Exploring Ethereum's On-Chain Activity After The Merge
Mechanics of Ethereum's Blockchain Are Changing in a Proof of Stake World
By: IntoTheBlock •DeFi Research
On-Chain Markets Update by Juan Pellicer, IntoTheBlock
On September 15, 2022 Ethereum completed its transition to Proof of Stake consensus from the Proof of Work.
This allowed Ethereum to reduce the network’s energy consumption by 99.8%. It also eliminated Ethereum’s dependency on energy-intensive mining and enabled the network to be secured using staked ETH.
This was an important step to achieve higher security, scalability, and sustainability. sSwitch the consensus algorithm was a major technological feat requiring the coordination of dozens of teams working for years.
The run-up to The Merge was filled with uncertainty and excitement in social media. The market reflected the action, with a surge in on-chain activity since The Merge.
This activity can be measured in different ways. Take volume. . Rather than measure the number of transactions, this metric records the amount transferred by large entities such as whales that dive around the Ethereum blockchain.
If we look at the chart below, we can see that two days previous to The Merge, the volume transacted was spiking slightly, surpassing the daily amount of $15B.
After The Merge, the volume transacted returned to the average seen weeks ago, at around $3B. In this case we will take a look at a year of data:
Transactions Volume in USD. Source: IntoTheBlock Ethereum Indicators.
It appears the spike in the transaction volume was due to many Ethereum users anticipating the fork that would happen with ETHW, the Proof of Work fork that was born the day of The Merge and distributed its coin to all of the ETH holders.
Another factor could be traders interested in trading the news of The Merge, as well as large holders seeking to hedge their positions before an expected increase in price volatility.
Time Between Blocks
The market reaction could not be predicted, of course. Yet some features of The Merge improve the predictability of certain technical factors.
For example, the time between blocks is one of the most anticipated technical changes in the switch to Proof of Stake. This means that before The Merge the interval between blocks was not constant. Now it is: The time between blocks is fixed at 12 seconds, and will remain so: See the chart below:
Average Time Between Transactions. Source: IntoTheBlock Ethereum Indicators.
While the interval between blocks has been one of the most technical changes in The Merge, there are other metrics related to price action that have attracted attention. The amount transferred to exchanges has been one of these metrics. It achieved an all time high in the history of Ethereum, with over $1Btransferred to exchanges, as seen in the chart below:
Exchanges Netflows Source: IntoTheBlock Ethereum Indicators.
This activity may have been the result of institutions seeking to hedge their large ETH positions. As can be seen, the amount of ETH transferred to exchanges prior to The Merge has not been transferred back yet.
So far, the net amount that has been transferred out from exchanges is ranging from $30M to $80M. So far ETH price has been following a “sell the news” pattern and has lost almost a quarter of its value in the last seven days. The first signs of price recovery may be evidence showing large entities buying back Ethereum.