Recently , it has been shown that the supply of Ethereum (ETH) has been decreasing significantly in large amount after the upgrade of The Merge. According to ultrasound money, the estimated annual change in ETH supply is -0.121%, which is equivalent to approximately 275 million USD at the current price.
The continuously decrease in supply can be attributed to the change in Ethereum’s consensus algorithm from traditional Proof of Work (PoW) to Proof of Stake (PoS), which eliminated mining rewards and reduced the pace of ETH supply growth by about 90% through the burning of base fees.
The steadily declining supply of Ethereum has led to increased deflationary property of Ethereum and is causing concern among investors as how the blockchain will scale. Probably the annual inflation rate of Proof of Work remained at about 4.13%, the supply of ETH would have increased by 2.33 million new ETH flooding the market the lpast 208 days. However, with the upcoming “Shanghai” (Shapella) upgrade, Ethereum validators will be able to withdraw locked-up assets, including the 18.14 million ETH currently locked up in the Ethereum staking contract pool.
Many investors expect the implementation of the withdrawal feature on the staked pool to trigger a massive sell-off of investors in the short term. However, in order to prevent a large number of validators from leaving at once and becoming unstable, there is a withdrawal limit, and the maximum daily sales volume is 118,000 ETH. Although even with this no one can truely determine the sell pressure that is update will have on the price of Ether.
Cryptocurrency exchange Coinbase has the second largest ETH staking share (11.4%) and has plans to start accepting unstake ether 24 hours after the upgrade is completed. However, due to the expected high volume of withdrawal requests, Coinbase has stated that it could take weeks or months to fully process most transaction as most of the staked Eth belongs to their customer and with the current cryptocurrency battle on going in the United States am guessing alot of persons would want to remove their assets from centralized exchanges.
Liquid staking giant Lido, which holds the top ETH staking share (31.2%), plans to start accepting stETH withdrawals around mid-May. The unrealized P&L of staked ETH is worth -$4.7 billion, according to on-chain analytics firm Glassnode. As a result, only 9% have unstaked after the Chapela upgrade, and 68% are considering starting new staking and compounding operations.
Ethereum foundation (ETH) also has the lowest staking share of its supply, at 14%, among other Layer 1 blockchains. However, with the implementation of the withdrawal function, there are expectations that investors who have refrained from ETH staking until now will be able to participate with peace of mind. This could lead to an increase in staking and compounding operations, which would further reduce the supply of ETH and increase deflationary pressures.
The steady decline in Ethereum’s supply and the upcoming withdrawal function have sparked interest and concern among investors. The withdrawal function has the potential to trigger a massive sell-off in the short term, but the withdrawal limit and processing times of exchanges like Coinbase could mitigate this.
