Impact of delay in Ethereum’s merge: A perspective

Ethereum’s transition to proof of stake has been delayed. The result: it has had a great impact, both on rewards staking as well as the broader network. That’s not all: this has also resulted in the sub-par performance of crypto stocks with Coinbase hitting an all-time low.

So, here we look at various impacts due to the delay

Weekly Fees

Overall, Blockchain fees have plummeted. Both Bitcoin and Ethereum have witnessed a whopping 33% decline in relation to the previous week.

Impact on Exchanges Netflows

Outlined below are the cryptos that have abandoned various exchanges:

  • Approximately half a billion worth of Bitcoin has left the centralised exchanges. Further,  investors are apparently eager to accumulate near the $40k level
  • The inflows recorded by ETH stand approximately to the tune of $100M…all into centralised exchanges, subsequent to four consecutive weeks of heavy outflows.

Impact on staking due to the delay of ETH’s Merge 

It is being said that the much-anticipated ETH 2.0 merge will never be ready at least by the June target that Ethererum developers had set last year. Once implemented, the merge would have marked Ethereum’s transition to proof of stake, thereby minimising its consumption of energy even as it makes the network a lot more secure and profitable to stake in.  In fact, that final part had been one of the most awaited features, with the community rallying behind what was initially projected to be 12% to 15% APYs for staking following the ethereum merge. However, several conditions have changed since then, and the on-chain metrics are pointing towards significantly lower staking yields, once the merge comes into effect.

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ETH breaches the 10 million mark

The amount of Ether that has been staked continues to grow and has exceeded the 10 million mark

  • This signifies approximately 9.5% of Ether’s circulating supply that is currently locked within the staking contract
  • In dollar terms the growth has the potential to appreciate with the value staked nearing all-time highs despite ETH’s price being down 37%
  • There has been a steady acceleration in growth with the launch of  stETH– a staking derivative token, that can be used as collateral on the Aave lending protocol

While the growth in the amount of ETH staked makes the network more secure, it also means that the rewards received for protecting the network decrease proportionally. With the delay of the merge by another few months, it is likely that the amount of ETH staked will grow even further, thus resulting in lower yields. The amount of ETH staked is one of the crucial factors affecting the staking APYs following the merge. Another factor is the fees that the Ethereum network processes.

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Decline in fees by 75% – 

The amount of fees paid to use Ethereum have  substantially declined with drying up of activity in DeFi and NFTs.

  • NFT volumes on OpenSea have plummeted from a relative high of approximately $250M on February 1st to $70M as on April 14
  • Trading volumes on Uniswap have decreased, albeit to a lesser extent 
  • However, owing to the relatively sideways market trend, arguably there has been a lower urgency to execute transactions, resulting in traders being less willing to pay high fees. 

In its current form of proof of work, Ethereum fees that have not been burned go to miners. Once the merge with the proof of stake chain takes place, these fees will be provided to those staking in compensation for securing the network. Thus, the declining levels of network activity have taken a toll on the financial interests of all the Ether holders.

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6% Is The New 12% –

Given the recent trends over the last 7, 30, and 90 days respectively, the Ethereum staking APR is likely to be within the range of 6% to 8% should the merge go live on September

  • There has been a significant contraction of yields across cryptos as capital continues to flow in, with relatively less capital compensating for every deposit
  • Ethereum staking rewards are no exception either. The amount of ETH staked has grown particularly rapidly over the past 30 days

Although these yields might be less attractive, they also reflect the maturation of Ethereum, which has over $35 billion being staked. This in turn provides greater security assurances as it makes it relatively costlier to attempt to control over half of the amount staked. Overall though, this could be better for the Ethereum Although these yields might be less attractive, they also reflect the maturation of Ethereum, which has over $35 billion being staked. This in turn provides greater security assurances as it makes it relatively costlier to attempt to control over half of the amount staked. Overall though, this could be better for the Ethereum network even though it may disappoint all those who are seeing lower APRs than expected by the time the merge (eventually) goes live. 

The underperformance of Crypto Stocks: A perspective

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COIN Hits an All-Time Low – 

The largest publicly-traded crypto company has hit its lowest valuation since it went public almost a year ago

  • Even though Coinbase has closely followed crypto prices, it has lagged behind Bitcoin and even more so behind Ethereum
  • The trend is reflected across the entire crypto stocks, with Bakkt being down 63% and the exchange Voyager by as much as 80% during the past year

When adjusted for volatility, it indicates that most crypto stocks still underperform.

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Lower Returns, Greater Volatility – 

Contrary to the popular belief, Bitcoin and Ethereum have in fact been less volatile when compared to many other stocks, especially those that have crypto offerings

  • The Sharpe ratio accounts for returns relative to price volatility. In this regard, most crypto companies either match or underperform Bitcoin
  • The Sortino ratio considers returns relative only to downside volatility. Here Bitcoin performs much better than MicroStrategy and Coinbase’s stocks


The notion of “risk” may be fluid. With crypto-assets significantly outperforming crypto companies, traditional investors may want to reconsider the best route to gain exposure to the industry.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

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