Introduction

After years of anticipation, The Merge has arrived. Early 15th September morning, Ethereum’s landmark transition to proof of stake went off without a hitch. With tens of billions of dollars of digital assets on the line and zero margin for error, the Ethereum merge consumed the focus and energy of the network’s elite cadre of core developers for almost half a decade which proponents say could boost crypto prices in the long run and significantly change the future of cryptocurrency. The Merge is an upgrade to the Ethereum blockchain, which powers innovations in the crypto ecosystem like non-fungible tokens (NFTs). There's been a boom in crypto investing in recent years, with the value of the overall market more than doubling at one point last year as people piled their money into bitcoin, ether, dogecoin and other cryptocurrencies. Whether you are super into crypto and following every latest development in the space or you own a bit of crypto via a platform like Coinbase or Venmo, if you've heard about the so-called Merge you may be wondering what it actually means for you.

The upgrade transitioned Ethereum from Proof of Work (PoW) to the Proof of Stake (PoS) model, which is a more energy-efficient and environmentally-friendly system. It entails nodes being selected via an algorithm that has a preference for nodes that hold more of a network's currency. In other words, their "stake" in the network is rewarded over the computer power that's rewarded in the proof-of-work system. Proponents say that the transition allows the Ethereum network to reduce its energy consumption by around 99%.

Within the next month, the network’s core developers will have to collectively determine which features they plan to include in Ethereum’s next upgrade, Shanghai. Opinions within the group are torn. And once again, the decision will have multi-billion dollar implications.

"This is the first step in Ethereum's big journey towards being a very mature system, but there are still steps left to go," said Vitalik Buterin, Ethereum's co-creator, as he reflected on the Merge live stream. He went on to mention Ethereum's relatively high fees and slow speeds, which were not addressed by the update, but remain as much a barrier to growing the network's user base as environmental concerns ever were. Buterin, Ethereum's most visible figurehead, previously outlined a set of next steps for the network that includes “sharding” – a method that should help address the network’s sluggish transaction times and high fees by spreading transactions across “shards,” like adding lanes to a highway.

As we see, The Number of Successful Transactions (and also TPS: Transactions Per Second) on the Ethereum network is increasing after the Merge update.

Moreover, The Number of Active Users on this blockchain is experiencing a raise after the Merge upgrade.

Although the Merge upgrade does not have an impressive impact on the transactions fee on the Ethereum network by itself (the transactions fee will be decreased dramatically after future upgrades), we can still see the slight reduction of Transactions Fee after the Merge upgrade and this is actually good news because high transactions fee is one of the main problems of Ethereum network. This will get even better after future Ethereum updates.

As a better understanding view, on the above pie-charts, we can obviously see the increasing daily average number of transactions and active users after the Merge upgrade and on the other hand, The decreasing Transactions Fees after this event.

Also based on the above charts, we can see more and more new first-time users are interacting with the Ethereum network.

As we see, the swap activity on the Ethereum DEXs is increasing after the Merge upgrade and also the average daily number of swaps is getting more and more.

Based on the above chart, we can see increasing number of daily NFT sales after the Merge upgrade.

Also on the above charts, we can see the increasing activity of NFT mints and also minters after the Merge upgrade this is actually a good impact of this upgrade on the Ethereum network since there will be more and more minted NFTs in this ecosystem that will result in impressive growth on NFTs on Ethereum.

Based on the above and left charts, Although we can see some high spikes during weeks and days before the Merge upgrade, the average daily ETH stake activity is increasing significantly after the Merge upgrade and that’s what we talked about on the above.

And as a clearer and better understanding result, on the above pie-charts, we can clearly see the increasing ETH stake activity after the Merge upgrade compared to the days before this update, especially on the Volume of Stakes.

One of the health factors for an asset’s derivates is the peg metric. Ideally, the price of ETH derivates should be equal to the main ETH.

On the above charts, I have calculated the ratio of derivates to the real ETH price (closer to 1 more ideal). As we see, the further we go. these derivates prices are getting closer and closer to the ETH price (closer to number 1). Since each of these tokens can be converted to Ethereum at a 1:1 ratio after the Merge, this price difference is only due to the risks associated with these projects.

As we see There will be more and more produced blocks by Ethereum block producers after The Merge upgrade.

Also, we can see there is a dramatically increasing number of users who are participating in Ethereum block production after the Merge upgrade.

Swaps Activity on Ethereum Decentralized Exchanges (DEXs) After the Merge

From the beginning until now, one of the main problems of decentralized exchanges (DEXs) especially those who are on the Ethereum network, was their high transactions fee. So, when the transactions fee is decreased (after the Merge upgrade and other future upgrades), there will be more and more activity of transactions on these DEXs by users.

