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Matt & Vineet
The Merge - Pass or Fail?
The Merge happened over a year ago on Sept 15, 2022.
Today, we’re going to look at what it promised and whether has it achieved its goal or not.
On this day, the Ethereum network moved from Proof of Work to Proof of Stake consensus.
It promised 2 things:
- Reduce its carbon footprint to almost zero
- As compared to mining under PoW, staking (under PoS) doesn’t require as much computing power.
- Make ETH deflationary by reducing its supply
- By reducing the rate of issuance to the stakers
- By reducing its supply while making it carbon neutral, it hopes to increase ETH demand. This will drive up the price.
Where does it stand now?
- ETH’s Carbon footprint is almost zero. That has improved the adoption of ETH and other L2s to some extent.
- ETH issuance has fallen by 80% from 13,500 ETH to 2300 ETH per day.
- Ethereum already burns base transaction fees and removes ETH from the circulating supply. Read about EIP 1559 proposal here.
- However, EIP 1559 hasn’t decreased the gas prices, which remains high as compared to other networks.
Note: If more ETH is issued than burned, ETH will remain an inflationary token. To make it truly deflationary, the issuance rate has to fall below the burn rate.
There are 296,380 fewer ETH in existence today (Sep 19, 2023) than last year.
If Ethereum hadn’t moved to PoS, there would have been an additional 3.85M ETH ($6B) in existence.
It’s safe to say that The Merge has performed up to its expectations.
However, to make ETH deflationary, it needs more on-chain activity thus increasing the burned ETH and reducing supply.
And I believe that ETH’s Gas Price is a major factor in that.
Unless Ethereum finds a way to reduce gas prices, the network might not scale to the point that it’s burning more ETH than it’s creating.