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- Since the merger, approximately 339,121 ETH coins have left circulation.
- After Shapella upgrade, the number of active ETH validators increased by 58%.
Ethereum (ETH) has witnessed two major events over the past 15 months that fundamentally changed how the network operates: the Merge and the Shapella upgrade.
However, the ETH fan base will be impressed that the impact of these events is positive, even by conservative estimates.
ETH becomes deflationary.
According to AMBCrypto’s survey of ultrasonic currency data, approximately 339,121 ETH coins have been taken out of circulation since the merger, with the pace of deflation accelerating significantly in the fourth quarter of 2023.
As of this writing, the total circulating supply of ETH is 120.18 million, the lowest since the network switched from a proof-of-work (PoW) consensus mechanism to proof-of-stake (PoS).
Source: ultrasound.money
As analyzed in the graph above, net supply decreased at an annual rate of 0.220%. If the conversion had not occurred, the total supply of ETH would have increased by more than 4.8 million, with an annual inflation rate of 3.168%.
Typically, bullish markets with high network usage are conducive to deflation and vice versa. This is because a portion of the fee charged for transaction verification, called the base fee, is burned and removed from circulation.
Therefore, the higher the network activity, the greater the deflationary pressure on ETH.
Staking becomes more active
The Shapella upgrade released earlier this year enabled staking withdrawals and also helped with ETH staking activity.
According to a report from staking service provider P2P.org, the number of active ETH validators has increased by 58%, securing $23 billion in new ETH stakes.
Source: P2P.org
However, the rapid growth is starting to create new problems for the network.
Is there an overdose?
The staking reward curve is designed to reduce the rate of return paid to validators proportionally as the number of validators increases. This is to limit excessive capital inflows and maintain a liquidity supply of ETH for trading.
However, new DeFi methods such as liquid staking and re-staking have increased the potential returns that can be earned through ETH staking. This led to increased capital inflows and an increase in the number of validators on the network.
Read Ethereum (ETH) price prediction for 2023-24
P2P.org pointed out in its report that the increase in validator sets could degrade network performance at some point and make it more difficult to implement required updates in the future.
As of this writing, ETH remains strong at $2,285, with a weekly gain of 5.14%, AMBCrypto found using data from CoinMarketCap.