Full disclosure: I have staked the majority of my ETH on the beacon chain.
During the recent Permissionless conference, a panel consisting of Ethereum core developers discussed the readiness of the ETH merge. You may be skeptical that it will happen, and I am not inclined to make any predictions on when The Merge for ETH will occur, but the most important point is that it seems likely to happen this year, although the exact date has not been determined.
Ethereum core Dev @preston_vanloon just said the eth merge is ready,they are now only testing, and expects the merge to happen in August. Packed room @Permissionless are excited about it. Great question @TrustlessState. Also on panel @drakefjustin pic.twitter.com/vX4beNatJ5— Benjamin Cohen (@benjicohen421) May 19, 2022
While it’s possible the Merge occurs in August, my base case is September. Think we will get two month bomb delay post Ropsten followed by September Merge. https://t.co/t0sOy9zs6x— Hal Press (@NorthRockLP) May 29, 2022
Here are the reasons why people are excited about the Merge:
Structural Supply and Demand: Hal Press lays this out in his thesis on why Ethereum is a generational investment. The key concept of structural supply and demand is that in Proof Of Work, miners have to sell their cryptocurrency rewards to offset the cost of their mining. Miners receive ~15K tokens/day, of which they have to sell a portion as cost of running operations, profit-taking, etc. Using an assumption that 85% of tokens are structurally sold each day, at $1800 ETH/USD this equates to ~$27M/day, which is ~$10B/year. Over time, this amount and price have stabilized as the current equilibrium (obviously ETH price was even higher only just recently).
~$10B/year needs to be spent each year just to maintain current prices, and even more is required to generate price increases. Since the sellers are trying to recover the cost of their business, these sales are largely happening in fiat currencies.
Once Ethereum shifts to Proof of Stake, this structural supply and demand dynamic is changed for a cryptocurrency that had historically found a equilibrium involving billions of fiat currency in-flow, to one where all issuance of ETH are allocated to stakers, who now only require to have ETH staked on-chain and not ASIC miners and infrastructure like electricity, etc. ETH stakers therefore do not have the structural need to sell a large portion of the rewards and need less rewards to be profitable.
In effect, Ethereum shifts from a relatively high structral supply (~$27M/day) to a lower structural supply. Assuming that structural demand remains robust (otherwise where are all the current demand for ETH is coming from), this suggests that there will be price appreciation over the medium to long term post-Merge.
There is a question about the impact of stakers selling post-Merge. For now consider what happens immediately post-Merge, and for six months stakers are not able to access their staked coins and staking rewards. This means up to ~$5B worth of sell pressure is taken off the market. Even after six months, only six validators will be able to enter or exit a staking spot every epoch, which happens every 32 blocks, or 225 epochs per day so a maximum of 1350 validators can stake or unstake in one day. However, after The Merge all transaction tips go to stakers which are estimated to add 5-10% on top of today’s APR for staking, and at that rate it seems there should be a demand for continued staking.
Environmental Impact: The move to proof of stake means that Ethereum’s energy consumption will be cut by 99%.
Triple Halving: The Merge will result in a highly reduced Ether token issuance rate dubbed the “Triple Halving”.
Ethereum, The Triple Halving— Squish (@SquishChaos) April 27, 2021
My report on the investment case for $ETH is finally finished.
It is 79 pages long, my pride and joy, the cumulative product of years of learning and a week of insane effort.
Bullish on Ethereum and The Merge.
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