Managing Expectations Heading Into "The Merge"

APR 21, 2022 • 11 Min Read

DISCLOSURE: DELPHI VENTURES AND MEMBERS OF OUR TEAM HOLD ETH & LDO. THIS STATEMENT IS INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE ANY TOKEN. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.

Key Takeaways

  • The actual date of The Merge is still unknown but based on the rate of progress, and some expert opinions, we expect to see The Merge occur around late Q3 or early Q4 of this year. A go/no-go decision on performing The Merge or postponing it is set to take place on April 29th during the Ethereum All Core Developers call.

  • Currently, ~9.7% of the total ETH supply is being staked. All staked ETH will remain out of circulation until another upgrade finally happens after The Merge is complete. As a result, staking will continue to be a significant supply sink for ETH into the foreseeable future.

  • EIP-1559 was the first step to turn ETH into a deflationary asset and, since its introduction in August 2021, it has led to ~1.8% of the total ETH supply being burned. The Merge will take this a step further by slashing ETH issuance anywhere between 60-90%.

  • Depending on the amount of ETH staked, network fees, and MEV after The Merge, ETH staking yields could range between 8.7-10.3%.

  • Currently, the validator activation queue is just over 2 weeks long and is expected to increase as more ETH is staked. The validator queue could present an opportunity for liquid staking derivative projects like Lido if they are able to subsidize yields during the queue and continue onboarding users.

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