Below, I have analyzed the swap activity of swaps after the Merge upgrade and we can clearly see the positive impact of this update over time:

The Merge Impact on Ethereum’s NFT Ecosystem

Similar to the decentralized exchanges, one of the main problems of NFTs activity on Ethereum network was this blockchain’s high transaction and gas fees. This can be also one of the main reasons that some users are using NFTs on other blockchains such as Solana, Flow and etc… .

So, when the transactions fee are decreased (after the Merge upgrade and other future upgrades) there will be more and more activity on the NFT ecosystem of the Ethereum blockchain in the future

More and More Users Will Use Ethereum Network Because of Its Benefits and Future Interesting Upgrades and Ofcourse, its Successfull Merge Update

The Merge is just the beginning. As the rest of Ethereum’s roadmap continues to unfold, the new inflow of capital and innovation will also see new use cases solving current issues of the world. This is a major milestone for crypto, as it is destined for greater heights in the future of web3.

the Merge just symbolizes the difference between early-stage Ethereum, and the Ethereum we've always wanted ... to become, (as Vitalik Butrin said In a live stream after the Merge)

Shanghai Upgrade

Once the Ethereum Merge has been deployed, the network will yet again undergo another update - the Ethereum Shanghai upgrade. the Shanghai version addresses three critical issues surrounding Ethereum. It introduces changes in the EVM object format, Beacon Chain withdrawals, and L2 fee reduction. The Shanghai update introduces EIP-3540, also known as the EVM object format. The core element of this update is that it will separate the code from the data. This could be extremely beneficial for the on-chain validators. Alongside the separation, EIP-3540 introduces a new contract code section that helps in tackling and resolving complex features such as Account Abstraction, control flow in EVM, and EIP-3074. The Shanghai update also addresses the Beacon chain withdrawal delay. Current Ethereum stakers cannot withdraw their deposited ETH, but this should be resolved through the Shanghai upgrade. Finally, the Ethereum Shanghai update addresses the most wanted concern of the ETH community. It introduces changes that will effectively lower the notorious gas prices of Ethereum. The changes will be made by equalizing the block sizes and increasing the CALLDATA functionality of the block. The Ethereum Shanghai upgrade is expected to take place in early 2023, 6 ~ 12 months after The Merge.

ETH Liquid Staking and its Derivates

The transition from proof-of-work (PoW) to proof-of-stake (PoS) allows everyday decentralized finance (DeFi) users to benefit from rewards previously reserved for miners simply by holding stETH or any other ETH liquid-staking derivative. This has given way to a wave of interest across the industry, from individuals to institutions across CeFi and DeFi. In recent weeks, the ETH liquid staking derivatives have received a ton of attention, and titans of the industry have released ETH liquid staking derivatives.

> Liquid staking derivatives offer all the benefits of regular ETH while also being a yield-generating asset. That means holders are able to gain exposure to ETH’s price action and maintain liquidity while harnessing staking benefits. Wallets holding stETH will see their holdings gradually increase as staking yields are regularly added to the initial sum.

Ethereum's new validator system ushered in a new cast of characters responsible for keeping the chain up and running. With these new characters came new concerns around network centralization. Shortly following the Merge, Gnosis Chain founder Martin Köppelman drew attention for a tweet observing that 420 of Ethereum’s first 1,000 proof-of-stake blocks were proposed by just two entities: Lido and Coinbase. Ethereum developers frame proof-of-stake as a more decentralized and secure alternative to mining – making it possible for anyone with 32 ETH to play a role in supporting the network, no fancy equipment required. Ethereum’s pool operators can, at least for now, act without fear that their users will get angry and cut ties. (To be fair, Lido spreads its stake among several different validator services – meaning it should be more difficult for one party to act unilaterally against the network’s best interest.)

While most staking strategies require locking up funds in a validator, liquid staking derivatives allow users to maintain liquidity while still benefiting from the staking yield. ETH locked up in staking validators isn’t available for withdrawal until the Shanghai update. While stETH still trades at a slight discount compared to ETH, this gap is expected to close permanently once withdrawals are enabled. Simply put, ETH liquid staking tokens are just more capital efficient than standard ETH or more traditional staking practices. From a user perspective, there’s little reason to hold regular ETH, where the only potential upside would be an increase in price when they could hold a liquid staking derivative that would boost their prospective profits via staking yield. Project founders have adopted a similar mentality. From DeFi to nonfungible token (NFT) projects, teams across Web3 have integrated stETH into their protocols, with behemoths such as Curve and Aave making it even easier for DeFi users to integrate stETH into their investment strategies. The days of ETH seem to be numbered. Beyond a nominal gas allowance, any ETH not converted to a liquid staking derivative will just be money left on the table. The long foretold ETH killer appears to have finally emerged, though it looks like it will only boost Ethereum’s security.

