Ethereum
Ethereum has been increasingly inflationary for over a month as fees hit an all-time low.
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, which represents a decrease of 415,680 ETH from previously seen supply levels. Fusion.
However, over the past 30 days, Ethereum’s supply dynamics have changed, with 35,548.72 ETH burned (removed from circulation) and 75,072.43 ETH issued as block rewards to validators. The net result is an increase in supply of 39,523.71 ETH during this period. Data from Ultrasound Money shows that, based on supply changes over the past 30 days, Ethereum’s current annualized inflation rate is around 0.4%.
Deflationary trend of Ethereum (ultrasonic silver)
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 the next year indicate that approximately 433,000 ETH will be burned and 914,000 ETH will be minted, creating a net gain of 481,000 ETH.
OKLink data shows a continued decrease in the number of ETH burned since March, when on average around 6,000 ETH were burned daily. Since the beginning of May, only around 900 ETH has been burned daily, the lowest average level since The Merge.
The recent Dencun the Ethereum network upgrade has had a notable impact on the ecosystem. The upgrade resulted in a decrease in Layer 2 transaction fees and overall network activity. Therefore, this appears to have resulted in a lower burn rate, pushing Ethereum supply into an inflationary state.
Data from Etherscan and Ycharts show that gas fees also dropped to around 5 gwei, the lowest ever recorded.
Interestingly, Ethereum’s inflation rate has moved closer to Bitcoin’s, especially following Bitcoin’s halving last month. Based on data from the last 7 days, Ethereum’s inflation rate for the past week stands at 0.54%, which is only 0.29 percentage points higher than Bitcoin’s halving rate of 0 .83%.
Ethereum’s inflation rate has been steadily increasing since February, when it reached a local low of -2%.
Although 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 mechanism for burning a portion of transaction fees.
Going forward, 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 could continue to experience inflationary pressures 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 reduces the load on the Ethereum mainnet, but this comes at a cost. However, the current increase in L2 and L3 activity is not at a sufficient level to create enough L1 transactions to keep Ethereum deflationary. Only time will tell if Ethereum’s ultra-sane monetary concept will be retained in a world dominated by L2 and L3.