One year after Ethereum’s historic shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS), the network has undergone a transformation that is reshaping the future of blockchain scalability, sustainability, and value accrual. Known as “The Merge,” this pivotal upgrade not only reduced Ethereum’s energy consumption by over 99% but also initiated a deflationary mechanism that has permanently removed more than 980,000 ETH—worth over $1.5 billion at current prices—from circulation.
This milestone marks a turning point in how digital assets can evolve beyond mere speculation into economically sound, environmentally responsible platforms with real utility and intrinsic value generation.
The Mechanics Behind ETH Burning and Supply Dynamics
The foundation for Ethereum’s deflationary trend was laid earlier with the London Hard Fork in August 2021, which introduced EIP-1559. This improvement fundamentally changed how transaction fees work on the network.
👉 Discover how Ethereum’s fee structure now works like a deflationary engine
Instead of all fees going to miners (now validators), EIP-1559 implemented a base fee that is burned—permanently destroyed—whenever users transact on the network. Users can still offer tips (priority fees) to validators for faster processing, but the core cost of using Ethereum is now systematically removed from supply.
Since The Merge in September 2023, this mechanism has led to the destruction of over 980,000 ETH, while simultaneously, more than 11.6 million ETH have been staked across 360,000+ validators. This dual force—burning and staking—is reshaping Ethereum’s economic model into one of the most compelling in crypto.
For context: without EIP-1559, Ethereum’s annual supply growth would sit around 3.4%, typical of inflationary PoS chains. But due to consistent fee burning, the actual supply growth over the past 30 days was just 0.03%, down from a slightly deflationary -0.003% the month prior. Even minor fluctuations highlight how close Ethereum is to sustained deflation—a rarity among major cryptocurrencies.
Staking: A New Era of Passive Income and Network Security
Post-Merge, staking has become a cornerstone of Ethereum’s ecosystem. By locking up ETH to help secure the network, participants earn yield in return—typically between 3% and 5% annually, depending on total staked supply and network activity.
Major exchanges and crypto platforms now offer liquid staking solutions, allowing users to stake their ETH while retaining liquidity through derivative tokens like stETH or rETH. These tokens represent staked ETH and can be used across decentralized finance (DeFi) protocols for lending, borrowing, or trading—unlocking yield without sacrificing flexibility.
This innovation has driven institutional interest. For example, Fidelity Digital Assets, part of the $4.5 trillion asset management giant Fidelity Investments, recently released a report titled “The Case for Ethereum Investing.” In it, they argue that Ethereum is currently undervalued based on its fundamental metrics.
According to Fidelity’s analysis:
- Ethereum’s circulating supply sits at approximately 120 million ETH
- Annualized network fees exceed $6.8 billion
- Using a discounted cash flow (DCF) model, ETH’s fair value could be around $2,090
That assessment comes at a time when large holders—commonly known as “whales”—have accelerated accumulation. In just 24 hours, Ethereum whales purchased over $400 million worth of ETH, signaling strong confidence despite broader market volatility.
Why Ethereum’s Economic Model Stands Out
What sets Ethereum apart isn’t just technological superiority—it’s the convergence of monetary policy, network usage, and sustainable incentives.
Unlike traditional PoW blockchains that rely on constant issuance to reward miners (leading to inflation), Ethereum combines:
- Controlled issuance via staking rewards
- Active destruction via fee burning
- Growing demand from DeFi, NFTs, and Layer 2 ecosystems
This creates a dynamic where increased usage leads to more fees burned—which can result in net deflation during periods of high activity. In essence, the more people use Ethereum, the scarcer ETH becomes.
Moreover, with ongoing upgrades like Dencun and the introduction of proto-danksharding, Ethereum is poised to drastically reduce transaction costs for Layer 2 networks, further boosting adoption and fee volume.
👉 See how Layer 2 scaling is unlocking cheaper, faster Ethereum transactions
Market Sentiment Amid Broader Crypto Volatility
Despite Ethereum’s strong fundamentals, the broader crypto market has seen pullbacks. Total market capitalization briefly dipped toward the $1 trillion mark, with cryptocurrencies losing about 0.9% in value over seven days.
Yet within this correction, Ethereum continues to outperform many altcoins. Its resilience reflects growing recognition as not just a speculative asset but as a foundational layer for decentralized applications, smart contracts, and tokenized real-world assets.
Whale accumulation patterns suggest long-term conviction. On-chain data shows that addresses holding 10,000+ ETH have increased their holdings steadily since mid-2023. This “buy and hold” behavior often precedes bullish market phases.
Frequently Asked Questions (FAQ)
Q: What is the difference between Proof-of-Work and Proof-of-Stake?
A: Proof-of-Work relies on computational power to validate transactions and secure the network (like Bitcoin), consuming vast amounts of energy. Proof-of-Stake uses economic stake—users lock up ETH—to validate blocks, making it far more energy-efficient and scalable.
Q: How does ETH burning make Ethereum deflationary?
A: When users pay transaction fees, part of that fee (the base fee) is burned—permanently removed from circulation. If more ETH is burned than issued as staking rewards, the total supply decreases, creating deflationary pressure.
Q: Can anyone participate in Ethereum staking?
A: Yes. While running a validator requires 32 ETH, most users can stake smaller amounts through centralized exchanges or liquid staking providers like Lido or Rocket Pool.
Q: Is Ethereum truly carbon-neutral after The Merge?
A: Yes. According to the Ethereum Foundation, energy usage dropped by 99.95% post-Merge. Ethereum now uses less electricity than many small countries and is considered environmentally sustainable compared to PoW networks.
Q: What factors could drive ETH price higher in 2025?
A: Increased adoption of Layer 2 networks, continued ETH burning during high usage periods, institutional investment (e.g., potential ETF approvals), and further protocol upgrades improving scalability and security.
Final Thoughts: Why This Moment Matters
Ethereum’s transition to PoS wasn’t just a technical upgrade—it was an economic revolution. By aligning incentives across users, developers, and validators, it created a self-sustaining system where usage generates value, security is decentralized, and environmental impact is minimal.
With over $1.5 billion worth of ETH already burned and whale activity signaling strong confidence, Ethereum remains one of the most robust digital assets in the market. As Layer 2 adoption grows and DeFi innovation accelerates, the network’s fee burn rate could surge—potentially pushing ETH into sustained deflation.
Whether you're an investor, developer, or observer, understanding Ethereum’s new economic paradigm is essential for navigating the next phase of blockchain evolution.
👉 Learn how you can start earning yield through secure Ethereum staking today