Bernstein: Strong Institutional Adoption of Ether Expected Following the Merge

The new economic model under the Merge combined with token burn could lead to negative token emission during periods of high demand, the report said.

AccessTimeIconSep 15, 2022 at 11:01 a.m. UTC
Updated May 11, 2023 at 6:04 p.m. UTC

The Ethereum Foundation’s successful completion of the Merge early Thursday is likely to lead to strong institutional adoption of the blockchain's token, ether (ETH), Bernstein said in a research report.

The blockchain will “emerge as a digital asset category leader, given its economic transition, scalability roadmap, and [the] vibrant digital economy being built on it,” Bernstein said. It also expects strong institutional adoption of ether, due to its leading market share, market capitalization, and liquidity.

Block number #15537394 was the first to be validated under the proof-of-stake (POS) system, and about 45 ETH were paid in tips, the report said. The validator participation rate was around 95% and the “chain reached finality” within minutes of the transition, Bernstein said.

The Merge is the first of five planned upgrades for the Ethereum blockchain, and involved the switch from a proof-of-work (PoW) to a more energy efficient proof-of-stake (PoS) consensus mechanism.

CoinDesk Special Coverage: The Ethereum Merge

Following the transition, graphics processing unit (GPU) mining networks are redundant and will likely be used on Ethereum forks, Ethereum Classic or the gaming industry, Bernstein said.

The successful Merge is the result of years of planning and is a major milestone in the Foundation’s roadmap for “developing Ethereum into the world’s largest decentralized super-computing network,” analysts Gautam Chhugani and Manas Agrawal wrote.

From an investment perspective, Ethereum’s token emissions will be reduced by around 90%, the network's energy use will be cut by about 99%, and holders of ETH can now earn a staking yield, the note said.

The new economic model following the Merge, combined with the token burn, may lead to “negative token emissions” during times of high demand. This sets a ceiling on total ether supply, and brings “digital scarcity,” the note added.


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Will Canny is CoinDesk's finance reporter.

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