The supply of Ether has experienced a significant decrease since the historic Shanghai upgrade of the Ethereum (ETH) network. This decline has been observed since September of last year, with more than 309,500 coins being burned. According to data from Ultra Sound Money, approximately 1.195 million ETH have been burned since the transition to the Proof of Stake consensus on September 15, 2022. The burn rate has outpaced new Ether issuance by about 30%, with the network issuing around 885,000 ETH as staking rewards during the same period.
The Impact of the Shanghai Upgrade
Following the Shanghai upgrade, Ethereum’s current supply is now 56,000 ETH lower than its recent peak of around 120.27 million on October 31. This represents an 18% reduction in Ethereum’s supply since the upgrade took place over the past six weeks. The recent increase in burned ETH can be attributed to the growing adoption of trading bots, which has led to increased on-chain trading. Uniswap transactions have contributed the most to the burned ETH in the last 30 days, accounting for approximately 10% of the total ETH destroyed. Prominent public trading bots like Maestro and Banana Gun have also been among the top burning entities on the network, collectively burning around 9% of the ETH removed from circulation in the past month.
“The Shanghai upgrade aimed to make Ethereum a deflationary network by replacing Proof of Work miners and revamping its tokenomics. The upgrade resulted in a significant reduction in new Ether issuance, making the network deflationary through the burning of base transaction fees,” said [author name].
Since the Shanghai upgrade, Ethereum has demonstrated deflationary behavior, with the supply peaking at nearly 120.534 million ETH three weeks later. The burn rate has continued to accelerate, resulting in a decrease of approximately 276,500 ETH between February 1 and June 8 of this year. Although the burn rate has slowed down in the third quarter, the supply of ETH has continued to decrease, reaching a post-merge low of around 120.2 million ETH on August 31. This effectively offsets inflation by 307,370 ETH.
In September and October, the supply of Ether turned inflationary for the first time in 2023, 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 Impact on DeFi and Altcoins
As a result of the recent bull run, there has been an increase in DeFi volumes, including the rapid movement of institutional funds into digital asset products. Total value locked (TVL) across DeFi platforms has surged 11% in the past 30 days, with Solana (SOL) registering a 56% increase. Solana has been described as an institutional investor favorite this year, with record inflows even when altcoin figures were at a record low. Ethereum, the leader among altcoins, also experienced an increase in institutional inflow as its asset price broke through the $2,000 mark. Optimism and Avalanche also recorded gains in DeFi TVL of 17% and 16%, respectively. Additionally, NFT volumes have seen a turnaround, with a 200% growth to $0.91 billion last month.
Overall, the decrease in the supply of Ether since the Shanghai upgrade has had significant implications for the Ethereum network. The adoption of trading bots and increased on-chain trading activity have contributed to the burn rate, making Ethereum a deflationary network. This has also impacted the DeFi and altcoin markets, reflecting a surge in total value locked and increased institutional inflows.