Below, I am going to analyze some metrics about some popular ETH liquid staking platforms and their derivates and compare them before and after the Merge upgrade:

Ethereum Blocks Performance, Energy Usage and ETH Token Supply

Proof-of-Stake’s lottery-based system for proposing blocks is vastly more energy efficient than its power-hungry proof-of-work predecessor. based on Vitalik Butrin (Ethereum Co-Founder) tweet, the world's global energy usage decreased by 0.2% after The Merge upgrade. Moreover, a report from the Crypto Carbon Ratings Institute says that the network has cut its energy usage and carbon footprint by approximately 99.99% each.

Also with Ethereum’s update to proof-of-stake, the network has drastically reduced the amount of new ETH issued with every block. In the long term, due to a burning mechanism introduced with the network upgrade EIP-1559, there’s a possibility that this may make Ethereum deflationary – meaning its token supply could decrease over time. Still, Ethereum remained inflationary, producing more tokens than it was destroying under the PoW mechanism. Post-merge, however, the network’s daily issuance has dropped to ~772 tokens per day compared to ~12,500 before the upgrade.

In addition to the above facts, on below, I have analyzed the block production metric before and after the Merge upgrade:

More Info…

The chief executive of financial advisory giant deVere Group says that Ethereum’s (ETH) recent transition to a proof-of-stake consensus mechanism should drive up the prices of crypto assets.

“The years-in-the-making Merge, a network-wide, grand scale upgrade is here. This is [a] far-reaching overhaul of the most commercially important blockchain in the digital asset ecosystem is probably the most important, landmark event in crypto history, since the launch of Bitcoin. It transforms Ethereum from a proof-of-work to a proof-of-stake mechanism, which lowers transaction costs, enables the network to process more transactions in a shorter amount of time, and will slash energy consumption by a massive 99%.” According to Green, the merge’s reduction of energy consumption will entice institutional investors to put their capital into the nascent industry. “Whilst some of the news has been priced-in already, let there be no mistake: this event will be a major catalyst driving prices higher in the long term. The slashing of energy consumption will be the main reason as it will become significantly more appealing to institutional investors, who bring with them enormous capital, expertise and reputational pull. Those institutional investors who have been sitting on the sidelines are now likely to move in.” Green also notes that ETH’s transition will reduce its supply, cut costs, and speed up transactions, which will also lead to bolstered prices. “Besides having a more positive climate impact, The Merge’s effect of reducing supply, cutting costs and speeding up transactions will also appeal to both individuals and institutions. Due to the significance of The Merge, we expect the developments to bolster prices across the wider crypto market to some degree.”

Ethereum’s shift from proof of work to proof of stake may cause the Securities and Exchange Commission to take a closer look at regulating the cryptocurrency as a security, Chair Gary Gensler hinted on Thursday. Gensler’s comments came hours after Ethereum’s big shift, known as The Merge, took place. The SEC chair mentioned the Howey test, a tool regulators use to determine whether an asset is a security, when he spoke with reporters after a Senate hearing. “From the coin’s perspective…that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,” Gensler said, according to The Wall Street Journal. He noted he was not referring to a specific cryptocurrency.

Conclusion

In the above analysis, we have seen several increasing trends after the Merge upgrade on the Ethereum ecosystem. This event will have impressive good impacts on the number of transactions, number of users, number of swaps on DEXs, block performance, staking platforms, NFTs ecosystem, and also energy usage. Moreover in the long term (after inflation issue in the whole world and the bearish situation of market), it will have a great positive impact on the price of ETH and other cryptocurrencies and also the DeFi platforms such as AAVE and Compound.

Also, there will be more and more interesting features that will be added to the Ethereum network (such as shanghai upgrade or sharding or etc …). these updates could not be implemented on the Ethereum PoW mechanism. So, After switching to the PoS method, there is actually a bright future for the Ethereum ecosystem and its amazing handy upgrades.

Discord: Ali3N#8546

Sources:

https://www.coindesk.com/tech/2022/09/15/the-ethereum-merge-is-done-did-it-work

https://dailyhodl.com/2022/09/16/ethereum-merge-will-drive-crypto-asset-prices-higher-according-to-devere-group-ceo-nigel-green-heres-why

Methodology

In this dashboard, I am going to show some developing metrics and their over-time trends and split them into 2 eras: Before Merge and After Merge.