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update issuance page #7921

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update issuance page #7921

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update issuance page
jmcook1186 Sep 19, 2022
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typo correction
wackerow Sep 23, 2022
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Update src/content/upgrades/merge/issuance/index.md
minimalsm Oct 4, 2022
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Update src/content/upgrades/merge/issuance/index.md
minimalsm Oct 4, 2022
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Update src/content/upgrades/merge/issuance/index.md
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74 changes: 12 additions & 62 deletions src/content/upgrades/merge/issuance/index.md
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Expand Up @@ -15,79 +15,25 @@ The **issuance** of ETH is the process of creating ETH that did not previously e
emoji=":chart_decreasing:"
title="ETH issuance tldr">

- Mining rewards ~13,000 ETH/day pre-merge
- Staking rewards ~1,600 ETH/day pre-merge
- **After The Merge, only the ~1,600 ETH per day will remain, dropping total new ETH issuance by ~90%**
- The burn: At an average gas price of at least 16 gwei, at least 1,600 ETH is burned every day, which effectively brings net ETH inflation to zero or less post-merge.
- Before The Merge ~13,000 ETH/day was issued to pay miners
- After The Merge, issuance depends upon the number of active validators on the network, so varies slot to slot.
- The total issuance is approximately 90% smaller now than it was pre-merge.
- Ether is also burned in every slot, with a greater amount burned when gas is higher. This means ether can be inflationary or deflationary depending on network demand.
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Being a tldr section, my preference would be to keep some numbers for daily issuance under PoS available here, currently ~1700 ETH/day... I think it's helpful for people just looking for some simple numbers.

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idk I removed it implies the daily issuance is a fixed number - I find this to be misleading - its dependent upon N active validators and their performance. The original and your comment already vary by 100ETH/day.
I guess its ok with appropriate caveats, but I preferred the takeaway being a) issuance is variable, b) its about 1/10th what it was before merge.

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The ideal scenario here would be live numbers. Maybe a big numbers component + Dune API could be used in the future to solve this? Three numbers: an average PoW issuance at some point close to The Merge (maybe the month leading up to it?), previous days' PoS issuance, and percentage reduction.

As much as I dislike seeing things written this way, the trade-off here might be something like: "The total issuance is approximately 90% smaller now than it was pre-merge (~1700ETH as of October 2022)."

What do you think @jmcook1186 @wackerow?

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fine by me

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</Card>

How ETH gets issued will change at the time of The Merge. Currently, new ETH is issued from two sources: the execution layer (i.e. Mainnet) and the consensus layer (i.e. Beacon Chain). After The Merge, issuance from the execution layer will go to zero. Let's break this down.
## Issuance {#issuance}

[More on The Merge](/upgrades/merge/)

## Pre-merge {#pre-merge}

### Execution layer issuance {#el-issuance-pre-merge}

Under proof-of-work, miners only interact with the execution layer and are rewarded with block rewards if they are the first miner to solve the next block. Since the [Constantinople upgrade](/history/#constantinople) in 2019 this reward has been 2 ETH per block. Miners are also rewarded for publishing [ommer](/glossary/#ommer) blocks, which are valid blocks that don't end up in the longest/canonical chain. These rewards max out at 1.75 ETH per ommer, and are _in addition to_ the reward issued from the canonical block. Mining is an economically intensive activity, requiring high levels of ETH issuance to sustain.

### Consensus layer issuance {#cl-issuance-pre-merge}

The [Beacon Chain](/history/#beacon-chain-genesis) went live in 2020. Instead of miners, it is secured by validators using proof-of-stake. This chain was bootstrapped by Ethereum users depositing ETH one-way into a smart contract on Mainnet, which the Beacon Chain listens to, crediting the user with an equal amount on the new chain. Until The Merge happens, the Beacon Chain's validators are not processing transactions and are essentially coming to consensus on the state of the validator pool itself.

Validators on the Beacon Chain are rewarded with ETH for attesting to the state of the chain and proposing blocks. Rewards (or penalties) are calculated and distributed at each epoch (every 6.4 minutes) based on validator performance. The validator rewards are **significantly** less than the miner rewards issued on proof-of-work (2 ETH every ~13.5 seconds), as operating a validating node is not an economically intense activity and thus does not require or warrant as high a reward.

### Pre-merge issuance breakdown {#pre-merge-issuance-breakdown}

Total ETH supply: **~119,300,000 ETH** (as of Q2 2022)

**Execution layer issuance:**

- Estimating at 2.08 ETH per 13.3 seconds\*: **~4,930,000** ETH issued in a year
- Currently inflating at **~4.13%** (4.93M per year / 119.3M total)
- \*This includes the 2 ETH per canonical block, plus an average of 0.08 ETH over time from ommer blocks. Also uses 13.3 seconds, the baseline block time target without any influence from a [difficulty bomb](/glossary/#difficulty-bomb). ([See source](https://bitinfocharts.com/ethereum/))
Ethereum validators are rewarded with ETH for attesting to the state of the chain and proposing blocks. Rewards (or penalties) are calculated and distributed at each epoch (every 6.4 minutes) based on validator performance. The validator rewards are **significantly** less than the miner rewards that used to be issued on proof-of-work (2 ETH every ~13.5 seconds), as operating a validating node is not an economically intense activity and thus does not require or warrant as high a reward.

