How Ethereum became a deflationary asset – a guide to ETH’s inflation/deflation
Ethereum’s “inflation” is different from what people are used to in fiat or in other crypto projects. There is no fixed cap and no single schedule that says “X new ETH every year.” Instead, Ethereum’s supply is the outcome of two opposing forces:
- Issuance: newly created ETH paid to secure the network (miners pre-Merge, validators post-Merge).
- Burn: ETH permanently removed from circulation, mainly via EIP-1559’s base-fee burn.
That tug-of-war is why ETH supply can be mildly inflationary in one period and outright deflationary in another.
On our page, we define annual inflation as comparing the circulating supply from one year ago to today’s supply and measuring the percentage change.
Before The Merge: Proof-of-Work issuance dominated
Why PoW tended to be inflationary
Before The Merge (September 15, 2022), Ethereum’s security budget was largely funded through Proof-of-Work mining rewards. In practice, that meant a lot of ETH issued every day.
Ethereum.org’s “How The Merge impacted ETH supply” breaks it down like this:
- Before PoS, miners were issued roughly ~13,000 ETH/day
- Validators (Beacon Chain) were issued roughly ~1,700 ETH/day (depending on total ETH staked)
- After The Merge, the execution-layer (PoW) issuance became zero (ethereum.org)
So even before talking about fee burning, the pre-Merge system structurally had a much higher “default” issuance.
EIP-1559 started bending the curve, even pre-Merge
In August 2021 (London upgrade), Ethereum introduced EIP-1559, which burns the base fee. The EIP itself is explicit: “The base fee is always burned.” (Ethereum Improvement Proposals)
Ethereum’s own gas documentation describes the same concept: when blocks are produced, the base fee is “burned,” removing it from circulation. (ethereum.org)
This is important historically: the last year of PoW already included fee burning, so it’s a “reduced inflation” PoW era compared to earlier years.
What our data shows right before the Merge
Based on our calculations, the last full year leading into the Merge (Sep 15, 2021 → Sep 14, 2022) averaged about 4.16% annual inflation (median ~4.32%).
That lines up well with Ethereum.org’s own historical estimate of roughly ~4% execution-layer inflation from mining (plus a smaller PoS component that existed alongside it pre-Merge). (ethereum.org)
After The Merge: issuance collapses; burn decides the sign
The big structural change
Ethereum.org summarizes the issuance shift in plain numbers:
- PoW miners: ~13,000 ETH/day (pre-Merge)
- PoS validators: ~1,700 ETH/day (post-Merge, depends on ETH staked)
- Net drop in new issuance on Ethereum.org’s breakdown: ~88% reduction (their calculation) (ethereum.org)
Separately, Ethereum.org’s Merge page confirms the Merge date (September 15, 2022). (ethereum.org)
Why ETH can become deflationary post-Merge
Once PoW issuance disappeared, the burn didn’t have to “fight” nearly as much new supply. That’s why ETH supply can flip between inflation and deflation depending on network activity.
Ethereum.org’s issuance breakdown even gives an intuition check: if average gas price is high enough, daily burn can offset validator issuance and push net inflation to zero or below. (ethereum.org)
Ethereum.org’s supply/issuance explainer states the same dynamic at a higher level: high network activity can make burn exceed issuance, resulting in a deflationary effect. (ethereum.org)
What our data shows right after the Merge
Our YoY series captures a clear step-change:
- First post-Merge year (Sep 15, 2022 → Sep 14, 2023): average about 1.06% (median ~0.97%)
- Next year (Sep 15, 2023 → Sep 14, 2024): average about -0.13% (net deflation on average)
- Around late Jan 2024 specifically, the data shows annual inflation near -0.28% (clear deflationary stretch).
In other words: after The Merge, ETH supply didn’t just “inflate less”—it sometimes shrunk.
The recent supply development: near absolute zero
Looking at the most recent YOY data, the ethereum’s inflation rate is slightly positive again. However, it is not rising and its hovering near the 0% range.
- Supply: ~120.74M ETH
- Annual inflation: ~0.24% (Crypto Inflation)
What that means in plain English
At ~120.74M ETH supply, 0.237% YoY corresponds very roughly to ~286k ETH net added over the year (order-of-magnitude estimate using today’s supply as a base). (Crypto Inflation)
That’s tiny compared to pre-Merge issuance regimes—and it’s exactly the “PoS issuance ± burn” signature: low baseline issuance, with burn frequently offsetting much of it.
Short-term trend (last 30 days)
In our dataset, YoY inflation drifted down from about 0.2578% to 0.2371% over the most recent ~30 days shown (ending 2026-01-26).
That suggests ETH supply growth has been mildly positive but slowing lately—consistent with either (a) lower validator issuance (e.g., staking dynamics) and/or (b) stronger burn relative to issuance during that period.
Bottom line
- Pre-Merge PoW Ethereum had structurally high issuance, and our data shows the final PoW year running around ~4%+ YoY supply growth.
- Post-Merge PoS Ethereum dramatically reduced baseline issuance (Ethereum.org: ~13,000 ETH/day → ~1,700 ETH/day). (ethereum.org)
- Because EIP-1559 burns the base fee, ETH supply can now swing between small inflation and deflation depending on network activity. (Ethereum Improvement Proposals)
- Recently, ETH looks slightly inflationary: about ~0.24% YoY with ~120.74M supply, however the YoY rate has been cooling over the recent months.