Journalist
Posted:
- Approximately 339,121 ETH coins have disappeared from circulation since the merger.
- The number of active ETH validators has increased by 58% since the Shapella upgrade.
Ethereum [ETH] has witnessed two major events in the last fifteen months – the Merge and the Shapella upgrade – that have fundamentally changed the way the network is managed.
However, the ETH fanbase would take great heart from the fact that the impact of these events has been positive, even by conservative estimates.
ETH becomes deflationary
Approximately 339,121 ETH coins have disappeared from circulation since the merger, with the pace of deflation accelerating significantly in the last quarter of 2023, according to AMBCrypto’s ultrasonic money data research.
At the time of writing, ETH’s total circulating supply stood at 120.18 million, the lowest since the network transitioned from the proof-of-work (PoW) consensus mechanism to proof-of-stake (PoS).
Source: ultrasound.money
As the chart above shows, net supply shrank by 0.220% year-over-year. If the transition had not occurred, the total supply of ETH would have increased by over 4.8 million, with an annual inflation rate of 3.168%.
Normally, a bullish market with high network usage promotes deflation and vice versa. This is because part of the fee charged for validating transactions, called the base fee, is burned DELETED from circulation.
The higher the network activity, the greater the deflationary pressure on ETH.
Staking out gets a boost
The Shapella upgrade launched earlier this year that enabled stake withdrawals also boosted ETH stake activity.
According to a report by discontinuing service provider P2P.org, the number of active ETH validators increased by 58%, representing a new ETH stake of $23 billion.
Source: P2P.org
However, the sharp increase is starting to cause new problems for the network.
Is there an overdose?
The staking reward curve is designed to reduce the yield paid to validators in proportion to the increase in the number of validators. This is to limit excess capital inflows and maintain a liquid supply of ETH for use in transactions.
However, emerging DeFi capabilities such as liquid staking and recapture have increased the potential returns that can be earned from staking ETH. These have increased capital inflows and the validator relies on the network.
Read Ethereum’s [ETH] Price forecast 2023-24
The growing set of validators will eventually degrade network performance and could also make future critical updates more difficult to deploy, P2P.org said in the report.
At the time of writing, ETH was holding steady at $2,285, with a weekly gain of 5.14%, AMBCrypto found using CoinMarketCaps facts.
