The Merge — Ethereum’s landmark transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) — quietly reached its one-year milestone, marking a pivotal chapter in blockchain history. Over the past 12 months, Ethereum has not only proven its network resilience under the new consensus mechanism but has also undergone transformative shifts in supply dynamics, scalability, and ecosystem growth.
With Ethereum now operating sustainably on PoS, key developments such as deflationary pressure on ETH supply, explosive growth in Layer2 solutions, and increasing institutional adoption are shaping a new era for the network. As we reflect on this milestone, it’s clear that Ethereum is evolving from a foundational smart contract platform into a scalable, secure, and increasingly mainstream financial settlement layer.
Ethereum Enters the Deflationary Era
One of the most significant outcomes of The Merge has been the shift in Ethereum’s monetary policy — from inflationary to deflationary.
Prior to The Merge, Ethereum issued new ETH through mining under the PoW model, resulting in an annual inflation rate of approximately 3.162%. Today, with staking rewards as the sole source of new supply, the annual issuance has dropped dramatically to around 660,000 ETH.
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According to data from ultrasound.money, since The Merge, over 300,000 ETH have been removed from circulation — equivalent to roughly $500 million at current prices. Total ETH burned since EIP-1559’s implementation has surpassed 3.58 million ETH, further tightening supply.
Currently, Ethereum is experiencing a -0.26% annual deflation rate, while Bitcoin continues to inflate at 1.716%. This fundamental shift means that under normal network conditions, more ETH is being burned than issued — a powerful economic signal for long-term holders.
Even more telling is the surge in staking activity. As of this writing, over 24 million ETH are staked — nearly 20% of the total supply — valued at approximately $39.6 billion. This represents a significant increase from just 13% one year ago.
While Ethereum’s staking ratio remains lower than many competing blockchains (which often see 60–80% of tokens staked), the upward trend highlights growing confidence in the network’s security and yield potential.
It's important to note: these deflationary metrics are measured during a period of relatively low on-chain activity. Daily ETH burn currently ranges between 1,000 and 2,000 ETH, well below historical highs of 4,000–5,000 ETH seen during peak DeFi summers.
Should market conditions improve and user activity rebound — especially with upcoming upgrades — Ethereum’s deflationary pressure could intensify significantly.
Frequently Asked Questions
Q: What caused Ethereum to become deflationary after The Merge?
A: The shift to PoS drastically reduced new ETH issuance, while EIP-1559 continuously burns transaction fees. When burn exceeds issuance, net supply decreases — creating deflation.
Q: How does staking affect ETH supply?
A: Staking locks up ETH, reducing liquid supply. With nearly 20% of ETH staked and illiquid until withdrawals are fully enabled, this enhances scarcity and supports price stability.
Q: Is Ethereum’s deflation permanent?
A: Not necessarily. Deflation depends on network usage. Low activity means less fee burning. High usage can accelerate deflation, but if issuance policies change in the future, inflation could return.
Layer2 Momentum Outpaces Competing Blockchains
While supply dynamics reshape ETH’s value proposition, Layer2 (L2) scaling solutions are redefining Ethereum’s utility.
Once constrained by high gas fees and limited throughput, Ethereum is now leveraging Rollup-centric scaling — particularly optimistic and zk-Rollups — to deliver scalability without compromising decentralization or security.
Total Value Locked (TVL) across L2 networks has rebounded to nearly $10 billion, nearing all-time highs. This resurgence is driven by improved user experience, lower costs, and expanding application ecosystems on chains like Arbitrum, Optimism, zkSync, and Starknet.
Crucially, modular development stacks like OP Stack and ZK Stack are enabling teams to deploy customized L2s rapidly — fostering innovation at an unprecedented pace.
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In the past, developers faced a simple choice: build on Ethereum (expensive), Solana (fast), or Cosmos (interoperable). Today, the landscape is more nuanced. With L2s offering EVM compatibility, high performance, and shared security via Ethereum’s base layer, many competing Layer1s are losing their narrative edge.
