Ether Supply Grows Amid Activity Lull During New Year Holidays

Ethereum started the year with inflationary supply growth after spending the majority of 2023 as a deflationary coin.

Ether’s supply has grown by 3,051 coins ($7.2M) since tagging a record post-merge low on Dec. 30 as on-chain activity dried up over the New Year holidays, according to data from Ultra Sound Money.

Ether’s supply had steadily trended downwards throughout 2023 except for September and October, during which more than 54,000 ETH were added to its supply. However, competition for block space quickly picked back up amid a flurry of memecoin trading amid the increasing popularity of Telegram trading bots, with 86,825.5 ($206.5M) coins removed from supply between the start of November and Dec. 30.

More than 337,333 ETH have been removed from supply since Ethereum’s Shanghai upgrade, also known as The Merge, was activated in September 2022. The upgrade booted Proof of Work miners from the network, reducing the rate of new Ether issuance by roughly 90% and paving the way for Ethereum’s burn mechanism to offset newly minted ETH in the form of staking rewards.

For comparison, 4.94M ETH ($11.7B) worth of Ether would have entered supply under Proof of Work consensus.

Gas fees fall post-merge

Despite Ethereum largely making good on its deflationary promise so far, the increasing migration of users to Ethereum’s Layer 2 ecosystem has resulted in mainnet fee volumes far dropping compared to before The Merge was activated. The trend has also been exacerbated by the extended NFT downtrend coupled with upgrades reducing the gas intensiveness of interacting with non-fungible tokens.

According to a Jan. 2 blog post from Evan Van Ness, an investor in Starbloom Ventures and author of Week In Ethereum, transaction fees were 2.5 times higher prior to The Merge.

Van Ness estimated that 2,700 ETH has been burned on average each day since The Merge, compared to 6,500 on average from the introduction of Ethereum’s burn mechanism in August 2021 until the Shanghai upgrade was activated.

“With gas fees reverting to pre-merge levels, average daily burn will be approximately 8-10x higher,” Van Ness said. However, the analyst noted that the growing adoption of Layer 2 rollups “may keep gas fees from going crazy.