Glassnode: Ethereum poised to become deflationary after The Merge

Analysts at Glassnode conclude that, after The Merge activation, Ethereum is likely to become deflationary.

The chart below presents $ETH issuance under two scenarios:

🟠 $ETH issued on both PoW + PoS chains, with the EIP1559 burn (usually inflationary).

🔵 $ETH issued on PoS + EIP1559, simulating a Merge going live in Aug 2021, demonstrating a high chance of supply deflation. pic.twitter.com/1gHeoDgguw

— glassnode (@glassnode) September 5, 2022

The chart attached to the tweet models ETH issuance under:

• the current issuance on two chains — PoW and PoS — and the operation of the token-burn mechanism EIP-1559;
• the operation of the system after The Merge activation, as modeled in August 2021.

With exception of Aug this year, where average gas prices are sub 20-GWEI, the simulated condition PoS chain + EIP1559 burn is net deflationary.

This means that with any meaningful upwards fee pressure, $ETH supply post Merge may be expected to decrease on net. pic.twitter.com/6v2NHscANY

— glassnode (@glassnode) September 5, 2022

«За исключением августа этого года, когда средняя стоимость газа была ниже 20 Gwei, смоделированная PoS-цепь в тандеме с EIP-1559 является дефляционной», — подчеркнули исследователи.

Experts noted that the ETH issuance rate on the Beacon Chain will rise as more validators join the pool.

Note that $ETH issuance on the Beacon Chain increases as more validators enter the pool.

Assuming a successful Merge event, it is likely that the validator pool will increase, as investor concerns of technical risk are addressed.

Per Validator yield has declined to ~4.44% today pic.twitter.com/B34NKXYLUp

— glassnode (@glassnode) September 5, 2022

«Assuming the Merge goes ahead successfully. It is quite likely that the validator pool will grow, as concerns about technical risks disappear,» the experts noted.

They note that the current annual yield from validator activity stands at 4.44%.

According to Ultrasound Money, the projected post-Merge annual ETH issuance rate is 0.3%.

About 730.06 ETH are burned each day. Since the activation of EIP-1559, 2.6 million ETH have been burned.

The migration of the second-largest cryptocurrency to PoS is planned around September 15–16.

Follow ForkLog’s Bitcoin news on our Telegram — cryptocurrency news, prices and analysis.