Nearly 1 million ETH burned since Ethereum transitioned to Proof of Stake

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Nearly 1 million ETH burned since Ethereum transitioned to Proof of Stake

Nearly 1 million ETH has been burned since Ethereum transitioned to Proof-of-Stake, but Lido's dominance of LST continues to concern Decentralization advocates.

The Merge is expected to be the most significant advancement in Ethereum's history, aiming to make ETH a deflationary asset while significantly reducing the carbon footprint of the network.

Although Ether has traded sideways over the past 12 months, much has changed for the network's fundamentals. New ETH issuance is down more than 80%, staking participation is up 87%, and nearly 1M ETH has been permanently removed from supply.

While Ethereum is mostly succeeding in its deflationary promise, new challenges have arisen to the network's decentralization.

The Merge occurred on Sept. 15, 2022, when the network transitioned from Proof of Work to Proof of Stake consensus.

With the changes, Ethereum's fundamental tokenomics changed, with daily issuance of ETH falling more than 80% from 13.500 ETH to currently around 2,300 ETH. With the introduction of Ethereum's burn mechanism just a year ago, analysts anticipated that Ethereum would become deflationary, resulting in more ETH burned from base transaction fees than enters circulation as rewards for stakers.

There are now almost 300,000 fewer ETH in existence than at the time of the Merge. For comparison, an additional 3.8 million ETH would have been issued under proof of work.

The 2023 boom in liquid staking tokens, which represents an underlying position of staked Ether, could be easily traded on exchanges or utilized in DeFi applications.

In April, Ethereum's Shanghai upgrade also activated staked ETH withdrawals, reducing the price spread between ETH and popular liquid staking tokens and boosting the adoption of LSTs. Today, 8.8 million ETH or 42.5% of all staked Ether is held by liquid staking protocols.

ETH locked in Lido, the top LST protocol, increased 82% from 4.6M to 8.6M since the year began, according to Dune Analytics. Cryptobase's LST token, cbETH, boasts 1.17M ETHER, and Rocket Pool's rETH with 450,000.

However, as Lido now holds one third of its own staked Ether, many onlookers decry Lido as a centralizing threat to Ethereum, warning that a further increase in Lido dominance would facilitate governance attacks against the network if the protocol desired.

In May, Ethereum's chief scientist, Vitalik Buterin, advocated that staking providers controlling more than 15% of ETH should actively raise user fees to deter adoption until their dominance decreases.

Buterin reacted quickly, tweeting: ''I think it's time for a change in the rules,'' he said.