Since ethereum moved from proof-of-work to proof-of-stake in 2022, it has become a deflationary asset. The total circulating supply of ethereum (eth) currently stands at 120,105,358 eth, representing a decrease of 415,680 eth from the supply levels seen before the merger..
However, in the last 30 days, ethereum supply dynamics have changed: 35,548.72 eth were burned (removed from circulation) and 75,072.43 eth were issued as block rewards to validators. The net result is a supply increase of 39,523.71 eth during this period. Data from Ultrasound Money shows that based on the supply change over the last 30 days, ethereum's current annualized inflation rate is about 0.4%.
In comparison, bitcoin's inflation rate stands at 1.068%, while ethereum's proof-of-work (pre-merger) inflation rate would have been significantly higher at 3.74%. If the current 30-day rate persists, projections for next year indicate that around 433,000 eth will be burned and 914,000 eth will be issued, creating a net profit of 481,000 eth.
OKLink data shows a continuous decline in eth burned since March, when an average of around 6,000 eth was burned per day. Since the beginning of May, only around 900 eth have been burned daily, the lowest average levels since The Merge.
The recent Dencun upgrade on the ethereum network has had a notable impact on the ecosystem. The upgrade has led to a decrease in Layer 2 transaction fees and overall network activity. Consequently, this has apparently resulted in a lower burn rate, pushing the ethereum supply back into an inflationary state.
Etherscan and Ycharts data show that gas rates have also plummeted to about 5 gwei, the lowest recorded.
Interestingly, ethereum's inflation rate has gotten closer to that of bitcoin, especially after the bitcoin halving event last month. Based on data from the last 7 days, ethereum's inflation rate over the past week was 0.54%, just 0.29 percentage points higher than bitcoin's post-halving rate of 0.83%.
ethereum's inflation rate has been rising steadily since February, when it hit a local low of -2%.
<img decoding="async" class="wp-image-418527 size-full" src="https://technicalterrence.com/wp-content/uploads/2024/05/1715605558_232_Ethereum-Has-Been-Increasingly-Inflationary-for-Over-a-Month-as.png" alt="ethereum inflation rate over time (OKLINK)” width=”1520″ height=”1464″ srcset=”https://technicalterrence.com/wp-content/uploads/2024/05/1715605558_232_Ethereum-Has-Been-Increasingly-Inflationary-for-Over-a-Month-as.png 1520w, https://cryptoslate.com/wp-content/uploads/2024/05/Total-supply-300×289.png 300w, https://cryptoslate.com/wp-content/uploads/2024/05/Total-supply-1024×986.png 1024w, https://cryptoslate.com/wp-content/uploads/2024/05/Total-supply-768×740.png 768w” sizes=”(max-width: 1520px) 100vw, 1520px”/><img decoding="async" class="lazyload wp-image-418527 size-full" src="https://technicalterrence.com/wp-content/uploads/2024/05/1715605558_232_Ethereum-Has-Been-Increasingly-Inflationary-for-Over-a-Month-as.png" alt="ethereum inflation rate over time (OKLINK)” width=”1520″ height=”1464″ srcset=”https://technicalterrence.com/wp-content/uploads/2024/05/1715605558_232_Ethereum-Has-Been-Increasingly-Inflationary-for-Over-a-Month-as.png 1520w, https://cryptoslate.com/wp-content/uploads/2024/05/Total-supply-300×289.png 300w, https://cryptoslate.com/wp-content/uploads/2024/05/Total-supply-1024×986.png 1024w, https://cryptoslate.com/wp-content/uploads/2024/05/Total-supply-768×740.png 768w” data-sizes=”(max-width: 1520px) 100vw, 1520px”/>ethereum inflation rate over time (OKLINK)
While ethereum's supply has become slightly inflationary in the short term due to reduced network activity and burn rate, its overall supply continues to decline on a net basis. This can be attributed to EIP-1559, which introduced a burning mechanism for a portion of transaction fees.
Looking ahead, ethereum's inflation rate and supply dynamics will likely be influenced by future network upgrades and adoption trends. If transaction fees and burn rate remain low, ethereum may continue to experience inflationary pressure in the near term. However, the long-term trajectory will depend on the success of upcoming upgrades and the overall growth of the ethereum ecosystem.
The adoption of Layer 2 networks and the recent increase in Layer 3 network activity reduce the load on the ethereum mainnet, but do so at a cost. However, the current increase in L2 and L3 activity is not at a level to create enough L1 transactions to keep ethereum deflationary. Only time will tell if the ultrasonic money concept for ethereum will hold up in a world dominated by L2 and L3.
