The use and issuance of the Ether cryptocurrency used by the Ethereum network ecosystem makes this crypto particularly unique. Today, we analyze the distribution and evolution of the supply of ETH before and after the Merge in order to answer a crucial question: how much Ether (ETH) is available for purchase?

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Ether (ETH) at a crossroads

While investors’ eyes are on BTC and its reaction to the $30,000 level, ETH price forms a similar long-term trend reversal pattern.

Figure 1: Daily price of ETH

The dynamics of new ether (ETH) issuance and its use within Ethereum make this cryptocurrency a unique case.

As the price of ETH looks poised to breach the symbolic $2,000 level, we analyze the distribution of ETH supply and its post-merge dynamics to answer a crucial question: how much ETH is available for purchase?

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ETH Supply Breakdown

Following the Merge, the distribution of the supply of ETH has undergone a notable evolutionwith a large transfer of ETH leaving the exchanges but also smart contracts to be staked within the consensus algorithm of Proof of Stake (PoS) of the Ethereum network.

Currently, the circulating supply of ETH is distributed as follows:

Exchanges: 15,117,742 ETH (12.7%)
Smart Contracts: 36,712,057 ETH (30.9%)
Staking: 26,716,238 ETH (22.3%)

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Figure 2: ETH Supply Breakdown

The rest of the supply (41,260,356 ETH, or 34.1%) is mostly held on ETH addresses with no defined use.

This distribution indicates more than half of the ETH in circulation (Smart Contracts + Staking) are currently used within the decentralized economy of the Ethereum networkwhich is a remarkable usage rate.

Moreover, we can observe a long-term growth in the supply of ETH used within the various smart contracts that includes DeFi, lending/borrowing markets, GameFi and NFTs.

Figure 3: Supply of ETH in Smart Contracts

Generally, this metric grows during ETH bull markets as users and investors decrease their risk aversion and send ETH to decentralized protocols offering innovations and attractive returns.

The opposite happens during bear markets, with participants leaving smart contracts For :

limit the risk of liquidations linked to the strong downward volatility of altcoins;
spend their capital in stablecoins;
sell ETH.

Furthermore, we can note a notable influx of ETH since the beginning of 2023with a 20% increase and a total of more than 37 million ETH in smart contracts.

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Post-merge dynamics of ETH supply

Regarding the dynamics of the issuance of ETH, we can now separate the period 2021 – 2023 into three distinct periods.

The Proof of Work period (Pre EIP-1599), with an inflation rate close to +4.5% ;
The Proof of Work period +Burn (August 2021 – Sept 2022), with an inflation rate between +3.4% to +1.4% ;
The Proof of Stake + Burn period (Post Merge), with an inflation rate between +0.3% to -8.4%.

Figure 4: ETH inflation rate

The evolution of the inflation rate of ETH between 2021 and 2023 indicates that, following the switch from PoW to PoS, monetary dynamics ETH became deflationary.

Apart from the fact that this constitutes a feat of computer engineering, this change in monetary policy mainly has the effect of making it possible to reduce the supply of ethers in circulation.

Indeed, by measuring the net change in the supply in circulation (issuance – burn) since the Merge, which occurred in September 2022, it appears that this measurement tends towards a reduction in the supply of ETH.

For nearly 766,000 ETH issued, more than 1.3 million ETH was burned, which caused a net drop of more than 600,000 ETH in circulating supply.

Figure 5: Net change in ETH supply

The burn rate of ETH, ensured by the EIP-1559, obviously leads to a fall in the supply of ETHwhich is seen as a very positive fact by some ETH investors.

Based on the laws of supply and demand, they theorize that a reduction in supply amid rising demand causes a supply shock, pushing ETH prices upwards in an exacerbated way.

That said, while a 600,000 ETH reduction in supply in just 11 months may seem significant, it’s worth putting that figure within a larger context.

If we compare this reduction to the total supply in circulation, it ultimately only represents a slight decline of -0.51% in the supply of ETH.

Figure 6: Net change in ETH supply (as a percentage of total supply)

Although this value can form a very strong signal for some, it remains quite negligible against the supply of ETH which is still available.

Nowadays, it seems difficult to be able to say that the ongoing deflation on Ether can have a palpable effect on prices.

However, the change in monetary issuance brought about by the Merge and the EIP-1559 are still recent and it will be necessary to monitor the dynamics of the supply of ETH over the long term in order to study the potential effects of this innovation.

Finally, if the deflationary behavior of supply is still negligible, then it is relatively simple to answer our question: how much ETH is available for purchase?

Figure 7: Supply of ETH available for purchase

By separating the ETH immobilized by staking and those used in smart contracts, it seems that the Ethers potentially available for purchase are those stored within exchanges and those with no defined use.

So, only 56 million ETH (46.9%) is liquid enough to be traded by potential investors.

It should be noted, however, that these measures are only presented for indicative purposes because they can vary very quickly depending on the context (eg the number of ETH in smart contracts which can decrease rapidly).

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Summary of this on-chain analysis of Ethereum

Ihe Ether supply distribution indicates that more than half of the ETH in circulation (Smart Contracts + Staking) are currently used within the decentralized economy of the Ethereum networkwhich is a remarkable usage rate.

The reduction in circulating supply caused by the deflationary dynamics of ETH represents only a slight decline of -0.51% in the supply of ETH and remains quite negligible and it seems difficult to be able to say that the ongoing deflation on ETH can have a palpable effect on prices.

Finally, it seems that ETH sufficiently liquid to be traded by potential investors are those stored on exchanges and those with no defined use, which represents nearly 56 million ETH, or 46.9% of the supply in circulation.

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Sources – Figures 1 to 7: Glassnode

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