- Analyst says Ethereum’s PoS shift enabled L2 fragmentation and cost the network a potential $1 trillion in value.
- ETH inflation and weak price action challenge its deflationary narrative and long-term store-of-value claim.
Ethereum’s move to Proof of Stake (PoS) in 2022 was seen as a breakthrough for energy efficiency and scalability. However, the decision has sparked criticism from analysts who argue it weakened Ethereum’s core value proposition. Some claim the shift opened the door for excessive Layer-2 (L2) reliance while failing to sustain deflationary expectations.
Analyst: Ethereum Missed a Trillion-Dollar Opportunity
Meltem Demirors, General Partner at Crucible Capital, believes Ethereum’s shift to PoS was a “$1 trillion mistake.” She argues that the move diluted Ethereum’s Layer-1 strength by allowing L2 solutions to fragment the network. In her view, staying on Proof of Work (PoW) could have enabled Ethereum to follow a path similar to Bitcoin—fostering a powerful energy-computation ecosystem.
11/ i’ve never said this in public before but, it’s time
Proof of Stake was a mistake
Ethereum could have been a trillion dollar protocol with its own robust energy to compute ecosystem. instead MEV extracts billions in value from users and apps. pic.twitter.com/5eqIEnEunu
— Meltem Demirors (@Melt_Dem) March 20, 2025
Demirors contends that Ethereum could have driven innovation in GPU computing under PoW. She claimed that miner incentives, similar to those in Bitcoin, might have led to hardware advancements and a more robust core protocol. “Proof of Stake was a mistake. Ethereum could have been a trillion-dollar protocol,” she stated. According to her, the shift enabled massive MEV (Maximal Extractable Value) extraction, which she sees as draining value from users and applications.
Peter Szilágyi, a key Ethereum developer, recently added to the debate by stating that ETH was never intended to function as money. This remark contrasts with earlier narratives framing Ethereum as “ultra-sound money” after it transitions to PoS and the implementation of EIP-1559.
Deflation Narrative Fades Amid Inflation Pressures
Ethereum’s PoS model initially reduced energy use by over 99% and promised a deflationary trajectory. Following the Merge and the London Hard Fork, ETH briefly achieved net-zero issuance. However, recent data challenges that trend. According to Ultrasound Money, Ethereum is currently experiencing its longest inflationary stretch since The Merge, with a 0.76% annual inflation rate.
The network now issues around 943,000 ETH per year while burning only 27,000 ETH. Analysts at CryptoQuant noted that “at the current rate of network activity, Ethereum will not be deflationary again.” The drop in mainnet activity and reliance on L2s for scaling have reduced fee revenue, weakening Ethereum’s burn mechanism. This undermines the earlier narrative, positioning ETH as a better store of value than Bitcoin.
Despite these challenges, scaling activity remains high. Vince Yang, CEO of zkLink, emphasized that recent upgrades have improved L2 transaction efficiency, helping Ethereum reach 285 transactions per second across L1 and L2 networks.
Supply Dynamics Hint at Long-Term Accumulation
Ethereum’s price is struggling to hold above $2,000 despite a sharp drop in exchange balances. As of March 21, ETH trades at around $1,980 after a failed breakout. Technical indicators remain bearish, with the daily RSI below 50. The price has retraced from recent highs, with $1,955 acting as a key support level.
Santiment reported that ETH’s supply on exchanges has fallen to 8.97 million, the lowest since November 2015. This marks a 16.4% drop since late January, suggesting a move toward cold storage. Analysts say this pattern often precedes a “supply shock,” where limited tradable supply can drive prices up if demand rises.
Thanks to the many DeFi and staking options, Ethereum’s holders have now brought the available supply on exchanges down to 8.97M, the lowest amount in nearly 10 years (November, 2015). There is 16.4% less $ETH on exchanges compared to just 7 weeks ago.
pic.twitter.com/r5957wPhLi
— Santiment (@santimentfeed) March 20, 2025
However, this accumulation trend hasn’t translated into price momentum. Ethereum ETFs have recorded 12 straight days of outflows totaling $370.6 million. Meanwhile, the upcoming Pectra upgrade has been delayed pending successful Hoodi testnet results. Ethereum Protocol Support Lead Tim Beiko confirmed that mainnet deployment would occur no sooner than 30 days after Hoodi’s stable fork.
Ethereum’s roadmap also includes complex EVM changes such as EOF upgrades. Some developers, including Pascal Caversaccio, have voiced concerns about added complexity. As detailed in our last news piece, co-founder Vitalik Buterin reaffirmed Ethereum’s mission: building secure, censorship-resistant systems for a global user base.
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