Ethereum supply is shrinking due to the mass exodus of validators

The amount of the so-called Ethereum (ETH) Validatorsi.e. user transacting is increasing more slowly as more users have left the company in recent weeks.

Combined with an old network update called EIP-1559, this is making the supply of ETH deflationary again, analytics firm Glassnode said in a weekly report.

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Ethereum validators are leaving the country en masse

To participate in the Ethereum network as a validator, you as a user must secure 32 ETH in Ethereum Strike pool. The user can then review and approve transactions on the Ethereum network.

Only since the “Shanghai” update in March of this year has it been possible for validators to withdraw their locked ETH. Glassnode reports that an average of 1,018 validators have left the network every day since the beginning of October.

In the summer of 2021, Ethereum rolled out the “London” update, which accompanied the introduction of EIP-1559. Since then, the base cost of each transaction has been destroyed, causing the ETH supply to increase less quickly.

If the network becomes crowded or the number of validators decreases, ETH may even become deflationary. This means more ETH is destroyed than created. Glassnode says the following:

“Over the past few weeks, we have seen a notable change in the dynamics of the Ethereum stake pool as the number of validators leaving the pool begins to increase. This has resulted in a slowdown in the growth rate of ETH issuance and the first reduction in the stake pool balance since the Shanghai upgrade.”

Ethereum supply is deflationary again

However, it is not entirely clear why more and more validators have been churning recently. The rising price could lead to users wanting their ETH to be liquid again.

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When ETH is deflationary, its circulating supply decreases. This means ETH is becoming more scarce and that is good for the price.

However, if validators want to make their ETH liquid again, they can do so by selling ETH. The ETH price rose sharply in October, but has not been able to break out further in the last few weeks.

This could mean that validators decide to cash out their winnings, which could actually put pressure on the ETH price.

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