Although this number looks large, it must be viewed in historical context: under the PoW proof-of-work mechanism before the merge, the issuance of ETH in the same time frame was expected to exceed 3 million coins. Therefore, the post-merge inflation rate has actually dropped significantly from around 3.5% to about 0.3%, which is a very low level.
Why will it increase? Burning mechanism vs. block rewards
After the merge, the issuance mechanism of ETH underwent a fundamental change:
- New block issuance (supply side): After the merge, PoW miners were eliminated and replaced by staking validators. They earn rewards by issuing new ETH. This portion of new issuance is the only source of supply increase.
- Fee burning (demand side): The EIP-1559 mechanism is still in operation, and the base fee for each transaction will be destroyed, which helps reduce supply.
Therefore, the change in the total supply of ETH is the result of 'new issuance' minus 'burning destruction'. Data shows that the issuance has always been greater than the destruction, indicating that the overall supply is in a micro-inflation state.
The fundamental reason for not achieving deflation: Decrease in network activity
Why has the expected 'deflation' not occurred? The core issue lies in the reduction of network activity.
- Side effects of Layer2 expansion: With the popularization of solutions like Blob, a large number of transactions have migrated to Layer2 networks such as Arbitrum and Optimism, causing Ethereum's mainnet Gas fees to remain low for an extended period.
- DeFi enthusiasm cooling: Compared to the bull market in 2021, current on-chain activities (such as arbitrage and NFT minting) have significantly decreased, which were once major burners.
Gas fees can be simply understood as the 'flame' that is burned. When the Gas fee is below 15-20 Gwei, the burning rate cannot keep up with the issuance rate, leading to a net increase in supply. Over the past year, Gas fees have mostly remained low.
Impact on narrative and sentiment
This has brought several levels of impact to Ethereum:
- Challenges to the 'ultrasound money' narrative: The claim that 'Ethereum is ultrasound money' was debunked during the market cooling period because it relies on sustained high on-chain activity. This has disappointed some investors who value this narrative.
- The reality of security costs: Staking rewards are a necessary expense for validators providing security services. The current micro-inflation rate of 0.3% can be seen as a reasonable cost for ensuring network security. In absolute terms, it remains one of the scarcest assets in history.
- Future variables: The future Pectra upgrade plan will increase the validator cap and optimize the reward mechanism, which may affect the issuance rate. At the same time, a new wave of application enthusiasm may push Gas fees higher again, allowing the burning rate to exceed the issuance amount.
Core data and current situation
• As of March 15, 2026, the circulating supply of ETH increased by over 1 million after the merger, with a total circulating supply of approximately 121.53 million, and an annualized inflation rate of about 0.24%.
• In the early stages of the merger, deflation occurred due to the burning amount exceeding the issuance amount, but as transaction fee income declined, the burning rate fell below the staking reward issuance rate, turning into inflation.
Key driving factors for supply changes
Increased staking rewards: After the merger, Ethereum transitioned to a PoS mechanism, allowing staked ETH to earn rewards. As the staking scale expands, the newly issued amount correspondingly increases, becoming the main source of supply growth.
EIP - 1559 burning mechanism: This mechanism destroys part of the transaction fees, suppressing supply growth. However, the Dencun upgrade in March 2024 introduces EIP - 4844, reducing Layer2 data costs, leading to decreased on-chain transaction fees, and subsequently lower burning amounts, revealing inflation pressure.
Network activity fluctuations: During periods of high network activity such as the NFT boom and DeFi prosperity, transaction fee income is high, and the burning amount increases; during market downturns, the opposite occurs, affecting the pace of supply changes.
Comparison with pre-merger and market impact
Dramatic reduction in inflation rate: The annualized inflation rate under the PoW mechanism before the merger was about 3.53%, which dropped to about 0.24% after the merger, significantly alleviating long-term inflation pressure.
Market sentiment and price impact: Short-term inflation data may raise market doubts about ETH's deflation narrative, but the low inflation fundamentals remain unchanged, continuing to support ETH's value. At the same time, the development of the staking ecosystem enhances the holding demand for ETH, partially offsetting the pressure from inflation.
Balancing ecological development: Moderate inflation provides returns for stakers, maintaining network security and decentralization; the burning mechanism prevents excessive inflation, ensuring the value storage attribute of ETH, both promoting the sustainable development of the Ethereum ecosystem.