Ethereum as deflated as ever: Activity explodes after FTX debacle

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Inflation has fallen to -0.032/year according to Ultrasound Money. This suggests that the network is currently burning more ether than it is depleting.

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Ethereum more deflated than ever

Ethereum is experiencing the biggest deflation in its history, with the annual supply falling below zero for the first time since the merger.

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According to Ultrasound Money, the annual inflation rate has fallen to -0.032/year. This means that the network is now burning more Ethereum than before.

The negative inflation rate reduced Ethereum’s net supply by 5,598 since Ethereum moved to proof-of-concept on September 15th.

In 7 days, Ethereum burned 1,044,000 tokens and issued 603,000. That equates to a rate of 773,000 signs per year. It shows the supply of ETH falling by 0.36% per year.

The recent changes can be attributed to the upgrade of the merger and the sudden increase in transactions due to market uncertainties.

After upgrading Ethereum from Proof-of-Work (PoW) to Proof-of-Stake (PoS), Ethereum became a deflationary asset. The validation switch that runs the blockchain replaced miners. As a result the newly mixed ETH has dropped significantly. As a result, Ethereum’s annual inflation rate dropped to near zero after the merger, although it took some time to reach current levels.

Also, the recent spike in Ethereum network activity during the FTX debacle increased ETH consumption.

Recently, Etherscan reported its highest daily reading since June, when it burned 5,242 ETH on Wednesday. The amount of ETH burned this week was 15,305 on Thursday.

In total, 2.72 million ETH have been burned on the Ethereum network since August 2021, after the Ethereum Improvement Proposal (EIP)-1559 went live. Basically, the EIP relates ETH consumption to network usage.

Will Ethereum outperform Bitcoin?

In contrast, Ethereum’s inflation rate at PoW is 3.559% per year, and 4,931k Ethereum are issued each year. Bitcoin, on the other hand, has a growth rate of 1.716% per year.

Expectations of deflation of Ether could increase its overall scarcity, and if the panic caused by FTX subsides, Ethereum could be in a good position to catch up against Bitcoin.

Ethereum is currently trading at $1,277, down 29.4% from its 7-day high of $1,653.

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Text credit: Cryptoslate