**Consensus layer issuance:**
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Do we need this heading? If we've got rid of execution layer issuance then we no longer have a point of comparison 🤔

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- Using 13,000,000 total ETH staked, the rate of ETH issuance is ~1600 ETH/day ([See source](https://ultrasound.money/))
- Results in **~584,000** ETH issued in a year
- Currently inflating at **~0.49%** (584K per year / 119.3M total)

<InfoBanner>
<strong>Total annual issuance rate: ~4.62%</strong> (4.13% + 0.49%)<br/><br/>
<strong>~89.4%</strong> of the issuance is going to miners on the execution layer (4.13 / 4.62 * 100)<br/><br/>
<strong>~10.6%</strong> is being issued to stakers on the consensus layer (0.49 / 4.62 * 100)
</InfoBanner>

## Post-merge {#post-merge}

### Execution layer issuance {#el-issuance-post-merge}

Execution layer issuance after The Merge will be zero. Proof-of-work will no longer be valid under the rules of consensus. All execution layer activity will be included in "beacon blocks", which are published and attested to by proof-of-stake validators.

### Consensus layer issuance {#cl-issuance-post-merge}
Small rewards are paid validators who attest to and propose blocks. Validator rewards accrue to _validator balances_ that are managed within the consensus layer. These are separate Ethereum accounts to the accounts we're used to on Mainnet, and until the Shanghai upgrade funds from validator accounts will not be withdrawable/transferrable. This means that although new ETH is still being issued, 100% of it will be locked from the market until this upgrade occurs. When the Shanghai upgrade is rolled out, this ETH will become available.
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Consensus layer issuance will continue as before The Merge, with small rewards for validators who attest to and propose blocks. Validator rewards will continue to accrue to _validator balances_ that are managed within the consensus layer. These are separate Ethereum accounts to the accounts we're used to on Mainnet, and until the Shanghai upgrade funds from validator accounts will not be withdrawable/transferrable. This means that although new ETH is still being issued, 100% of it will be locked from the market until this upgrade occurs. When the Shanghai upgrade is rolled out, this ETH will become available.

When validator withdrawals are enabled, stakers will be incentivized to remove their _earnings/rewards (balance over 32 ETH)_ as these funds are otherwise not contributing to their stake weight (which maxes as 32).
When validator withdrawals are enabled, stakers will be incentivized to remove their _earnings/rewards (balance over 32 ETH)_ as these funds are otherwise not contributing to their stake weight (which maxes out at 32).

Stakers may also choose to exit and withdraw their entire validator balance. To ensure Ethereum is stable, the number of validators leaving simultaneously is capped. Only six validators may exit in a given epoch (6.4 minute period) depending on the total ETH staked at the time. This decreases to as low as four as more validators withdraw to intentionally prevent large destabilizing amounts of staked ETH from leaving at once.

### Post-merge inflation breakdown {#post-merge-inflation-breakdown}

- Total ETH supply: **~119,300,000 ETH** (as of Q2 2022)
- Execution layer issuance: **0**
- Consensus layer issuance: Same as above, **~0.49%** annual issuance rate (with 13 million ETH staked)
- Total annual issuance rate: **~0.49%**

<InfoBanner>
Total annual issuance rate: <strong>~0.49%</strong><br/><br/>
Net reduction in annual ETH issuance: <strong>~89.4%</strong> (0.49% / 4.62% * 100)
</InfoBanner>

## <Emoji text=":fire:" size="1" /> The burn {#the-burn}

The opposite force to ETH issuance is the rate at which ETH is burned. For a transaction to execute on Ethereum, a minimum fee (known as a `base fee`) must be paid, which fluctuates continuously depending on network activity. The fee is paid in ETH and is _required_ for the transaction to be considered valid. This fee gets _burned_ during the transaction process, removing it from circulation.

<InfoBanner>
Expand All @@ -96,6 +42,10 @@ Fee burning went live with <a href="/history/#london">the London upgrade</a> in

On top of the fee burn implemented by the London upgrade, validators can also incur penalties for being offline, or worse, they can be slashed for breaking specific rules that threaten network security. These penalties result in a reduction of ETH from that validator's balance, which is not directly rewarded to any other account, effectively burning it from circulation.

## Issuance estimates
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So, how much ether is actually issued? The precise amount changes in each slot because it depends upon the amount of ether staked by validators and their performance. At the time of writing (September 2022), net issuance (`issuance-burn`) since The Merge has been ~3100 ETH (if we were still using proof-of-work, 54,000 ETH would have been issued). Extrapolating the current network usage into the future gives an estimated 0.22%/yr net issuance. However, current network usage is very low, and more transactions lead to more ETH being burned. The website [ultrasound.money](https://ultrasound.money/) allows you to make predictions for the future net issuance under a range of market conditions.
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## Further reading {#further-reading}

- [Ultrasound.money](https://ultrasound.money/) - _Dashboards available to visualize ETH issuance and burn in real-time_
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