In addition to making the network more secure, The Merge also brought a radical change in Ethereum’s business model, which is now deflationary.
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ETH destruction stimulated by network activity
Since “The Merge” of the Ethereum network in September 2022, which marked the transition to a consensus of Proof-of-Stake a deflationary trend is beginning to emerge. Indeed, according to Ultrasound Money no less than 2.8 billion ETH have been burned since The Merge bringing the total supply of Ether to an 18-month low.
This drop in supply of 339,360 ETH, valued at $778 million, reflects the new ” burning” mechanism introduced in August 2021 as part of EIP-1559 upgrade. As a result, 1.2 million ETH were permanently withdrawn from circulation, contributing to the growing scarcity of the coin.
A contrario, “only” 911,758 new ETH were issued, representing $1.96 billion. A differential that explains the net decrease in supply despite positive emissions.
Currently, with total supply at an all-time low of 120,181,679 ETH, Ethereum displays a market capitalization of $266.39 billion consolidating its leading position in the cryptocurrency market.
Adoption of Ethereum’s multiple services
An examination of the major contracts involved in ETH’s burn reveals leading contributors from a variety of sectors. At the top of the list are Uniswap, leader in decentralized exchange platforms (DeFi), having burned through $543.8 million of ETH. Proof, if proof were needed, of the huge volume of transactions generated by DeFi on Ethereum.
After Tether the number 1 stablecoin, and OpenSea, the leading marketplace for NFTs. This confirms the versatility of the Ethereum network, which is used for decentralized exchanges, stablecoin payments and single digital object transactions. Flexibility to ensure continued success.
This deflationary trend is likely to attract more and more investors in search of a store of value in the face of traditional fiat currencies plagued by inflation. This is all the more true as the increase in activity within the DeFi protocols bears witness to the growing craze for decentralized finance, driven by the innovations enabled by the Ethereum blockchain.
As supply diminishes, the scarcity and therefore the value of ETHs could mechanically increase if demand holds. Therefore, despite a gloomy macroeconomic context, the future looks bright for Ethereum’s native cryptocurrency. And this is true for both dApp users and investors, thanks to the opportunities it offers.
As a journalist at Coinpri, I’ve been captivated by the world of bitcoin and blockchain since 2020. The decentralized aspect of Bitcoin particularly piqued my interest. Since then, I’ve been working constantly to spread my knowledge, hoping one day to see a world where everyone fully enjoys their financial freedom.
