Inflation Window

Recently, Ethereum has re-entered a net inflation trajectory within a 7-day observation window. Statistics show that from approximately December 19 to 26, the net supply of Ethereum increased by 18,614 ETH. According to data from Ultrasound.money, the current total supply of Ethereum is about 121,318,655 ETH, corresponding to an annual supply growth rate of approximately 0.8%. This phase of quantifiable positive issuance stands in stark contrast to the mainstream narrative emphasized by the market over the past year, which claims that "ETH has turned into a deflationary asset" and "long-term net destruction." It also brings the slogan of "ultrasound money" back to a concrete mechanism and data level for examination. Discussions in the market regarding the causes, magnitude, and impact of this inflation window on the medium- to long-term narrative are heating up, and the true elasticity of Ethereum's supply mechanism has been more clearly exposed in this round of fluctuations.

Data Portrait

In terms of magnitude, a net increase of 18,614 ETH over 7 days is just a tiny slice relative to the total supply of 121,318,655 ETH, but from an annualized perspective, it is enough to change direction: the 0.8% annual growth rate provided by Ultrasound.money means that if the current state persists, the theoretical net issuance of Ethereum could reach the million ETH level within a year. Compared to a zero-inflation scenario, 0.8% represents a certain degree of dilution for asset holders on the nominal supply side, while compared to previous net deflation phases, it indicates a switch from negative growth to slow positive growth, where the deflation premium is weakened but not completely reversed. It is important to note that 0.8% is far from high-speed expansion; rather, it is a moderate range between "slight inflation" and "near zero." Its price impact often depends on whether demand-side and narrative premiums change in sync. In horizontal comparison, Bitcoin's current annual issuance rate of about 1.75% is still significantly higher than Ethereum's, giving ETH a certain institutional advantage in terms of relatively restrained supply growth. However, in the absence of strong deflationary support, this advantage may narrow in terms of sentiment and valuation amplification effects.

Deflation Narrative

Looking back in history, since the launch of EIP-1559 and the introduction of the base fee destruction mechanism, Ethereum has repeatedly entered net deflationary territory during high-chain activity and high Gas phases. After the merge and the shift to PoS, new issuance has been further restricted, and the narrative that "ETH has become a deflationary asset" has rapidly spread, becoming one of the most communicable labels in Ethereum's narrative system. Market research institutions and media have repeatedly used phase data showing that the destruction volume exceeds the issuance volume to reinforce this impression. Therefore, when a sustained period of positive inflation recently occurred, the contrast in public opinion was particularly striking. As some media summarized, this is "the first sustained slight inflation state for Ethereum since the merge," a statement that has been widely quoted and has sparked debates in the community about "whether deflation is overestimated" and "whether ultrasound money is just a cyclical phenomenon." The current reality is that Ethereum still has the institutional basis to turn to net deflation during high-demand cycles, but the continuous inflation window is weakening the previous linear and absolute deflation expectations, making "ultrasound money" more of a dynamic narrative that requires conditional triggers rather than a constant truth.

Mechanism Breakdown

To understand this inflation window, we need to return to the mechanism level: under EIP-1559, the base Gas fees paid by users are directly destroyed, significantly shrinking the circulating supply of ETH during high transaction fees and high-chain activity. At the same time, under the PoS consensus, block rewards and staking yields are steadily distributed to validators, forming a new source of issuance. The net supply direction resulting from the overlap of these two mechanisms depends on whether the destruction volume within a unit of time can offset the staking rewards. When on-chain activity heats up and Gas prices soar, the destruction scale expands, allowing Ethereum to enter net deflation; however, in the recent environment where such transaction demand has declined and fees have decreased, the amount of ETH destroyed has reduced while staking rewards are released relatively steadily, resulting in a slow shift to positive supply growth. The current annualized growth rate of around 0.8% is in a swinging range between "slight inflation" and "strong deflation," with critical factors including: the level of Gas consumption brought by on-chain transactions and activities like DeFi/NFT, changes in total staking volume and reward parameters, and whether potential protocol upgrades further adjust fees or issuance structures. Different combinations of variables will determine whether Ethereum maintains slight inflation and near-zero growth for a longer period or returns to a phase of strong deflation.

Market Interpretation

In terms of market interpretation, some viewpoints clearly point out that Ethereum's current annual growth of about 0.8% is still significantly lower than traditional fiat currency inflation levels, which means that from a macro asset allocation perspective, ETH still possesses a certain anti-dilution property, and slight inflation has not immediately overturned its status as a "store of value" candidate. On the other hand, the fact that Ethereum's inflation level is lower than Bitcoin's annual issuance rate of about 1.75% also provides a subtle narrative advantage: when emphasizing "supply discipline," ETH can hedge against the psychological gap caused by weakened deflation expectations with a lower growth rate. However, this advantage is more evident at the marginal level—valuation anchoring still primarily comes from ecological usage, fee income, and security budgets, rather than a single deflation label. For medium- to long-term investors, continuous slight inflation may weaken the imagined space of ETH's "absolute scarcity," but as long as the supply curve remains moderately predictable and significantly better than fiat currency expansion, the cognitive boundary of ETH as a store of value and settlement asset will not be easily breached. What can truly reshape expectations is still sustained high inflation or significant revisions at the mechanism level, rather than the current low-level fluctuations.

Outlook Judgment

In summary, based on current data, Ethereum is clearly in a slight inflation state: a net increase of 18,614 ETH over 7 days and an annual growth rate of 0.8% is both higher than the idealized zero inflation or net deflation scenario and significantly lower than Bitcoin's issuance pace of about 1.75%, and much further below the historical inflation levels of mainstream fiat currencies. From a forward-looking perspective, determining how Ethereum will switch between inflation and deflation in the future hinges on three major variables: first, the overall activity and application prosperity on-chain, which directly determines the base fees and destruction scale; second, the Gas cost and fee structure, which determines to what extent transaction demand is converted into real destruction; and third, the staking scale and yield parameters, which relate to the rigid pressure on the issuance side. As more data accumulates, the previously simplified slogan of "Ethereum = deflationary asset" is gradually being smoothed out into a narrative that states "approaching deflation within specific activity ranges, maintaining low inflation during low activity cycles." The market is also more likely to price ETH based on dynamic expectations rather than betting on a single-direction supply myth.

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