Supply-demand dynamics suggest Ethereum could experience a price surge following the merge.
On December the 1st 2020 Ethereum launched its much anticipated Beacon Chain. A pivotal step in Ethereum’s journey towards becoming a Proof of Stake (PoS) blockchain. The first block on the ETH2.0 chain came from Validator 19026, graffitied with a rather strange message: “Mr F was here”.
The Beacon Chain didn’t alter anything about the Ethereum chain used today. Rather it introduced PoS into the Ethereum ecosystem. The chain’s objective is to coordinate the network and serve as the new consensus layer for Ethereum post-merge.
ETH’s first ever staking deposit contract was deployed on the 14th of October 2020, allowing would-be participants to lock in the required 32 ETH and be added to the validator list to secure the update.
If any of these validators experiences downtime and/or proposes malicious blocks, their stake can be slashed by the network. This forms the security foundation of Ethereum’s move to PoS.
Currently there is no way for validators to remove their staked ETH. While validators can opt-out of their duties this only prevents them from being slashed. They won’t, however, be able to retrieve their locked ETH until another update to the chain is made post-merge.
This means that even months after The Merge takes place, validators’ funds could still be constrained, possibly resulting in the biggest supply fall Ethereum has ever experienced in its short life.
Update EIP-1559 was already a major milestone that turned Ethereum into a deflationary asset. Since its introduction in August 2021, it has led to ~1.8% of the total ETH supply being burned. The Merge will take this a step further by slashing ETH issuance anywhere between 60–90%.
Supply-demand dynamics suggest Ethereum could experience a price surge following the merge given this possibility of constrained supply. A report by Bloomberg analysts takes a deep dive into this historical event for a historical project.
The Merge is set to take place around late Q3 or early Q4 2022. Whilst staking yields and a significant reduction ETH issuance is on the cards. This does not me the event will be a success. There is most certainly a lot at stake (haha).
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