Latest / The Cryptocurrency Economy with Fexingo: Bitcoin, Ethereum, and Digital Money Markets / The Ethereum Merge Two Years Later What Changed
Transcript
- Lucas: So, it's July 2026, and we're coming up on the two-year anniversary of the Ethereum Merge — that massive transition from proof of work to proof of stake that went down in September 2024. And I think it's worth asking: what actually changed? Luna: Yeah, because at the time, the hype was enormous. People were calling it the most significant event in crypto history since Bitcoin itself. But now that we've got some distance, how does it actually look? Lucas: Right. Let's start with the most concrete change: supply. Before the Merge, Ethereum was issuing about 13,000 new ether per day to miners. After the shift to proof of stake, that dropped to roughly 1,400 ether per day from validators. That's a reduction of about 90 percent. Luna: And that's on top of the EIP-1559 fee burn mechanism, which was already in place from 2021. So on days when network activity is high, more ether gets burned than issued, making ether net deflationary. Lucas: Exactly. And we've actually seen that play out. As of this week, ether's total supply is about 120.2 million, which is actually slightly lower than it was at the Merge. It's not a massive deflation — maybe a few hundred thousand ether less — but it's a stark contrast to the old proof of work model where supply was always inflating by several percent a year. Luna: So the supply math has clearly changed. But what about the security side? proof of stake obviously requires a lot less energy, but it also introduces different risks. Lucas: Right, and that's where the discussion gets more nuanced. The energy drop is undeniable — something like a 99.9 percent reduction in power consumption. But on the security front, you have the issue of staking concentration. Right now, Lido controls about 28 percent of all staked ether, and Coinbase has another 13 percent. That's a lot of power in a few hands. Luna: And that's not even counting the liquid staking derivatives. Lido's stETH has become a massive collateral asset across DeFi. If something goes wrong with Lido's smart contracts, the knock-on effects could be pretty severe. Lucas: Yeah, that's a real systemic risk. But on the flip side, the Merge also enabled withdrawals — validators can now exit and unstake their ether. That wasn't possible initially. It took the Shanghai upgrade in April 2025 to unlock that. And since then, the staking ratio has climbed from about 15 percent of total supply to over 27 percent today. Luna: So more people are staking, which theoretically means the network is more secure, but also more ether is locked up. Does that affect the price? Lucas: In theory, yes. Less circulating supply should be supportive for price. But the reality is that ether's price has been pretty disappointing since the Merge. It peaked around $4,800 in late 2024, then fell with the broader crypto downturn. Right now it's at about $1,747, down over 60 percent from that peak. Luna: So the Merge didn't exactly trigger a sustained rally. But then again, we're in a bear market, and Bitcoin is down too. So maybe it's not entirely fair to judge the Merge by the price. Lucas: I think that's right. The Merge was a structural change to the protocol, not a price catalyst. And if you look at Ethereum's activity — layer-2 rollups, DeFi volumes, stablecoin usage — it's still the dominant smart contract platform by most metrics. Solana has had its moments, but Ethereum's ecosystem is just deeper. Luna: Yeah, Solana is up about 4 percent this week while ether is down 2 percent, so there's some rotation happening. But Ethereum still has the network effects. Lucas: Exactly. And one other thing that's shifted post-Merge is the narrative around ether as an asset. It used to be seen purely as gas for transactions. Now, because of staking, it's more of a yield-bearing asset. The current staking yield is about 3.2 percent, which isn't huge, but it's a real return. Luna: And that yield is coming from issuance — so it's basically a transfer from non-stakers to stakers. That creates a kind of tax on anyone who holds ether but doesn't stake it. Their share of the total supply gets diluted slightly over time. Lucas: That's a really important point. If you hold ether and don't stake, you're effectively losing about 3 percent per year relative to stakers. That's a strong incentive to either stake yourself or use a liquid staking derivative. And that's exactly what we're seeing — the vast majority of ether is now either staked directly or wrapped into stETH or similar tokens. Luna: So the Merge has fundamentally changed the incentive structure for holders. But it's also changed the governance dynamics, right? I mean, validators now have a say in protocol upgrades through things like EIPs. Lucas: Yes, but it's not direct on-chain governance like some other chains. Ethereum still uses off-chain governance through the Ethereum Improvement Proposal process, and validators signal their preferences by upgrading their clients. But there's a concern that large staking pools could exert outsized influence. Luna: And that's something the Ethereum community is actively debating. There's been talk about limiting the size of any single staking provider, but nothing concrete yet. Lucas: Right, it's an ongoing tension. Overall, I'd say the Merge has been a technical success — the network has operated smoothly, no major incidents, energy use is way down. But the economic and political implications are still playing out. And the price action has been a reminder that even a successful upgrade doesn't guarantee a rising tide. Luna: Honestly, if walking through the economy with us has made something click for you, we'd love it if you considered supporting the show. The smallest thing you can do is buy us a coffee — literally, buy me a coffee dot com slash fexingo. It keeps us ad-free and independent. Lucas: Yeah, it's a small gesture that means a lot to us. And if today's episode was worth a coffee to you, that link is buy me a coffee dot com slash fexingo. We really appreciate it. Luna: So, back to Ethereum — where do you see the biggest risk for the network in the next year? Lucas: I think the biggest risk is actually competition from other layer-1 chains that offer higher throughput and lower fees, like Solana or even newer ones like Sui. Ethereum's layer-2 scaling is improving, but it adds complexity for users. If the user experience doesn't get simpler, some developers might migrate. Luna: That's a fair point. But Ethereum's advantage is its maturity and the sheer amount of capital locked in its DeFi ecosystem. That doesn't disappear overnight. Lucas: Absolutely. And the Merge laid the foundation for future upgrades like sharding, which is supposed to dramatically increase scalability. That's still on the roadmap, probably a couple years out. So the Merge was step one. The question is whether the rest of the plan can be executed before competitors eat Ethereum's lunch. Luna: So, two years in, the Merge is a qualified success. The supply is deflationary sometimes, staking is more accessible, but the price hasn't followed. And the network still faces real challenges. Lucas: I think that's a fair summary. The Merge was necessary for Ethereum's long-term survival, but it wasn't a magic bullet. The real test is still ahead.