- December 14, 2023
- Posted by: [email protected]
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The supply of Ethereum (ETH) has recently hit its lowest point since the groundbreaking Shanghai upgrade, experiencing a decline of more than 309,500 coins since September of the previous year. According to Ultra Sound Money data, about 1.195 million ETH has been burned since the transition to the Proof of Stake consensus on September 15, 2022. The burn rate has surpassed new Ethereum issuance by approximately 30%, with the network issuing around 885,000 ETH as staking rewards during the same period.
ETH’s current supply is 56,000 ETH lower than its recent peak on October 31, standing at around 120.27 million. This reduction signifies an 18% decrease in Ethereum’s supply since the Shanghai upgrade over the past six weeks. The recent surge in burned ETH can be attributed to increased on-chain trading, primarily fueled by the growing adoption of trading bots.
Uniswap transactions have played a significant role in burning ETH in the last 30 days, constituting approximately 10% of the total ETH destroyed. Noteworthy is the participation of well-known public trading bots such as Maestro and Banana Gun, collectively burning around 9% of the ETH removed from circulation in the past month.
Understanding How the Shanghai Upgrade Transformed Ethereum into a Deflationary Network
The Shanghai upgrade, also known as The Merge, aimed to transform Ethereum into a deflationary network by replacing Proof of Work miners and restructuring its tokenomics. This upgrade resulted in a substantial reduction in new Ethereum issuance, making the network deflationary through the burning of base transaction fees.
Following the Shanghai upgrade, Ethereum demonstrated deflationary behavior, with the supply peaking at nearly 120.534 million ETH three weeks later. The burn rate accelerated in early 2023, leading to a decrease of approximately 276,500 ETH between February 1 and June 8.
While the burn rate slowed down in the third quarter, the supply of ETH continued to decrease until reaching a post-merge low of around 120.2 million ETH on August 31, effectively offsetting inflation by 307,370 ETH.
Notably, Ethereum’s supply turned inflationary for the first time in 2023 throughout September and October, with approximately 53,700 coins added to ETH’s supply. However, Ethereum’s on-chain activity experienced a resurgence in November, driven by bullish market conditions, resulting in a significant acceleration in the burn rate.
The recent bull run has led to an increase in DeFi volumes, including the rapid movement of institutional funds into digital asset products. Overall, total value locked (TVL) across DeFi platforms has surged by 11% in the past 30 days, with Solana (SOL) registering a 56% increase. Ethereum, an institutional favorite, witnessed an increase in inflow in recent weeks as its asset price broke through the $2,000 mark. Optimism and Avalanche also recorded gains in DeFi TVL of 17% and 16%, respectively. NFT volumes showed a turnaround from previous months, with last month’s NFT volumes reaching $0.91 billion, marking a 200% growth.
