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.
DespiAnalyst 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.
Despi
