Ether isn’t quite ‘ultrasonic’ money as inflation lingers

ETH issuance fell 97%

Proponents hoping to immediately proclaim that Ether is an “ultra-sonic” form of money cannot rejoice just yet.

This is because the supply of ETH has actually increased by around 651 tokens since the merger, with data taken from ultrasound.silver.

Change in ETH supply since the merger

The merger, which completed Ethereum’s transition from proof-of-work consensus to proof-of-stake on September 16, reduces the protocol’s issuance of ETH about 90% eliminating block rewards to miners.

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Base fee burnt

Combined with EIP-1559, an Ethereum upgrade that caused some transaction fees to be burned, ETH gained the potential to become a deflationary asset. This is because fees burned can outweigh ETH issued to validators, given sufficient demand for block space.

This deflationary potential, along with the implied price increase given stable demand, led to the narrative that ETH would become “ultrasound” money.

Low network activity

So far, this has not been the case as low demand for transactions on Ethereum has persisted. Low demand means smaller amounts of ETH burned, which has kept ETH slightly inflationary since the merger.

This does not necessarily mean that ETH cannot become a deflationary asset if demand picks up, and it should be noted that proof-of-stake issuance would have been over 22,000 ETH over the same period, using the ultrasound.money simulation tool. .

ETH issuance simulation under PoW

Lucas Outumurohead of research at Into the Block, a crypto analytics and research firm, predicted in July that ETH would turn deflationary based on H1 data. He recently updated his thesis to recognize the inflation that ETH is currently experiencing.

Overall, Outumuro feels that the focus on whether ETH has turned deflationary or not is misplaced. “Too much emphasis is placed on the crypto supply,” he told The Defiant, adding that the difference between slightly inflationary or deflationary issuance for ETH is negligible.

“The way forward for ETH will likely be driven primarily by demand for network usage and unfortunately it remains in a strong downtrend in the depths of the bear market,” the research lead said.

Ether is down 1.6% in the last 24 hours.

ETH priceSource: The Defiant Terminal