Ethereum successfully completed its first major upgrade which was called the 'Merge'. Already, it's had tremendous success in terms of reducing the network's total energy usage by 99%. And, there's been minimal disruption of the network, so far, which is another major success. However, prices were only slightly higher following the merge and seem to be trading more in line with bitcoin and other cryptocurrencies.

The major reason for the drop in energy consumption is that the coin is moving from a proof-of-work network to a proof-of-stake network. This is an overhaul in terms of how the Ethereum blockchain verifies transactions and keeps its ledge secure. Proof of work systems means that high-powered computers all over the planet are crunching math equations in order to validate transactions which takes massive amounts of energy.

Proof of stake uses validators instead of miners. Validators use existing ether to verify transactions and mint new coins.

The move should help Ethereum appeal to politicians, regulators, and people who were critical of the soaring electricity usage of cryptocurrencies, especially in a climate of rising energy prices. Further, the issue also has deterred institutional investors from getting involved.

It also has the potential to make Ethereum into a productive asset that owners can earn a return upon. And, it has minimal counterparty risk especially compared to other defi protocols.

It's also expected that the new mechanism will lead to deflation which could be problematic for defi stacks built on top of Ethereum especially as coin owners can earn a no-risk return just from owning the coin without the risk of 'staking' which has exponentially increased over the past couple of months. Validators will also have to lock up tokens for a period of time which would also reduce the amount of ether in circulation. There are also fewer rewards tied to validators vs the proof of work model which also means fewer minted coins.

Another interesting aspect is that ethereum's price and other cryptocurrencies are trading in synch with the Nasdaq which undermines their appeal as a portfolio differentiator. Further, they have underperformed despite a huge spike in inflation.