Ethereum (ETH) Supply Continues to Decline to New Lows Since The Merge

The supply of Ethereum (ETH) has returned to its trajectory post The Merge, following two months of "reverse issuance".

Ethereum (ETH) Supply Continues to Decline to New Lows Since The Merge. Image: CoinDesk

According to data from Ultrasound.money, the supply of Ethereum (ETH) as of the morning of December 11, 2023, has decreased by over 307,917 ETH since The Merge in September 2022, marking the beginning of a journey to reduce the world's second-largest cryptocurrency's inflation rate to 0.058% annually.

Changes in ETH supply since The Merge, screenshot from Ultrasound.money at 11:00 AM on December 11, 2023.

In the past month alone, Ethereum's supply has decreased by more than 46,360 ETH. This adjustment represents the highest reduction since Ethereum transitioned to the Proof-of-Stake (PoS) consensus mechanism post The Merge, replacing the non-energy-efficient Proof-of-Work (PoW) mining model with a staking-based transaction validation system. PoS has not only reduced energy consumption by 99% but also adjusted Ethereum's annual issuance rate from +3.488% to -0.058%.

Correlation between Ethereum Proof-of-Work supply (dashed line), Bitcoin (orange line), and Ethereum Proof-of-Stake (green line). Screenshot from Ultrasound.money at 11:00 AM on December 11, 2023.

As a native PoW blockchain, Ethereum previously faced an inflation rate averaging around 3.15% annually. The network achieved its first deflationary status on November 9, driven by a surge in transaction demand following the FTX market crash.

Had Ethereum remained on PoW, its circulating supply would theoretically have increased by 4.7 million ETH, rather than decreasing by 307,917 ETH as it stands today.

Ethereum has operated on a fee-burning mechanism where increased network activity raises gas fees – the fees paid to complete transactions on the blockchain. This process results in more ETH being burned, which aids the network's deflationary goals.

Heading into 2024, inspired by Bitcoin's resilience, not only Ethereum but a myriad of protocols, including NFT and DeFi transactions, have regained momentum and activity recently.

Gas fees on Ethereum surged significantly over the past month, averaging 36.2 gwei. The highest fee transaction occurred on November 22, totaling nearly 5.47 ETH paid to the network.

Average gas fees over the past 30 days, screenshot from Ultrasound.money at 11:00 AM on December 11, 2023.

Furthermore, the fee-burning mechanism from EIP-1559 transaction fees continues to exert pressure on ETH destruction across the network. In the past 30 days alone, Ethereum burning has reached 117,000 ETH, averaging 2.71 ETH per minute. The Uniswap DEX platform and ETH transfer transactions have burned the most ETH, totaling 15,607 and 7,493 ETH, respectively.

ETH burned and applications burning the most fees in the past 30 days, screenshot from Ultrasound.money at 11:00 AM on December 11, 2023.

ETH prices have also experienced significant growth in the final month of the year, in line with the overall market recovery. Ethereum reached a new high for 2023 at $2,403, marking a 78% increase over the past year, currently undergoing slight adjustments amidst today's market downturn.

1D chart of ETH/USDT pair on Binance at 11:50 AM on December 11, 2023.