Weekly On Chain - The Merge

Weekly On Chain

Was there something big happening this week? Ahh yes, the Merge. While sort of anti-climatic in terms of what happened on the day, it was a big event with regard to the future of crypto. 

The Merge
The Merge

So big that Google incorporated it into its search results.

The Merge Search Result
The Merge Search Result

The Environmental Narrative

Worldwide electricity consumption has (allegedly) dropped by 0.2 percent after Ethereum, the world’s second-largest cryptocurrency, switched to a “green blockchain”, according to Ethereum researcher Justin Ðrake. That is going to make some attention-grabbing headlines out in the wider marketplace.

Pre Merge Institutional Investment

There were some investor jitters along with potential forked tokens which led to outflows of ETH from lending platforms in the days running up to the merge. But institutions and deep-pocketed “whales” have been accumulating and staking, signaling confidence that the Merge will be successful and that it will deliver yields going forward. Given there's not much else out there that will right now it's a decent bet.

Post Merge Short Positions

Traders on the other hand have been increasingly shorting ETH in anticipation of a sell-the-news event. Something we've mentioned a few times over the last couple of weeks as it looked like an increasingly likely outcome. However, a consistently negative funding rate also increases the possibility of a short squeeze. 

So what happened?

We saw ETH drop by around 10% in what seems to be a "sell the news" event playing out. 

Concerns around Decentralization

According to a Santiment Ethereum Post Merge Inflation dashboard, 46.15% of the proof of stake nodes for storing data, processing transactions, and adding new blockchain blocks can be attributed to just two addresses. This heavy dominance by these addresses is something to watch especially given the current discussions around centralization in Lido staking well. 

Ethereum POS node centralisation
Ethereum POS node centralisation

Future On Chain Numbers

One thing that will be interesting to keep an eye on now is some of the on-chain metrics, especially comparing them to the leading cryptocurrency Bitcoin. 

Unique addresses (with a non-zero balance):

  • Ethereum 86m 

  • Bitcoin 43m

  

Last 12 months' fees:

  • Ethereum $8,960m 

  • Bitcoin $192m

Ethereum has twice as many unique addresses and 46 times the "revenue". I think there's a strong argument for institutional money to continue flowing into Ethereum now given the potential deflationary impact and environmental investment narrative. The next few years will be interesting.