According to analysts at analytics firm Glassnode, after the activation of The Merge update, it is very likely that Ethereum will become deflationary.
The graph shared by the company on Twitter simulates ETH issuance rates for two scenarios:
The chart below presents $ETH issuance under two scenarios:
— glassnode (@glassnode) September 5, 2022
🟠 $ETH issued on both PoW + PoS chains, with the EIP1559 burn (usually inflationary).
🔵 $ETH issued on PoS + EIP1559, simulating a Merge going live in Aug 2021, demonstrating a high chance of supply deflation. pic.twitter.com/1gHeoDgguw
The current issuance of coins on two chains, PoW and PoS, and the operation of the EIP-1559 token burning mechanism, and the operation of the system after the activation of The Merge.
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According to the researchers:
"With exception of Aug this year, where average gas prices are sub 20-GWEI, the simulated condition PoS chain + EIP1559 burn is net deflationary."
Experts have reminded the ETH issuance rate on Beacon Chain will increase as the number of validators increases.
They have pointed out:
"Assuming a successful Merge event, it is likely that the validator pool will increase, as investor concerns of technical risk are addressed."