With only a week to go before the Ethereum merger, how are key Ethereum metrics evolving? Is ETH still deflationary? What about staking returns? Let's break it down.
Ethereum fees paid by users have been on a downward trend. Demand to pay ETH fees has dropped 75% in the past 3 months and 90% compared to a year ago, as DeFi and NFT transaction volumes have declined.
Fewer fees mean less ETH burned. Less ETH burned = higher inflation. Over the past 30 days, an average of 1200 ETH has been burned per day. In the past 90 days, an average of 2150 ETH was destroyed every day.
So, what will happen to the combined ETH inflation? Net issuance = issuance minus ETH burnt. After the merger, ETH issuance will decrease by 85%-90% (1700-1800 ETH/day), but will increase as more ETH is staked.
Combined with ETH burn data from June to September, we expect the combined ETH net issuance to be between -1% and +0.5%. If fees remain low or continue to decrease, ETH will see slight inflation, albeit less than the current 3.5%.
What about staking rewards? In Proof of Stake, unburned transaction fees are paid to stakers. So, less fees = less staking yield. Based on past 30-day, 90-day and 180-day data, the combined staking yield will be between 5.8% - 6.9%.
The increase in staking yield from 3.8% to 5.8% may attract more users to stake. This will make the Ethereum network more secure, but also reduce staking rewards over time and increase ETH issuance. Overall, the merger will have a large impact on the supply of ETH, and the issuance will be reduced by 85%-90%. This is likely to cause the initial deflation of ETH after the merger. However, if demand remains low, it will cause slight inflation.
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