Ethereum Supply Already Reduced Since it Attained its Deflation Nature
Here’s how Ethereum supply has dropped by 5,500 ETH in five days
The Merge marked Ethereum transition to a Proof-of-Stake consensus algorithm, and one of the most significant changes this brought was to the supply dynamics of ETH. Because ETH is no longer mined, the amount of it that enters the market on a daily basis has been reduced by up to 90%. Data from ultrasound money allows us to track changes. At the time of writing, a total of 7,525 ETH has entered the market as new supply since the Merge. Simulating a PoW environment reveals that if the network was still using its old consensus algorithm, this figure would have been around 340,000 ETH. However, the supply has been shrinking rather than expanding in recent days, temporarily turning ETH into a deflationary cryptocurrency.
Since October 8th, supply has decreased by approximately 5,500 ETH. This is due to the way EIP-1559 was implemented and the burning mechanism it introduced. As a result, with each transaction, a portion of the fees paid (in ETH) is burned. The Ethereum Foundation calculated that a gas price of about 15 gwei would be required for ETH to be deflationary. This has been the case for a few days, and one of the primary causes appears to be the new project known as XEN Crypto. As Crypto Potato reported earlier this week, it caused the Ethereum network issuance to fall and gas prices to rise because over $1.8 million in gas fees were paid to interact with the token’s contract.
A careful examination of Ethereum supply over the last five days revealed a decrease. As a result of this trend, the total supply of the second largest crypto asset has decreased by approximately 5,500 ETHs since October 8. The decline is linked to the inclusion of EIP-1559 and the token’s burning mechanism. This ensures that a percentage of ETH transaction fees are burned. Prior to the transition to PoS, miners received approximately 13,000 ETH as rewards from the Ethereum network. Daily payments are made by the network to secure the ecosystem and process transactions. However, the Merge altered the network’s sequence.
The Ethereum network is now rewarding validators with a daily reward of about $1,600 ETH. This is due to the fact that the base fees for processing ETH transactions are burned. With this practice, Ethereum will be deflationary, especially as usage grows.
Today, nearly 7,525 ETH has entered the market as a new token supply following the Merge. However, if it had operated as a PoW blockchain, the value would have been around 340,000 ETH. More tokens must be removed from circulation by the ETH burning mechanism.
The ETH Foundation calculated that if the gas price reached 15 gwei, ETH would be deflationary.
XEN Crypto was launched on the Ethereum blockchain on Sunday. Unfortunately, it is a new Ethereum gas guzzler, and some users have already begun minting the cryptocurrency XEN. Over the weekend, Ethereum gas fees increased due to the increased activity. Because any address on the Ethereum network can generate XEN, the price of Ethereum gas has risen. There is an incentive to mint XEN for immediate sale.
Furthermore, simply by locking the tokens, users receive larger sums. As a result, the scenario with the airdrop is similar to the gold rush.
It mines with XEN as the gold and Ether as the pickaxe.
According to Etherscan, it takes approximately 1,470 ETH in gas fees to mint XEN in a day. This amount can account for up to 40% of total gas expenditure on the Ethereum network. As a result, ETH supply is decreasing because the amount of ETH burned is greater than what stakers gain as a reward.
