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, the original author: Chainalysis Team, compiled by Odaily translator Katie Ku.

Around September 15th, Ethereum’s consensus mechanism will switch from Proof of Work (PoW) to Proof of Stake (PoS). Under the PoS protocol, validators "stake" the blockchain's native cryptocurrency, sending it to a smart contract that keeps it locked, and a validator is randomly selected to confirm each new block and receive the associated reward. Validators must hold 32 ETH, and users can get staking rewards by joining the staking pool.

Below, we’ll look at the ripple effects of the merger from the perspective of on-chain metrics.

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After Merger, Ethereum Staking Increases

Users have staked over $30 billion worth of ETH on the Eth2 blockchain, making it the largest PoS blockchain by value before overtaking Eth1. Some people do it directly by setting up their own validator nodes, which requires specialized software and hardware in addition to 32 ETH. Others send ether to staking pools, which allow several users to pool their resources, increasing their chances of being selected to propose a new block, and sharing the reward among them.

Post-merger, staking may become a more attractive proposition for several reasons. First of all, once PoS is officially in place and PoW becomes a thing of the past, users may be more willing to pledge. Institutional investors who value environmental protection will also prefer Ethereum network activities.

The merger also lays the groundwork for future improvements to Ethereum. Now, the ETH staked directly on Eth2 is locked in the contract and cannot be withdrawn. Some staking services offer liquid synthetic assets that stake ETH on behalf of users, but these synthetic assets are not always tied 1:1 to ETH. While the merger won't change this immediately, the "Shanghai upgrade" planned for 6 to 12 months after the merger will allow users to withdraw staked ETH at will, providing more liquidity to stakers and making staking a much more An attractive overall package.

Collectively, these changes from the merger will make Ether a more attractive asset and therefore more suitable for staking.

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Institutional Investors Embrace Ethereum

In addition to increasing overall staking, we will also be looking specifically at institutional investors starting or increasing their Ethereum staking activity.The price of crypto assets such as bitcoin has become increasingly correlated with the price of technology stocks and other high-risk, high-yield assets. However, the price of ETH could decouple from other cryptocurrencies post-consolidation, as its return on investment would make it similar to instruments like bonds or commodities, with an arbitrage premium. Some predict that between staking rewards and the transaction fees allocated to validators, stakers can expect an annual return of 10-15% on Ethereum, and that’s before factoring in the potential for Ethereum itself to rise in price, which would also Increase returns in fiat value (of course, the price of Ethereum could also drop which would hurt fiat returns).

Those returns could make ethereum an attractive bond option for institutional investors. By comparison, one-year U.S. Treasuries yield 3.5% as of September 2022, though that figure has been rising over the past year.

It will be interesting to see if the number of large stakers grows at a faster rate after the merger, as this may indicate that institutional investors do think holding Ethereum is a good yield strategy.

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Ethereum miners will have to find another way, but Bitcoin may not be the right choice

Ethereum's shift to PoS will also lead to changes in mining activity. Currently, many miners and mining pools mine assets on several different blockchains and dynamically distribute their hashrate between blockchains according to market trends. In general though, most mining is concentrated on Bitcoin and Ethereum.

After the merger, the hash rate dedicated to Ethereum mining will disappear or be dispersed to other blockchains. However, don't expect the hash rate to transfer to Bitcoin. Why?

The equipment used to mine Ethereum is not suitable for Bitcoin. Most Ethereum miners use GPUs, while Bitcoin miners use more powerful ASICs. This means that Ethereum's move to PoS is a huge blow to GPU miners. Ethereum currently accounts for 97% of all GPU mining activity, and the total market capitalization of all remaining minable GPU tokens is only $4.1 billion, which is only 2% of Ethereum. This is not enough for GPU miners.

• So, does this mean that millions of once efficient GPUs will now sit idle and their owners lose the opportunity to make money with cryptocurrencies? uncertain. There are several services built on the Ethereum blockchain that leverage the power of distributed GPUs to complete specific computing tasks in a decentralized manner, with GPU owners receiving rewards in Ethereum or ERC-20 tokens in return. Consider the following two examples:

• Livepeer is a decentralized video streaming service that allows GPU owners to transcode videos in exchange for cryptocurrency rewards;

Render Network provides a similar service for the rendering of 3D images, and also allows GPU owners to collect cryptocurrency rewards by donating computing power.

While on-chain activity has dipped recently, it will be interesting to see if these and similar networks spring up as GPU owners seek yield opportunities following the Ethereum merger. Of course, GPUs also have non-cryptographic uses, such as providing processing for data centers, gaming computers, and other heavy-duty machines. Some miners may choose to sell their GPUs to companies in these industries.

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Consolidation's impact on crypto markets starts with on-chain data