The shift in dominance from Bitcoin to Ethereum

Bitcoin and Ethereum's exchange net flows have been negative for the previous two weeks. Daily outflows continue to outpace inflows which indicates an accumulation trend among investors.

The Merge

The primary objective of The Merge was to replace Ethereum's current consensus process, known as proof-of-work, with one known as proof-of-stake. The improvement has the effect of making the network significantly more efficient in its use of energy.

According to Digiconomist, following The Merge, Ethereum's annual energy consumption dropped from 80 TWh to about 0.01 TWh per year.

With the proof-of-stake implementation, a single Ethereum transaction can roughly be equated to the carbon emissions of up to 22 VISA transactions. This represents a significantly reduced carbon footprint in comparison to the previous design of the cryptocurrency.

The amount of fresh ETH being issued has decreased

Following the completion of The Merge, the rate at which new Ether is being generated has decreased by almost 90 percent. This is because the rewards given to validators in the new system are much lower than the payments given to miners in the previous scheme.

There has been a rise of around 6,500 ETH in the supply of Ether. If The Merge had not occurred, the data tracking website Ultra Sound Money estimates that there would have been an increase of almost 400,000 ETH in the supply. Both of these numbers take into consideration the amount of ETH that was wasted during the process of calculating the transaction fee.

With a supply growth rate of 0.06%, Ethereum's supply is still considered inflationary. Deflation could occur if increased activity on the network and a more significant amount of ETH is burned as part of calculating transaction fees. This would mean that more ETH would be destroyed than created daily.

Increase in the number of Ethereum validators

As a result of The Merge, validators that use proof of stake are now in charge of maintaining the blockchain and are responsible for processing transactions.

On September 17, one day after The Merge, the validator participation rate for Ethereum, which is the statistic that sees all validators anticipated to verify blocks, had a decline of 3%. The participation percentage quickly recovered to where it should have been within a few days, proving that this was a hiccup in transitioning. Currently, the participation rate is at 99.5%, which indicates that virtually all online validators are working to process new blocks.

According to data obtained from beaconcha.in Ethereum node validators have climbed to over 435,000 from around 420,000 a month after The Merge. This represents a significant increase. About 13.2 million Ether has been staked between all of these validators collectively.

Few staking providers now control the majority of the market

One of the drawbacks of The Merge is that it has led to a minimal number of staking providers controlling the vast majority of Ethereum's validators.

Only four service providers are responsible for more than 55% of Ethereum's validator nodes. These are Lido, the cryptocurrency exchanges Coinbase, Binance, and Kraken. Although Lido is a liquid staking protocol, unlike the others, it does not hand off the validator process to other validators; instead, it maintains its status as a potential site of centralization. This sets it apart from the different protocols.

It is anticipated that the issue of centralization will be remedied, at least in part, during Ethereum's next upgrade, which will be named Shanghai. This upgrade will allow users to unstake their tokens from these providers and perhaps allow for more competition. It is anticipated that Shanghai will occur sometime during the following calendar year.

Despite censorship concerns, the MEV Boost saw increased popularity

Since The Merge, an increasing number of Ethereum validators have started employing MEV Boost, software that enables a market for the highest amount of value that can be extracted.

This software allows block producers to operate a "relay," which communicates to Ethereum validators which transactions they should prioritize while producing blocks to collect MEV rewards.

MEV Boost is a no-brainer for validators because it leads to them generating additional rewards; nonetheless, this service has unintended repercussions. Validators should proceed with caution.

Although several companies operate their relays for MEV Boost, the relay that Flashbots give is the one that is used the most. To comply with U.S. Office of Foreign Assets Control (OFAC) sanctions against the decentralized cryptocurrency mixer, its relay has been censoring transactions and refusing to process anything connected to Tornado Cash’s mixing protocol. This is being done to prevent the spread of information about the sanctions.