The upcoming Cancun-Deneb upgrade (EIP-4844) will further accelerate this trend by introducing proto-danksharding — a key step toward full danksharding. This enhancement is expected to reduce L2 transaction costs by one to two orders of magnitude, making microtransactions and complex dApps economically viable.
For context: prior to L2 adoption, executing a single DeFi trade or NFT mint often cost $10–$20 in gas — sometimes exceeding hourly wages in certain regions. These barriers made Ethereum impractical for everyday use.
Now, with L2s handling execution and settling proofs on Ethereum, users enjoy near-instant transactions for pennies. This opens doors for new use cases: decentralized social media, gaming economies, real-time derivatives trading, and more.
As Vitalik Buterin once noted:
“If blockchain applications can’t work today even with scaling solutions in place, then maybe they never should have been built on blockchain to begin with.”
With Ethereum’s scalability roadmap progressing steadily, that threshold of practicality is finally within reach.
Frequently Asked Questions
Q: What are Layer2 solutions and why do they matter?
A: Layer2s are protocols built atop Ethereum that process transactions off-chain and post data back to Layer1. They reduce congestion and costs while inheriting Ethereum’s security — essential for mass adoption.
Q: How does EIP-4844 lower L2 costs?
A: It introduces "blob-carrying" transactions that store temporary data off the main chain. This reduces data load on Ethereum, slashing L2 rollup fees significantly.
Q: Can L2s replace other blockchains?
A: Increasingly yes — especially for EVM-based apps. With low fees and strong security, L2s offer a compelling alternative to standalone Layer1s that sacrifice decentralization for speed.
New Institutional Narratives Strengthen Ethereum’s Position
Beyond technical upgrades, institutional validation is reinforcing Ethereum’s role in the global financial system.
One notable development is PayPal’s USD-backed stablecoin, PYUSD, launched on the Ethereum blockchain. As one of the world’s largest digital payment platforms embraces crypto-native infrastructure, it signals growing trust in Ethereum as a reliable settlement layer.
Although PYUSD’s current circulation stands at just 44.37 million tokens with only 452 holding addresses, its mere existence introduces regulated fiat-on-ramp potential at scale — something few stablecoins can claim.
Moreover, reports suggest the U.S. Securities and Exchange Commission (SEC) is preparing to approve Ethereum futures ETFs, with filings from firms like Volatility Shares, Bitwise, Roundhill, and ProShares already under review.
This mirrors the path taken by Bitcoin: futures-based ETFs often precede spot approvals due to regulatory familiarity with derivatives. Approval would open billions in traditional capital to indirect ETH exposure through regulated vehicles.
Such moves underscore a broader trend: traditional finance is increasingly viewing Ethereum not as speculative tech, but as critical financial infrastructure.
Frequently Asked Questions
Q: Why did PayPal choose Ethereum for PYUSD?
A: Due to its robust security, global node distribution, mature developer ecosystem, and strong smart contract capabilities — making it ideal for regulated financial products.
Q: What impact could an ETH futures ETF have?
A: It would provide institutional investors with compliant access to ETH price exposure, boosting liquidity and legitimacy in traditional markets.
Q: Is Ethereum becoming too centralized with institutional involvement?
A: Not inherently. While institutions bring capital and regulation, Ethereum’s open-source nature and decentralized governance help maintain permissionless innovation.
Final Thoughts: Ethereum at an Inflection Point
One year after The Merge, Ethereum stands stronger than ever — technically sounder, economically tighter, and institutionally recognized.
With deflationary pressure mounting, Layer2 ecosystems maturing, and real-world assets like PYUSD entering the fold, Ethereum is no longer just a platform for speculation. It's evolving into a foundational layer for next-generation finance.
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The road ahead includes full sharding, further staking improvements, and wider adoption of account abstraction and privacy-preserving technologies. But the foundation is set.
As Vitalik emphasized: blockchain must prove utility now. And with The Merge complete and scaling underway, Ethereum is finally ready to deliver.