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Ethereum's supply has grown 1.6 million ETH since the 2022 Merge, as validators mint 2,600 new ETH daily while the burn rate lags far behind.
The Dencun upgrade slashed Layer 2 fees by over 90%, gutting ETH's burn rate and keeping the network inflationary since April 2024.
Sub-1% annual supply growth can't explain ETH's 39% price drop, but the collapse of the 'ultrasound money' scarcity narrative is eroding investor confidence.
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For years, Ethereum (CRYPTO: ETH) holders were assured that ETH supply would shrink over time. However, that narrative has changed: the network now produces more ETH than it burns, making Ethereum inflationary again. As of October 5, 2026, approximately 122.1 million ETH are in circulation, about 1.6 million more than the 120.5 million at the time of the Merge in September 2022.
Many investors were attracted to Ethereum with the expectation of a dwindling supply. While Ethereum has no cap on total supply, the decrease in ETH was only sustainable when the network was heavily utilized.
Currently, ETH is trading at around $2,724 on October 5, reflecting a 2.7% increase over the past week and a 7.8% rise over the last 30 days. However, despite these recent gains, ETH is still down 39% from a year ago and approximately 45% below its all-time high of $4,946 reached in August 2025. So, is Ethereum inflationary again, and could this increased supply explain its drop over the past year?
Ethereum's supply dynamics move in two opposing directions. Validators—computers that validate transactions—lock up ETH as collateral and earn about 2,600 new ETH daily for their work. Over a year, this amounts to nearly 950,000 new ETH, or about 0.8% of the total supply.
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Since August 2021, Ethereum has implemented a fee structure that pushes in the opposite direction by burning a portion of every transaction fee, permanently removing those coins from circulation. However, the amount burned relies on network activity; during quieter periods, only 50 to 70 ETH might be destroyed.
When transaction fees are high, the burn can exceed issuance, as it did from the Merge until early 2024. With lower fees, new issuance outpaces the burn, leading to overall supply growth. Since April 2024, net growth has been about 0.2% to 0.8% annually, depending on the timeframe considered.
The recent Dencun upgrade in March 2024 significantly impacted Ethereum's supply dynamics. This upgrade improved layer 2 networks—separate chains that bundle multiple transactions for more efficient settlement on Ethereum—by drastically reducing transaction fees by 90% or more.
This means that while developers worked tirelessly to improve Ethereum's affordability, lower transaction costs also led to a lower rate of ETH being burned. As activity shifted to these layer 2 solutions, the main Ethereum network saw its fees decline, resulting in a decreased burn rate.
To address this, the Fusaka upgrade was introduced on December 3, 2025, imposing a minimum price for the data layer 2s can post. Despite this measure, supply has continued to rise, suggesting the adjustments haven't been enough to restore previous burn levels.
Annual supply growth of less than 1% is relatively low compared with other cryptocurrencies. For instance, Bitcoin's supply increases by about 0.8% per year after its 2024 halving, and ETH's price often moves more than that amount in a single day. Hence, such a small change in supply cannot sufficiently explain Ethereum's 39% price decline over the past year.
Moreover, the newly created ETH primarily goes to stakers, meaning that those who stake their ETH maintain their proportional share of the overall supply. In contrast, holders who do not stake will see their relative share diminish slightly each year.
That said, the inflationary aspect compromises Ethereum's earlier promise of "ultrasound money," where the belief that ETH would continuously become scarcer formed a central selling point for potential investors. As that assertion falls flat, holders may be prompted to evaluate the rest of Ethereum's value proposition more critically.
Yes, Ethereum is currently inflationary, with validators earning about 2,600 new ETH daily, while the burn consistently lags behind on most days. Nevertheless, this supply growth, under 1% per year, is unlikely to drive ETH's price, which is influenced far more by demand and investor sentiment.
This transition costs Ethereum the scarcity narrative, as the lower transaction activity on the main network keeps the burn rate muted. If network usage increases and consistently burns more than 2,600 ETH a day over several weeks, supply might start to decline again. Until then, the question remains: Is Ethereum inflationary for the long term, or could a busier network help restore the burn?
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