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The Merge is the next big upgrade of the Ethereum protocol. It will replace the current Proof-of-Work (PoW) consensus by Proof-of-Stake (PoS), which will make the network 99.95% more energy-efficient and more decentralized.
The Merge launch is expected around September 15th, you can check our post about Why nobody can know the exact date of The Merge. With it, new rewards will be available for stakers. There will be 2 types of rewards after the Merge:
After the Merge, stakers will earn more rewards and receive part of them as liquid rewards.
In Proof-of-Work Ethereum, the network emits 2 ETH for every block mined. To compensate for this inflation, EIP-1559 introduced a burning mechanism of a part of the transaction fees. The higher the network usage, the more fees were burnt.
After The Merge, the 2 ETH issuance will be removed and the network will start to have an inflation/deflation equilibrium:
By including both the Consensus-level and Execution-level rewards, the APY of ETH staking can increase up to 7-9%. The increase of the expected APY and the liquidity of Execution-level rewards, will incentivize more stakers to stake their ETH. This may increase the price of ETH as less supply is available on the market, driving the price of ETH up, further incentivizing more staking.
When more validators are running on the network, the chance to propose a block diminishes for a single validator. If there is greater adoption of ETH staking in the future, we can expect consensus level rewards to be lower.
At the time of this post, 10.79% of the total ETH supply is staked. We can expect this number to increase steadily once withdrawals are enabled.
The next step after the Merge is the Shanghai upgrade, which should be live by Q1 or Q2 2023 (current projection). This new network upgrade will allow new mechanisms for staker rewards, in particular, the withdrawal of consensus-level rewards.
There will be 2 types of operations:
After the Shanghai upgrade, there will no longer be an infinite lock up period for Ethereum stakers, which creates more flexibility for the stakers.
Kiln is the leading enterprise-grade staking platform, enabling institutional customers to stake assets, and to whitelabel staking functionality into their offering. Our platform is API-first and enables fully automated validators, rewards, and data and commission management. With over $2.2b stake under management, Kiln has a particularly strong track record on Ethereum as we run about 3% of the network; this includes 22,000+ validators with 0 slashing events.
Thanks @pwnh4
