a series of upgrades that are planned to make improvements on Ethereum. The blockchain is the most popular among developers who are keen to build a new world of applications on this technology. But, in recent years, it has been hampered by its famously slow transaction times and egregious transaction fees. Those specific problems gave rise to alternatives like Solana and Cardano. If Ethereum can speed up transactions and solve the fee structure, it could become more competitive, Shen said. “Those no longer become differentiating factors,” she said. “So those ecosystems will be forced to figure out other differentiating factors. “A lot of them do scale in different ways with different types of trade offs, so that’s one consideration: what are the trade offs that users are willing to make?” she added. “It’s not just enough for something to be fast, you need something to be able to do it on the chain.”
