Ethereum supply on trend to drop below pre-Merge levels
Ether (ETH) supply of native Ethereum assets appears to be falling to pre-merger levels as more coins have been burned than created in recent weeks, on-chain data shows. In the September 15 meltdown, Ethereum upgraded from proof-of-work to proof-of-stake consensus; ETH supply was 120,520,000 coins, now with just a few thousand more than the stock recorded in The Merge.
This deflationary trend has arisen as more coins have been burned to pay transaction fees than created as rewards for validators over the past few weeks. Would make daily net issuance negative,” said Kevin Peng, Research Analyst at The Block.
The deflationary supply after The Merge
One of the many changes to The Merge is a 90 percent reduction in new token issuance as mining subsidies for the legacy Proof-of-Work blockchain has been eliminated. Combined with Ethereum’s EIP-1559 feature of “burning” a transaction portion or gas fees, it is estimated that more ether will be destroyed than added to the supply of transaction fees exceeding 16 Gwei, so the same trend is observed now. The supply is only 1,700 ETH away from pre-merger levels and steadily declining.
If this trend continues and burned fees continue to outpace new issuance, we could see supply growth fall below pre-merger levels in the coming days, noted Defi researcher Mika. Honkasalo. “The total supply change after the merger is expected to turn negative in the next 5-7 days,” Honkasalo tweeted.
While average transaction fees remained low for some time after The Merge, they have increased since October 8, along with increased activity on Ethereum. The increase in activity is explained by the launch of a free claim token called XEN. This is a token that anyone can claim as long as claimants pay Ethereum transaction fees, and it has been effectively spamming the blockchain for a few weeks. An increase in prices, both in the regular validator rewards and in the miner’s extractable value, resulted in an expansion of the ether burned.
Currently, the average fees are between 20 and 30 Gwei, a situation that is more than enough to burn a lot of ether every day and make the supply deflationary. The amount of ETH burned on any given day depends on the network activity as the base fee is adjusted to the number of blocks occupied, and more transactions generally mean more prices burned.