The Ethereum Merge—lauded as the most significant upgrade in the blockchain space in 2025—was long seen as a pivotal moment. Would the transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) pass the "big test"? Could Ethereum overcome concerns about security flaws, centralization risks, and post-hype exhaustion? Over two months after the historic shift on September 15, it's time to assess how the network has fared, whether its promises have materialized, and what lies ahead.
This article dives into Ethereum’s post-Merge performance across key dimensions: deflationary dynamics, decentralization debates, regulatory concerns, and network evolution—offering a clear-eyed look at where the ecosystem stands today.
Ethereum’s Deflationary Engine: Is It Working?
Source: Ultra Sound Money
One of the most anticipated outcomes of the Merge was Ethereum’s shift toward deflation. With EIP-1559 already burning base fees and PoS slashing issuance by over 80%, many expected a powerful disinflationary effect. After 60 days, the data confirms it: Ethereum has officially entered a deflationary phase, with 5,915.46 ETH net removed from circulation.
To understand how this unfolded, let’s break the timeline into three distinct phases:
Phase 1: Post-Merge Mild Inflation (Sept 15 – Oct 7)
In the first 22 days, Ethereum experienced slight inflation due to low on-chain activity amid broader crypto market stagnation. Most transactions involved swaps, NFTs, and Layer2 interactions, with average gas prices hovering between 10–15 gwei.
Despite minimal usage, Ethereum only issued 12,400 ETH during this period—just 563 ETH per day, compared to the pre-Merge rate of ~15,000 ETH daily. That’s a reduction of nearly 96% in new supply. Even in dormancy, the network demonstrated unprecedented efficiency.
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Phase 2: The XEN Phenomenon (Oct 8 – Nov 8)
A surge in activity came from an unexpected source: XEN, a self-proclaimed "proof-of-arrival" token that incentivized users to mint via gas-intensive transactions. This created sustained network congestion, pushing gas prices to 20–50 gwei.
Thanks to EIP-1559, high transaction volume translated directly into massive burn rates. By November 8, nearly all the ETH issued in Phase 1 had been offset. The protocol began proving its ability to turn user demand into structural deflation.
Phase 3: FTX Fallout & On-Chain Surge (Nov 9 – Nov 18)
The collapse of FTX triggered panic across CeFi platforms, leading millions to withdraw funds to self-custody wallets. This wave of transfers spiked gas fees above 100 gwei, briefly rivaling peak牛市 levels (though still far below the 300–500 gwei seen during bull markets).
During this final week alone, Ethereum burned approximately 110,000 ETH worth of fees, pushing the network firmly into net-negative issuance.
In total, over 60 days, Ethereum reduced net issuance by an estimated 880,000 ETH—worth over $1.1 billion at current valuations. This represents not just economic efficiency but a fundamental shift in value flow: instead of miners selling newly minted ETH to cover costs ("mine-and-sell"), validators now stake and hold.
This structural change helps explain why ETH has remained resilient even as BTC broke below prior lows during the FTX crisis.
Addressing Centralization Concerns in PoS Ethereum
Critics quickly raised alarms about centralization after the Merge. Reports from MEVWatch showed that ~88% of relayed blocks and 43% of proposers complied with OFAC sanctions lists. Additionally, platforms like Lido controlling over 30% of staked ETH sparked fears of excessive influence.
But is this narrative accurate—or exaggerated?
Regulatory Compliance ≠ Network Censorship
Yes, many staking providers and relays follow local regulations. However, compliance doesn’t equate to full censorship. As long as not all validators collude, censored transactions can still be included in future blocks—albeit with delays. The system remains functional and resistant to total shutdown.
Moreover, decentralized alternatives are emerging. Projects like EigenLayer, Swell, and Renzo are building non-custodial, permissionless staking infrastructure. As these mature, centralized entities may lose dominance due to competitive pressure.
Vitalik Buterin Weighs In
In a post-Merge interview with Bankless, Vitalik Buterin dismissed alarmism:
“Bitcoin has three mining pools controlling over 50% of hash power—five control 80%. That’s no better than today’s Ethereum PoS distribution… Lido isn’t a single point of failure. It’s a protocol with thousands of independent operators.”
