One Year After Burning Mechanism Launched, 2.5 Million Ethereum Worth $5B Burnt, Is ETH Becoming Deflationary?

About 2.1% of Ethereum’s circulating supply has been burned since the London hard fork.

A look at Watch the Burn, a platform that offers real-time data on Ethereum’s burn mechanism introduced with EIP-1559, also known as the London hard fork, in August last year, reveals that in one year, the network has burned over 2.5 million ETH (approximately $5.1 billion). It represents about 2.1% of the network’s circulating supply.

Further analysis shows that the Ethereum network has minted about 4.9 million ETH within the period, but EIP-1559 has made it so that only over 2.3 million ETH has been issued. As a result, the number of Ethereum that the network could have issued has been reduced by about 52.06%.

It is worth noting that while EIP-1559 is a deflationary measure, Ethereum remains inflationary. For Ethereum to be deflationary by burning mechanism alone, it will have to burn more than 2 ETH per block. This is because miners receive 2 ETH for each block they mine, but Watch the Burn data shows that, on average, the network burns less than 1.5 ETH per block.

However, this is about to change with the Upcoming Ethereum Merge that will see Ethereum’s annual issuance reduced from 4.3% to 0.43% in what analyst Lark Davis calls the Ethereum triple halving. According to Davis, at current prices, this move would lead to over $600 million in selling pressure removed from the market monthly as only about 1,300 new ETH would be created each day instead of the average of 13,000 today.

#ethereum triple halving coming in a little over 30 days.

This is an event as big as or bigger than the #bitcoin halving!

Here's what you need to know

— Lark Davis (@TheCryptoLark) August 10, 2022

Additionally, the switch from the proof-of-work (PoW) consensus model to the proof-of-stake (PoS) means the network incentivizes validators who earn these rewards to hold on to and stake their rewards instead of dumping them. Consequently, this, combined with the Ethereum burn mechanism, means supply continues to decrease while demand rises, turning Ethereum into a deflationary asset.

It is worth noting that the Ethereum Merge is expected to occur sooner than previously predicted. As confirmed yesterday by Ethereum founder Vitalik Buterin, developers may be able to launch the Merge on the mainnet as soon as September 15 instead of September 19, as previously expected.

Ethereum, at the time of writing, is edging closer to the $2k price point, trading for $1,991 on mainstream exchanges.