Ethereum
Ether has no supply cap, and it can still shrink. Issuance pays validators, the base fee burns coins, and which side wins in a given week depends on how busy the network is.
At a glance
- Unit
- 1 ETH = 10^18 wei; fees quoted in gwei
- Maximum supply
- None. Net supply change depends on issuance minus burn
- Consensus
- Proof of stake since September 2022
- Benchmark for settlement
- CME CF Ether Reference Rate, 4pm London
What the asset actually is
Ether is the fuel of a programmable settlement layer. Every transaction on Ethereum pays for computation in ETH, every validator posts ETH as the collateral that secures the chain, and every application built on top ultimately denominates its security in it. Where bitcoin is a ledger of balances, Ethereum is a ledger of programs, and ether is what running them costs.
That gives ether two distinct claims on value at once: it behaves as a commodity, consumed to buy blockspace, and as a capital asset, staked to earn a yield paid in more ether. Those two stories respond to different things - the first to network activity, the second to interest rates and staking economics - which is why ETH does not trade as a simple high-beta version of bitcoin.
There is no supply cap. Instead there is a balance: new ether is issued to validators, and part of every transaction fee is destroyed. When the network is busy the burn can exceed issuance and the supply falls; when it is quiet, supply grows slowly.
No cap, but no fixed inflation either. The supply change is an output of network activity, not a parameter.
What it is used for
The largest genuine use is paying for blockspace: token transfers, stablecoin payments, decentralised exchange trades, lending protocol interactions, and the data that layer-2 networks post back to the main chain. Every one of those pays a fee in ether, and part of that fee is burned.
The second use is staking. Validators lock 32 ETH each and are paid for proposing and attesting to blocks; liquid staking tokens let smaller holders do the same through a pool while keeping a tradeable claim. The resulting yield is the closest thing crypto has to a native risk-free rate, and it competes directly with dollar money-market yields for the same capital.
The third is collateral. Ether backs a large share of on-chain lending, and the same coins that secure the chain are frequently rehypothecated through liquid staking derivatives - a leverage chain that is invisible in the price until it unwinds.
- Token and stablecoin transfers
- 30%
- Decentralised exchange trading
- 24%
- Layer-2 data postingCheaper since blob transactions arrived in 2024
- 18%
- Lending and staking protocols
- 14%
- Bridges and everything else
- 14%
Source: On-chain estimates
How supply is created and destroyed
Since the transition to proof of stake in September 2022, ether is issued only to validators. The rate depends on how much is staked in total: more stake means more issuance in absolute terms but a lower yield per validator. The step down from mining was roughly ninety percent - the single largest supply change in the asset's history, and it happened on a scheduled date.
The destruction side arrived a year earlier. Since the fee market reform of August 2021, every transaction pays a base fee that is burned rather than paid to a validator, with an optional tip on top. The base fee rises when blocks fill and falls when they empty, so the burn is a direct function of demand for blockspace.
The 2024 upgrade that gave layer-2 networks their own cheap data lane changed this arithmetic. Rollup activity now posts to a separate fee market, which cut costs for users and cut the mainnet burn at the same time. The network became cheaper and more used while burning less - a genuine tension between adoption and the supply story that anyone pricing ETH has to hold in their head.
- Validators stake 32 ETH each; withdrawals have been possible since April 2023.
- Issuance scales with total stake; the per-validator yield falls as more join.
- The base fee is burned on every transaction; tips go to the proposer.
- Roughly a quarter to a third of all ether is staked, much of it through liquid staking pools.
Validator issuance
The only source of new ether since 2022
Transaction base fee
Burned on every transaction, rises with congestion
Concentrated in The variable half of the supply equation
Priority tips
Paid to the block proposer, not burned
Net supply change
Issuance minus burn - negative in busy periods
Staked or circulating
Locked as collateral, or free to trade
Behind the subscription
The rest of this entry is the part that changes a decision: what moves the price, which contract sets it, who ships it and where that can be cut off.
What moves the price
Six drivers, and the awkward one at the top: the upgrade that made the network cheaper also made it burn less.
Where it trades and what settles a contract
Four venues and one reference rate - plus the detail that decides ETF questions: whether the fund is allowed to stake what it holds.
Where the supply sits
How much ether is locked in staking, wrapped in layer-2 bridges or held in funds - and how quickly each of those can become selling pressure.
How this shows up in prediction markets
Threshold questions, the ETH-to-BTC ratio trade, and the upgrade-date markets where the wording does more work than the technology.
Included with a subscription
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Frequently asked questions
- Is ether inflationary or deflationary?
- Both, depending on the week. Issuance pays validators, the base fee burns coins, and the net change is whichever is larger. Busy periods have produced a shrinking supply; quiet periods a slowly growing one. It is an output of network activity, not a fixed parameter.
- Why did layer-2 networks change the supply story?
- Rollups moved activity off the main chain, and the 2024 upgrade gave them a cheap data lane. Users pay less, the ecosystem grows, and the mainnet burns fewer coins. Whether that is healthy adoption or weaker value capture is the central open argument about ETH.
- What is the staking yield and where does it come from?
- Validators are paid newly issued ether for proposing and attesting to blocks, plus transaction tips. The yield per validator falls as more ether is staked. It competes for capital directly with dollar money-market rates, which is one channel by which macro reaches the price.
- Can staked ether be sold immediately?
- Not directly. Withdrawals go through a rate-limited exit queue that takes days when demand is high. Holders who staked through a liquid staking pool hold a tradeable token instead, so they can exit the exposure at once - which is why the staked share overstates how much supply is truly locked.
Primary sources
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