He acknowledged concerns but emphasized intent: most major stakeholders—Coinbase, Kraken, Lido—are deeply invested in Ethereum’s success. While good intentions aren’t a long-term substitute for decentralization, they reduce short-term risk.
Long-term solutions include:
- Distributed validator technology (DVT) to spread node control
- Anti-censorship mechanisms like proposer-builder separation (PBS)
- Protocol-level incentives for geographic and client diversity
The path forward isn’t perfection—it’s progress.
Regulatory Risks: Is Ethereum a Security?
A lingering fear since the Merge is whether ETH could be classified as a security under U.S. law—specifically by the SEC. Critics argue that PoS resembles an investment contract under the Howey Test, which defines securities based on:
- Investment of money
- In a common enterprise
- Expectation of profit from others’ efforts
But context matters.
Precedent and Practicality
Numerous PoS blockchains have operated for years without SEC designation. If PoS automatically meant “security,” regulators would have acted already. The reality? Regulation is political as much as legal.
The U.S. leads in fintech innovation. Major institutions—including BlackRock and Fidelity—are building on or investing in Ethereum-based products. Millions of Americans interact with DeFi and NFTs daily.
Would regulators truly risk stifling this momentum?
Consider the SEC’s ongoing battle with Ripple—dragging on for years without clear victory. Overreach could trigger backlash from both developers and voters.
While uncertainty remains, enforcement against Ethereum seems unlikely unless broader policy shifts occur.
Current State of the Ethereum Network
Technically, the Merge was a triumph.
No critical bugs or security breaches have emerged. The transition was seamless—users didn’t need to take action, dApps kept running, and developers avoided major rewrites.
Now, focus shifts to future upgrades:
Shanghai Upgrade: The Next Milestone
Slated for early 2025, Shanghai will enable:
- Staking withdrawals: Validators can finally exit and reclaim their 32 ETH deposits.
- EIP-4844 (Proto-Danksharding): Drastically lowers data costs for Layer2 rollups by introducing "blobs."
These changes will unlock liquidity and accelerate scalability.
Layer2 Momentum
Data from Orbiter Finance shows that Layer2 transaction volume surpassed Ethereum mainnet on November 8—a symbolic milestone. With chains like Arbitrum, Optimism, and zkSync gaining traction, Ethereum is evolving into a modular architecture: secure settlement layer + scalable execution layers.
New competitors won’t challenge Ethereum head-on—they’ll compete with its Layer2 ecosystem.
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Frequently Asked Questions (FAQ)
Q: Is Ethereum truly deflationary now?
A: Yes—under normal usage conditions and moderate network activity, Ethereum is experiencing net-negative issuance thanks to EIP-1559 burns exceeding PoS rewards.
Q: Does staking centralization threaten Ethereum?
A: It's a valid concern, but not an immediate threat. Decentralized staking solutions are growing rapidly, reducing reliance on centralized providers over time.
Q: Could the SEC declare ETH a security?
A: Possible in theory, but unlikely in practice given political, economic, and technological realities. ETH functions more as digital infrastructure than an investment vehicle.
Q: What happens when staking withdrawals go live?
A: Validators gain flexibility to exit or rebalance portfolios. However, withdrawal rules will likely include queue management to prevent sudden sell-offs.
Q: How does EIP-4844 benefit users?
A: By reducing rollup data costs by up to 90%, EIP-4844 makes Layer2 transactions cheaper—boosting adoption for DeFi, gaming, and social apps.
Q: Is Ethereum still innovating after the Merge?
A: Absolutely. With core developers freed from consensus overhaul work, progress on scaling, privacy, and UX improvements has accelerated.
Final Thoughts: Toward the Stars
Sixty days after the Merge, Ethereum has passed its first major stress test with flying colors.
It’s more secure, efficient, and economically sustainable than ever. Deflation is real. Decentralization challenges are being addressed—not ignored. Regulatory risks exist but remain manageable.
And with Shanghai on the horizon and Layer2 ecosystems thriving, Ethereum isn’t slowing down—it’s accelerating.
The Merge wasn’t the finish line. It was the launchpad.
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