Ethereum’s Token Supply Now Above Pre-Merge Levels

Ethereum’s token supply has reached its highest level since January 2023, matching figures seen before the Merge update on September 15, 2022.

Data from ultrasound.money shows that the total supply of ETH has reached 120,521,523 ETH, which is higher than the supply on the day of The Merge (September 15, 2022). Astaria co-founder and CEO Justin Bram highlighted this development on Twitter, sharing a screenshot of the current ETH supply from ultrasound.money.

According to Presto Research analyst Jaehyun Ha, this development coincides with the impact of the Dencun upgrade on Ethereum’s inflation trend. This development raises concerns about the narrative of Ethereum being “ultrasound money” in the context of a deflationary asset that is meant to outshine Bitcoin in terms of store-of-value properties.

This development marks a shift in the post-Merge tokenomics, with implications for ETH's status as "ultrasound money." However, it is important to note that the transition to proof-of-stake has still brought significant benefits compared to the proof-of-work system.

After facing challenges in the aftermath of the FTX collapse, Ethereum's post-Merge deflationary vision began to take hold. Initially, low activity levels resulted in insufficient ETH being burned relative to new issuance, delaying its transition to deflation. However, as activity picked up, ETH entered deflationary territory by mid-January 2023.

By early 2024, the post-Merge supply had decreased by over 450,000 ETH, valued at nearly $1.6 billion at the time. This trend, however, began to shift around the time of the Dencun upgrade.

One key aspect of this change was EIP-4844, which introduced the concept of "blobs" to optimize Layer 2 transaction processing. Unlike the way traditional calldata is stored, blobs are designed to be kept temporarily and expire after 18 days.

This mechanism differs from the way gas is calculated for regular transactions, where a portion of the gas fee is burned. Instead, blob transactions utilize a separate fee unit known as "blob gas." The introduction of blobs in the Dencun upgrade impacted the overall ETH fee structure.

Before the Dencun upgrade, ETH transaction fees were calculated using both gas price and gas amount, with a portion of these fees being burned. However, with the introduction of blob transactions, which are optimized for large data payloads in Layer 2s, a separate fee unit called "blob gas" was introduced.

This shift in fee structure affected the proportion of ETH that was burned, ultimately impacting ETH supply trends. Notably, the gas limit also increased during this period, further influencing ETH supply dynamics.

This development comes as a result of changes introduced by the Dencun upgrade, which was implemented in March 2024. Additionally, some ETH liquidity has shifted towards Solana amid the ongoing memecoin rally and the introduction of multiple Layer 2 solutions.

Despite the increase in ETH supply, network activity remained strong, reducing concerns over inflationary pressures. According to Presto's Jaehyun Ha, this development affects ETH burning, but overall ecosystem growth is crucial for the network's sustainability.