Ethereum Merge: What Is The Triple Halving?

The Ethereum merge, known as The Merge, is expected to be completed in September. Investors' anticipation of a rise in the price of Ethereum (ETH) has driven ETH to briefly surge to $2,000, a significant increase compared to the low point of $800 in June.

Among the numerous articles describing the advantages of the Ethereum merge, the term "The Triple Halving" is often used. What does this term mean? What other positive expectations are there after the Ethereum merge?

What is The Triple Halving?

The Triple Halving refers to the significant changes in Ethereum's monetary tightening expectations after the merge upgrade. There are three important elements: "reduced issuance," "token burn," and "ETH staking."

An Amber Group report describes it as: "The merge is expected to significantly impact the flow of funds in and out of the Ethereum ecosystem."

ETH issuance will decrease by nearly 90%: Before the merge, both PoW miners and PoS validators receive block rewards, with 2 ETH given per block to miners and validators also receiving staking rewards on the Beacon Chain. After the merge, Ethereum will no longer pay out PoW miner rewards, leading to a nearly 90% reduction in ETH issuance. This is why it is referred to as the Triple Halving, with the term "halving" based on the periodic halving of Bitcoin's issuance every four years.

The website ultrasound.money estimates that since the implementation of the EIP-1559 burning mechanism, approximately 2.5 million ETH have been burned over 375 days, while 5.5 million ETH have been issued under the PoW consensus, resulting in a 2.5% annual growth rate for the total circulating supply of ETH.

The website simulates the post-merge scenario, indicating that under the assumption of unchanged burn volume, the supply will show an annual decrease of -1.6%.

Increased Demand for ETH After the Merge?

The Amber Group report suggests several reasons why demand for ETH may rise post-merge.

Increased staking rewards for validators: Validators will receive transaction fee tips, one of the income sources for PoW miners, potentially increasing the APR for validators by about 2-4%.

Validator MEV: Validators have the ability to reorder transactions to earn MEV, a value that miners can extract. According to MEV research group Flashbots, assuming 8 million ETH staked by 250,000 validators, MEV could bring validators an additional 60% in staking rewards. Note: As of the deadline, there are 13.28 million ETH staked by a total of 415,000 validators, leading to a decrease in additional income.

Amber Group estimates, based on @StakeETH, @eth2calculator, Etherscan, Beaconcha.in, Flashbots, that post-merge staking rewards, transaction fees, and MEV, minus validator costs, could result in an 8.47% annualized return.

The Amber Group anticipates more ETH staking post-merge. Comparing staking as a percentage of total supply with other competing L1 blockchains - Solana and Tezos: 75%, Cosmos: 64%, NEAR: 39%, staking annual rates may adjust to below 2%. Estimates can be made using a staking calculator. As of the deadline, there are 13.28 million ETH staked out of a total supply of 120 million ETH, representing an 11% staking rate.

Amber Group also created a table estimating the potential annual returns based on different staking rates, transaction fees, and MEV benefits post-merge:

Additionally, after the merge, stakers will not be able to immediately withdraw ETH from validators and must wait for the next hard fork upgrade post-merge, code-named Shanghai, which will take approximately six months to a year to release. During this period, staked principal and issuance rewards will be locked on the Beacon Chain; however, transaction fees and EVM income can be claimed post-merge.

Although there may be ETH sell-offs once staked assets can be redeemed, Amber Group believes that most of the issuance rewards will be used to create new validators rather than sold off, and the demand for staking may outweigh the pressure to sell.

Related article: Watch a video explaining the motivations, differences, and common misunderstandings of the Ethereum merge!