"Has Ethereum passed its 'big test' 60 days after The Merge? When will it reach its full potential?"
— Original headline reflection
Ethereum's transition to Proof-of-Stake (PoS) was hailed as one of the most significant events this year, often framed as a major test for the network. Concerns ranged from complex vulnerabilities and centralization risks to "buy the rumor, sell the news" scenarios. Now, over two months post-Merge (September 15 to November 18), how has Ethereum and its ecosystem fared? Have the challenges been addressed? Are the promised benefits like deflation materializing?
Is Ethereum Deflationary Yet?
Source: Ultra Sound Money
Data from Ultra Sound Money reveals that Ethereum has reduced its issuance by 5,915.46 ETH, effectively entering a deflationary state. But how effective is the much-anticipated EIP-1559 + PoS "3x halving/deflation" mechanism?
Let’s break down the past 60 days into three phases:
Post-Merge Mild Inflation (September 15 – October 7):
- Low on-chain activity due to the crypto bear market.
- Daily issuance dropped to ~563 ETH (vs. ~15,000 ETH pre-Merge).
Gas Spike from XEN Token (October 8 – November 8):
- Token XEN drove sustained high Gas fees (20–50 gwei), burning nearly all ETH issued in Phase 1.
FTX Collapse & Surge in Activity (Final Week):
- Gas fees exceeded 100 gwei, pushing Ethereum into net deflation.
- Net Result: ~880,000 ETH reduced in issuance (worth ~$1.1B USD), removing consistent sell pressure from miners.
Key Takeaway: This deflationary pressure explains ETH’s relative resilience during recent market turmoil.
Centralization Concerns: Overblown?
Critics argue that PoS Ethereum is overly centralized, citing:
- OFAC Compliance: ~88% of relayed blocks follow OFAC standards.
- Lido Dominance: High staking share via Lido (33%+ of staked ETH).
Counterpoints:
- Decentralized Solutions: Emerging unstoppable staking services will dilute centralized providers.
- Vitalik’s View: Lido isn’t monolithic—it’s a protocol with distributed validators. Short-term risks are low as major stakeholders are aligned with Ethereum’s success.
"The issue is overhyped. Bitcoin’s top 3 mining pools control >50% of hash rate—no better than Ethereum’s current state."
— Vitalik Buterin
SEC Regulatory Risks: A Non-Issue?
Background:
- SEC’s Howey Test determines if an asset is a security (investment of money + expectation of profits from others’ efforts).
Why Ethereum Likely Avoids Security Label:
- Precedent: Existing PoS chains haven’t been classified as securities.
- Political Economy: U.S. institutions and voters favor innovation—crackdowns are unlikely.
- Legal Battles: SEC’s case against Ripple demonstrates regulatory overreach’s limits.
👉 How Ethereum’s Deflationary Model Could Reshape Crypto Economics
Ethereum Network Health Check
✅ Stability: No critical bugs detected post-Merge.
✅ Upgrades: Focus shifts to:
- Shanghai Upgrade (EIP-4844 for Rollup scalability + staking withdrawals).
- Danksharding for long-term scaling.
🚀 Layer 2 Breakthrough:
- November 8 marked the first day L2 transactions surpassed L1.
- Future competition: "Ethereum killers" vs. L2s inheriting Ethereum’s security.
FAQs
Q1: Is Ethereum truly deflationary now?
Yes, during high-activity periods. Low-activity phases may see mild inflation.
Q2: What’s next after The Merge?
Shanghai Upgrade (2023) enabling staking withdrawals and scaling improvements.
Q3: Will SEC regulation stifle Ethereum?
Unlikely—U.S. ecosystem stakeholders heavily invested in Ethereum’s success.
Conclusion
Ethereum’s PoS transition has proven resilient, deflationary, and technically sound. While challenges like centralization linger, solutions are underway. The network’s deflationary mechanics and L2 adoption position it for long-term dominance—barring unforeseen regulatory hurdles.
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Disclaimer: This article does not constitute financial advice. Always conduct independent research.