Ethereum (ETH) entered a period of gradual inflation from April 2024, reversing the trends from the fall of 2023. In the past quarter, token generation surpassed token burning.
For the past 30 days, Ethereum (ETH) added another 60,000 tokens, for a total supply of 120.23M tokens. Overall, Ethereum’s chain retains the general trend of producing fewer new tokens. The past year kept the supply more predictable, while between 2021 and 2022, more than 4M new ETH were mined.
New ETH inflation is still much lower compared to Solana (SOL) and even Bitcoin (BTC). But the lowered burn rate also signals a slowdown of transactions and direct ETH usage.
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The current supply growth of ETH has an inflation rate of 0.58% on a yearly basis, lower than the 0.83% annualized BTC inflation. SOL inflation is now at 5.14% on a yearly basis, based on linear token unlocks. Previously, mined ETH had an inflation of nearly 4% and for years avoided a straight answer to the total number of tokens to be produced.
The current inflation rate has kept ETH close to 120M tokens, with fluctuations of 50-100K ETH for months. But even this slow, ongoing inflation is worrying, due to the wish to turn Ethereum into a permanently deflationary chain. Additionally, Ethereum has no supply cap and in theory, could produce another 1M ETH. The potential supply growth may limit the price per token, even with new buying to supply ETF trading.
ETH inflation 60k $ETH in 30 days 👀
H/t @intocryptoverse https://t.co/u2SOiIGGgv
— MartyParty (@martypartymusic) July 20, 2024
Ethereum inflation results in low gas prices
The current period of low, persistent inflation coincides with a slide in gas prices. The average gas price fell by more than 65% since March 2023, which slowed down ETH burns. This led to the creation of about 13K ETH in a week.
In total, Ethereum has burned 4.3M tokens in fees since introducing EIP-1559, erasing the new supply from about a year of proof-of-stake. Yet the burn smart contract is not enough to maintain the supply closer to 120M, an unofficial cap in the past year.
Previous attempts to limit the creation of ETH looked at a supply of around 100M. That level was reached back in 2018. ETH may turn deflationary and cut its supply to $100M, but that may take more than a decade, depending on burn rates.
ETH buying demand erases small inflation
The recent supply growth is almost negligible when compared with demand from the recently launched ETF trading.
The previous inflationary period produced around $554M worth of new ETH tokens. Inflows into the ETF product reached $590M, mopping up the excess tokens with no issue.
The true sink for ETH tokens, however, is the Beacon Chain contract. Just a couple of weeks ago, the contract held 47.3M tokens. Since then, another 1M ETH found its way to the staking contract, expanding the total amount to more than 48.3M ETH. The influence of projects like LidoDAO and re-staking protocols is driving inflows to the Beacon Chain contract, often mediated by staking or re-staking protocols.
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For now, the reported inflation on Ethereum has been overhyped, as noted by Mert Mumtaz, one of the high-profile Solana developers. The most likely scenario is that Ethereum will continue with a low inflation and balance out its supply in the coming months.
The Ethereum network shows regular activity with between 420K and 500K daily wallets. Most users also aim to save gas, thus decreasing the burn rate. As of 2024, more than 10% of Ethereum transactions seek out private pools, to avoid bot attacks and secure a spot in the blocks.
For now, ETH also looks locked in a range, trading at $3,467.01. Even the ETF launch led to a relatively small net flow, as some of the traders also decided to sell. ETH may be facing price pressure and supply inflows not from newly minted tokens, but from whales. In the past 10 days, 25,865 ETH from the wallets of two whales reached exchanges, in preparation for the ETF trading launch.
As of July 23, another 293K ETH was moved to Coinbase Institutional, with so far no data about the origins or a connection to ETF trading.
Cryptopolitan reporting by Hristina Vasileva
