Ethereum Supply Increases by 950,000 ETH After Merge: Layer 2 Creates New Variable for Proof of Stake

After the Ethereum network completed its Merge in 2022, the project’s monetary system underwent profound changes. One of the most notable changes is its inflation control mechanism, which is now heavily influenced by the development of Layer 2 solutions. According to data from Odaily, the total circulating supply of Ethereum is currently around 120.69 million ETH, with an annual inflation rate maintained at approximately 0.23%.

Proof of Stake Changes in Supply Dynamics

Before the Merge, Ethereum operated under a proof-of-work model, with large issuance rates to reward miners. Transitioning to proof of stake significantly reduced issuance by eliminating the need for miners’ work verification. Instead, those who stake ETH on the network receive rewards.

In the first few months after the Merge, an interesting trend emerged: Ethereum often experienced net deflation, as ETH burned through EIP-1559 exceeded new issuance. However, recent developments show a shift—issuance has surpassed burning, leading to an increase of about 950,000 ETH in total supply. This reflects Ethereum’s flexible monetary policy, which adjusts based on actual network activity rather than a fixed schedule.

Inflation Rate Remains Under Control

Despite the supply increase, the inflation rate of 0.23% is still considered well-controlled, lower than before the Merge. Analysts note that this growth is heavily influenced by on-chain activity: when transaction fees are high, more ETH is burned, potentially pushing the network back into deflationary territory quickly. Conversely, during periods of low activity, supply tends to grow.

This flexibility indicates that Ethereum automatically adjusts its monetary policy based on real demand, differing from assets with fixed supplies. It is also a unique feature setting Ethereum apart from many other cryptocurrencies.

Layer 2 and Its Potential Impact on Proof of Stake Mechanism

The development of Layer 2 solutions like Arbitrum and Optimism is beginning to create significant changes in the dynamics of Ethereum’s supply. As more users shift to Layer 2 for transactions with lower fees, on-chain activity on the main network decreases, reducing the demand for ETH burning via EIP-1559.

This is an important development: Layer 2 not only improves scalability but also directly impacts Ethereum’s monetary economy. Some analysts worry that the popularity of Layer 2 could lessen transaction fee pressure, making Ethereum’s supply more prone to inflation in the future.

Long-Term Outlook for Ethereum and Staking

Although Ethereum is no longer in a continuous deflationary state like in the months immediately after the Merge, its issuance profile remains tighter than during the proof-of-work era. As market conditions fluctuate, Ethereum’s supply trajectory will continue to oscillate between inflation and deflation, depending on on-chain activity and Layer 2 proof-of-stake developments.

These factors collectively suggest that Ethereum is evolving into a dynamic monetary system, where supply is increasingly driven by actual usage rather than a pre-programmed rule.