Today marks 240 days since the event known as the “merge” in the Ethereum community. Its impact on the total supply of ETH is obvious.

The merger is arguably the most significant upgrade in its history, seeing the Ethereum network transition from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS)-based consensus mechanism. Now, eight months after the critical event, the long-term consequences of the merger are becoming increasingly clear.

ETH supply drops

According to Ethereum analytics dashboard ultrasound.money, nearly 650,000 ETH has been burned since the merger. During the same time span, nearly 424,000 new ETH were minted. The result is a net supply change of approximately -226,000 ETH.

As a percentage of total supply, these numbers represent an annualized decrease of 0.213% or 0.285%.

If the merger had not occurred, ultrasound.money estimates that the total ETH supply would have grown at a rate of 3.244% per year over the same period.​

Long-term ether holders may welcome this news. After years of increasing supply, the higher burn rate over the past 240 days represents a deflationary trajectory. This could reward investors by driving up the price of ETH.

Driving Ethereum’s post-merger supply dynamics is a technological change that saw the network replace miners with validators. Crucially, validator rewards are significantly lower than mining rewards issued under PoW systems.

This is because running a validator node is not as economically intensive as running a mining node.

According to the Ethereum Foundation, before the transition to PoS, miners were earning approximately 13,000 ETH per day. However, since the merger, the only new Ether issued is approximately 1,700 ETH per day to stakers.

Contrary to the PoW consensus, in addition to the lower reward mechanism enacted by PoS, the higher destruction rate also drives ETH deflation.

The evolving Ethereum mechanism

In the months following the merger, the dynamics of ETH supply in the PoS era came into greater focus. But the question remains as to how long the network can sustain a deflationary economy.

Based on existing assumptions, issuance as a percentage of circulating supply will rise until equal to Ethereum’s burn rate. This will ultimately result in a circulating supply balance with issuance equal to the burn rate.​

Based on contemporary average staking rewards and burn rates, ETH creation and destruction will converge at a rate of approximately 709,000 ETH per year.

Mathematical models place the total circulating supply at an equilibrium between 27.3 and 49.5 million ETH.

Considering the supply of over 120 million ETH today, if current trends continue, the total supply will continue to decrease. Under the above assumptions about equilibrium, a deflationary trajectory would therefore persist for many years.