Is Ether Deflationary Now? It Depends!

What to watch when gauging the veracity of the “ultrasound money” thesis

article-image

Source: DALL·E

share

key takeaways

  • Ether is currently deflationary when gas costs 15 gwei or greater
  • The rate of issuance depends on the number of ETH staking validators

The major consequence of the Merge was its drastic reduction in Ethereum’s energy requirements. It does not affect transaction fees — gas costs — nor does it directly improve scalability, though it is a prerequisite for future upgrades that will do so.

But there is one major impact yet to be determined: the net ether inflation rate.

Before the Merge, issuance of ether rewards for proof-of-work mining amounted to about 13,000 ether (ETH) per day, according to the Ethereum Foundation. You can think of this as Ethereum’s security budget.

Because miners have expenses — computer hardware, physical space and energy — they are generally forced to sell a substantial fraction of their earned ETH to pay the bills.

But in a proof-of-stake regime, multiple validators can run on much smaller and more energy-efficient hardware. Staking rewards are currently about 1,600 ETH per day, which serves the same role in maintaining consensus and security as before, but at a roughly 90% drop in issuance. That’s what the meme of the “triple halvening” is all about.

Watching the burn

So, absent miners, ether supply drops — a lot. But what about demand? The obvious source is the need for ether to pay transaction fees to use Ethereum dapps.

Network usage has fallen substantially since the heady days of the 2021 bull market, when it was common to pay 100 gwei or more to get a transaction confirmed. In recent weeks, Ethereum users would seldom find gas fees over 20 gwei — and often in the single digits.

That’s partly due to increasing network activity on layer-2 protocols — where a variety of rollups run dapps at a fraction of the cost to users — and partly a consequence of the current bear market.

Ever since August 2021, a portion of ether transaction fees are burned — taken permanently out of circulation. About 2.63 million ETH ($3.73 billion) have been burned since then, as tracked by ultrasound.money.

There, you can also simulate the parameters that determine whether ether is net inflationary or deflationary. Since the Merge, the ETH supply has increased by about 400 ETH ($568,000). But that’s just 2.2% of the increase we would expect if proof-of-work were still around.

The rate of issuance depends on the number of validators operating and earning staking rewards. There are 428,000 active, according to beaconcha.in. At the current stake rate, Ethereum becomes deflationary at a base fee rate of 15 gwei. 

Loading Tweet..

No one knows whether demand will outstrip supply over the long term, but the probability of that happening post-Merge has certainly gone up.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

Research Report Templates.png

Research

We believe DoubleZero, given its symbiotic relationship with validators & searchers, promise to boost overall network efficiency and throughput, lack of competition, and ability to serve many blockchain ecosystems, will command meaningful pricing power and could command a meaningful take of priority revenues across blockchains.

article-image

You know about the Bitcoin Standard — what about the Bitcoin Scholarship?

article-image

Toku’s suit accuses an ex-employee of stealing confidential business information and sharing it with competitor Liquifi

article-image

Partial recovery is already in motion, according to the Loopscale team

article-image

Microsoft, Meta, Amazon and Apple are slated to report Q1 earnings this week, and we’re watching one especially closely

article-image

Tariff concerns on corporate earnings and weakening of the US dollar contributed to the surge, CoinShares exec says

article-image

Following a developer call Monday, EOF appears to be out of Fusaka fork