One year after Ethereum’s historic transition from proof-of-work (PoW) to proof-of-stake (PoS), the blockchain landscape has undergone significant transformation. Known as "The Merge," this pivotal upgrade not only slashed Ethereum’s environmental footprint but also reshaped its economic and governance dynamics. While many of the original goals—such as reducing energy consumption—have been decisively achieved, new challenges around centralization, MEV, and tokenomics have emerged.
This article explores five critical developments in the Ethereum ecosystem post-Merge, focusing on liquidity, decentralization, and long-term sustainability. We’ll dive into data-driven insights and evolving trends that define the current state of liquid staking and PoS networks.
1. Ethereum’s Energy Use Drops by 99.9%
The most immediate and measurable impact of The Merge was a dramatic reduction in energy consumption. Prior to the upgrade, Ethereum operated under a PoW consensus mechanism, where miners competed to solve cryptographic puzzles using high-powered hardware—a process notoriously energy-intensive.
After transitioning to PoS, Ethereum eliminated mining altogether. Instead of relying on computational power, validators now secure the network by staking ETH. This shift reduced the network’s energy usage by an estimated 99.9%, according to analyses from Digiconomist.
To put this into perspective: pre-Merge, Ethereum’s annual electricity consumption rivaled that of small countries. Today, it consumes less energy than major tech companies like Google or Meta. In contrast, Bitcoin—which still uses PoW—continues to consume energy at levels comparable to Singapore, per the Cambridge Bitcoin Electricity Consumption Index.
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This environmental win has helped silence one of the loudest criticisms of crypto: its carbon footprint. As global regulators increase scrutiny on ESG compliance, Ethereum’s green transformation strengthens its position as a viable infrastructure for decentralized applications.
2. Staking Centralization Remains a Growing Concern
Despite eliminating hardware barriers, PoS has introduced new forms of centralization risk. To become a validator on Ethereum, users must stake 32 ETH—approximately $50,000 at current prices. This high entry threshold excludes many retail participants and pushes them toward third-party staking services.
Enter staking providers like Coinbase and decentralized pools such as Lido, which allow users to pool their ETH and participate collectively. These platforms manage validator nodes on behalf of users and distribute rewards—minus a fee.
However, this convenience comes at a cost: concentration of control. As of now, Lido controls 32.3% of all staked ETH, edging dangerously close to the 33% threshold. If any single entity surpasses this level, it could theoretically execute a "slashing attack" or manipulate consensus during network disruptions.
While no such attack has occurred, the trend raises red flags about decentralization—the very principle Ethereum was built upon. Developers and researchers continue to explore solutions like distributed validator technology (DVT) and protocol-level caps on stake concentration to mitigate these risks.
3. MEV and Censorship: The Hidden Cost of Profitability
Another unintended consequence of The Merge is the rise of Maximal Extractable Value (MEV)—a mechanism allowing validators and block builders to profit by reordering, inserting, or censoring transactions within blocks.
MEV has become a multi-million dollar industry on Ethereum. Validators can earn substantial additional income beyond staking rewards by optimizing transaction order for profit—often at the expense of ordinary users who face higher slippage or failed trades.
To address MEV’s negative externalities, the research group Flashbots introduced MEV-Boost, a software tool that allows validators to outsource block construction to specialized builders. Over 90% of Ethereum blocks now pass through MEV-Boost, making it a de facto standard.
But this dominance has sparked debate. Because most MEV-Boost blocks are relayed through Flashbots’ own infrastructure, critics argue it creates a central point of failure—and potential censorship vector.
For example, in 2022, Flashbots complied with U.S. Treasury sanctions by filtering transactions linked to Tornado Cash, a privacy tool. While legally compliant, this move alarmed developers who believe core network infrastructure should remain neutral.
Efforts are underway to decentralize the MEV supply chain. Today, around 17.3% of blocks use non-Flashbots relays, and censorship rates have dropped from a peak of 78% in late 2022 to about 35%. Still, full decentralization remains a work in progress.
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4. Liquid Staking Tokens Dominate the ETH Economy
One of the most transformative trends post-Merge is the explosive growth of liquid staking tokens (LSTs). Traditional staking locks up ETH, making it illiquid and unusable in DeFi applications like lending or trading.
LSTs solve this problem by issuing derivative tokens—such as stETH from Lido—that represent staked ETH while remaining freely tradable. These tokens earn yield from staking rewards and can be used across DeFi platforms as collateral or liquidity.
Even after the Shapella upgrade in April 2023 allowed users to withdraw staked ETH, LST adoption did not decline as some predicted. Instead, the liquid staking market now exceeds $20 billion in total value locked (TVL).
Lido’s stETH alone accounts for 72.24% of all LSTs, underscoring both its popularity and the concentration risk within the ecosystem. Other players like Rocket Pool and Coinbase’s cbETH are gaining traction but remain far behind.
The persistence of LST demand reflects deeper user preferences: accessibility, composability, and flexibility outweigh the benefits of solo staking for most investors.
5. ETH Net Supply Is Now Shrinking
Perhaps one of the most bullish long-term developments is Ethereum’s shift toward a deflationary monetary policy.
Thanks to EIP-1559, introduced before The Merge, a portion of transaction fees is permanently "burned" with every block. After The Merge further reduced new ETH issuance, the network began burning more ETH than it mints—leading to a net decrease in supply.
As of now, Ethereum’s circulating supply has decreased by 0.24% year-over-year. This deflationary pressure could increase scarcity over time, potentially boosting ETH’s value if demand remains steady or grows.
While short-term price movements are still heavily influenced by macroeconomic factors—such as interest rates and market sentiment—the structural shift toward scarcity marks a turning point in Ethereum’s economic model.
Frequently Asked Questions (FAQ)
Q: What is liquid staking?
A: Liquid staking allows users to stake their ETH while receiving a tradable token (like stETH) that represents their staked assets and earns yield. This keeps funds liquid and usable in DeFi.
Q: Why is 33% staked ETH ownership a concern?
A: If any single entity controls more than one-third of staked ETH, it could disrupt consensus during network partitions or launch attacks that compromise security.
Q: How does MEV affect regular users?
A: MEV can lead to front-running and higher transaction costs for retail traders, especially in high-frequency or arbitrage-sensitive scenarios.
Q: Can I stake less than 32 ETH?
A: Yes—through liquid staking services like Lido or centralized platforms like Coinbase, you can stake any amount and receive proportional rewards.
Q: Is Ethereum truly carbon neutral?
A: While not officially certified as carbon neutral, Ethereum’s energy use dropped over 99% post-Merge, making it one of the most energy-efficient major blockchains.
Q: What caused ETH supply to shrink?
A: The combination of EIP-1559 fee burning and reduced issuance after The Merge led to more ETH being burned than issued each day.
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As Ethereum matures into its PoS future, innovation continues to balance scalability, security, and decentralization. The rise of liquid staking, evolving MEV dynamics, and deflationary economics all point to a more resilient—and complex—ecosystem than ever before.