The reduction in burn rates has increased the number of coins in circulation to its highest level since early March (currently averaging 120,000 ETH).
Over the past month, Ethereum’s supply dynamics have seen significant changes, with unusually low gas fees leading to an increase in circulating supply of Ether (ETH). Ethereum has generally been considered a deflationary asset since it switched from a proof-of-work to a proof-of-stake system in 2022. However, recent data shows a notable change.
According to data from Ultra Sound Money, Ethereum’s supply has increased by 50,570 ETH in the last 30 days alone. This increase stands in stark contrast to the previous deflationary trend, where Ethereum’s total circulating supply declined following the merger. During this period, Ethereum minted 75,391 ETH as block rewards to validators while 24,821 ETH was burned, increasing net supply.
Photo: ultrasound money
Impact of lower gas rates
A significant factor in this change is the decline in gas prices. Average average gasoline prices fell below $2 several times in May, hitting a low of $1.70 on May 18, the lowest since October 2023. This reduction in transaction costs is due to the Dencun upgrade that introduced ProtoDanksharding (EIP-4844). ). This upgrade replaces gas-intensive call data with more efficient Binary Large Objects (BLOBs), drastically reducing Layer 2 transaction costs and ultimately lowering gas fees on the mainnet by more than 90%.
Reduced gas fees benefited users, making transactions cheaper, but also lowered the ETH consumption rate. The low burn rate hindered Ethereum’s deflationary narrative, which has been an important aspect of its economic model since the implementation of EIP-1559.
According to Ultra Sound Money, the reduced burn rate has pushed the number of coins in circulation to its highest level since early March (currently averaging 120,000 ETH). By comparison, Ethereum’s current annual inflation rate is approximately 0.4%, which is still lower than Ethereum’s pre-merger proof-of-work inflation rate of 3.74%.
If the current trend continues, ETH will maintain its inflationary trend next year, with over 450,000 ETH net worth expected to be in circulation.
Layer 2 Networks and Future Trends
Adoption of layer 2 solutions is increasing while easing the load on the Ethereum mainnet, but has not yet reached a level sufficient to keep Ethereum deflationary. As Ethereum continues to evolve, the balance between reducing transaction costs and maintaining a deflationary supply will become important.
Future network upgrades and widespread adoption trends will play a significant role in shaping Ethereum’s economic model and supply dynamics. The ecosystem’s ability to adapt and innovate will determine whether Ethereum can remain deflationary in the long term.
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