Is Ethereum now inflated or deflated after The Merge?

Is Ethereum now inflated or deflated after The Merge?

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Inflationary pressure on ETH has steadily declined since the merger. Is Ethereum now inflationary or deflationary?

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Ethereum: inflation or deflation?

One of the biggest debates surrounding Ethereum’s transition to a proof-of-concept network centers around the issue of ETH. The main argument behind the merger was that it should make ETH a deflated currency.


Since the merger was completed on September 15th, the issuance of ETH has decreased significantly. The estimated annual issuance of the PoS network is approximately 600,000 ETH. The exact annual output varies over the years because it depends on the number of collectors participating in the agreed mechanism.

However, while there is a theoretical decrease in issuance, the actual ETH supply has increased since the abandonment of the proof-of-work network. Supply growth is currently positive and has increased by over 4,000 ETH since the merger. At the current pace, supply will increase by 0.21% per year.

Dataset showing ETH annual burn rate, supply growth and issuance (Source: SoundMoney)

The Merge has so far failed to make Ethereum a deflationary currency. The burn rate introduced by EIP-1559 was exceeded in the supply of mints from the PoS network.

Glassnode: Ethereum supply increases hourly

According to data from Glassnode, the supply of Ethereum has increased hourly since the issuance of Proof-of-Work was permanently suspended. The graph below shows that the supply removed by PoS exceeds the supply burned by EIP-1559. This led to an increase in the net supply of ETH after the merger.

Graph shows supply modeled by PoS (green), supply burned by EIP-1559 (red), and change in net supply post-merge (blue) (Source: Glassnode)

An analysis of Ethereum supply and issuance before the merger shows that the network has been under inflationary pressure for nearly two years.

ETH PoS issuance began long before the merger – right after the Beacon Chain Genesis event on December 1, 2020. However, PoW issuance did not stop until September 15, 2022. EIP-1559, the transaction pricing mechanism that introduced a fixed transaction fee burned with each block, went into effect on August 5, 2021.

This discrepancy in execution times further strained the network.

Since the inception of EIP-1559, ETH has only been deflationary for very short periods – in January and May 2022. The chart below shows the difference between inflationary and deflationary periods. The first is marked in green, the second in red.

The graph shows the change in ETH net supply from September 2021 to September 2022 (Source: Glassnode)

However, PoS managed to significantly reduce the supply of ETH. In the chart above, the orange line shows the simulated supply if Ethereum continues as a PoW system.

The blue line shows the simulated supply if Ethereum existed as a PoS system over the past year. The data suggests that a PoS system significantly reduces the supply of ETH.

According to the chart, inflationary pressure on Ethereum has steadily declined since the merger. However, it remains to be seen whether the reduced pressure will ultimately translate into deflationary supply.

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Text credit: Cryptoslate

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