[Paper Review] An Event Study of the Ethereum Transition to Proof-of-Stake

Elie Kapengut, Bruce Mizrach|arXiv (Cornell University)|Oct 24, 2022

Blockchain Technology Applications and Security4 citations

TL;DR

This event study examines Ethereum's transition from proof-of-work to proof-of-stake on September 15, 2022, analyzing network performance, fee structures, and market dynamics. The shift reduced energy consumption by 99.98%, increased transaction speed by 7%, and made Ethereum's supply deflationary, while fees in USD declined except on Polygon, where Matic fees rose slightly.

ABSTRACT

On September 15, 2022, the Ethereum network adopted a proof-of-stake (PoS) consensus mechanism. We study the impact on the network and competing platforms in a two month event window around the Beacon chain merge. We find that the transition to PoS has reduced energy consumption by 99.98%. Miners have not transformed into validators, and total block reward income (in USD) has fallen by 97%, though transaction fees (in ETH) for Ether have increased nearly 10%. The Herfindahl index for the top 10 is 1,009; the network is 19% less concentrated after the merge. Ethereum supply growth has been deflationary since the merge. The time between consecutive blocks is now steady at 12 seconds and transactions per day are up 7.0%. On Polygon, Matic fees rose but token fees fell. Polygon also slows, processing 3.3% fewer transactions per day. Solana's fees fall by $0.0003, and transactions per day are down 48%. Stablecoin transfer volumes fall on Ethereum and Polygon, but rise on Solana.

Motivation & Objective

• To assess the economic and technical impact of Ethereum’s transition from proof-of-work to proof-of-stake on September 15, 2022.
• To analyze changes in network energy consumption, block production, staking dynamics, and transaction fee structures post-merge.
• To compare Ethereum’s performance with competing blockchains—Polygon and Solana—on speed, fees, and stablecoin transfer volumes.
• To evaluate the implications of the transition for network decentralization, validator concentration, and long-term staking incentives.
• To examine regulatory and market implications, including SEC scrutiny of staking and potential custodial rules for staked assets.

Proposed method

• Event study methodology with a one-month window before and after the merge date (September 15, 2022).
• Data sourced from the Ethereum mainnet (Kaggle), Beacon Chain (Bitquery), Polygon (Quicknode), and Solana (CLI) for blocks, fees, and transaction volumes.
• Calculated Herfindahl-Hirschman Index (HHI) to measure concentration of block production among top validators and miners.
• Measured changes in average transaction fees (in USD and ETH), block time, daily transaction volume, and energy consumption.
• Used statistical comparison of pre- and post-merge averages for key metrics across Ethereum, Polygon, and Solana.
• Analyzed staking dynamics, including validator rewards, slashing incidents, and token burn rates post-merge.

Figure 1: Electricity Consumption of the Ethereum Network

Experimental results

Research questions

• RQ1 What was the impact of Ethereum’s proof-of-stake transition on network energy consumption?
• RQ2 How did transaction fees and network speed change on Ethereum, Polygon, and Solana after the merge?
• RQ3 What was the effect of the merge on the concentration of block production and network decentralization?
• RQ4 How did the transition affect the deflationary nature of Ethereum’s supply and staking incentives?
• RQ5 What were the implications for stablecoin transfer volumes and cross-chain fee dynamics?

Key findings

• Ethereum’s energy consumption dropped by 99.98%, from 93.975 TWh/year to 0.015 TWh/year post-merge.
• The Herfindahl index for the top 10 validators decreased from 1,245 to 1,009, indicating a 19% reduction in network concentration.
• Daily transaction volume on Ethereum increased by 7.0%, reaching 1,148,750 transactions per day post-merge.
• Block time stabilized at 12 seconds, and transaction fees in ETH rose nearly 10% despite a decline in USD-denominated fees.
• Stablecoin transfer volumes fell on Ethereum and Polygon but rose by 280 million per day on Solana, increasing its market share to 27%.
• Validator rewards declined by 97% in USD value, while total staked ETH increased, making the network deflationary due to high burn rates.

Figure 2: Ethereum Blockchain Pre and Post Merge