The Ethereum network’s transition from proof-of-work to proof-of-stake, also known as Merging, has led to a significant decline in the supply of the world’s largest altcoin, Ethereum (ETH). In just 218 days, over 103,092 ETH has been removed from the token supply, which is equivalent to over $197 million at current prices. This reduction in supply is due to the burning aspect of ether, which was introduced through Ethereum Improvement Proposal 1559, which was implemented via the London upgrade in August 2021. The aim is to reduce inflation on the Ethereum network and put deflationary pressure on the supply of tokens.
The current supply of ether, according to Ethereum monitoring site ‘ultrasound.money,’ is nearly 120,416,113 million coins, with a deflation rate of 0.146% per year. In the last 30 days, the currency burn rate was found at 1,125k ETH, resulting in a supply growth rate of -0.37%. If this pace continues, the supply of Ethereum is expected to reach 118.1 million by 2025. While Merger is responsible for a significant reduction in ETH supply, it is the burning aspect that contributes to deflation on the network.
On the other hand, shareholders in the Ethereum network will receive issuance rewards of 3.9% pa, whereas non-shareholders will face a burn rate of 1.8% pa. If Ethereum had not undergone the Merge and instead continued to rely on miners to secure the network, the token supply would have increased by more than 2.5 million ETH annually, which is equivalent to $4.9 billion in current market value. ETH supply will increase by 3.53% annually, which is significantly higher than the current deflation rate.
Recently, Shapella’s upgrade allowed stakers to unlock staked Ether, resulting in a slowdown in token exodus. Within a week, the amount of Ether wagered exceeded the amount of ETH withdrawn for the first time. The event highlighted the growing interest in staking the Ethereum network, which has become an increasingly popular way to earn passive income from cryptocurrency.
In conclusion, Merge not only improves the security and efficiency of the Ethereum network but also has a significant impact on the supply of tokens. With deflation rising, the burning aspect of Ethereum Improvement Proposal 1559 played a critical role in exerting deflationary pressure on the token supply. Despite dwindling supply, staking the Ethereum network continues to grow in popularity, providing an attractive option for earning passive income on cryptocurrencies.