Ethereum Inflationary for the First Time Since Merge
10 May, 2024 ● Kripto novosti
The Ether supply has ceased to be deflationary following Ethereum’s highly anticipated Dencun upgrade, which went live two months ago.
According to CryptoQuant data, the total Ether supply increased from 120 million on March 12 to 120.1 million on May 7, after the Dencun upgrade was implemented on the mainnet.
Although this is a minor increase, it marks the first time Ether supply has turned inflationary since September 2022, when the Merge transitioned Ethereum to its current proof-of-stake consensus model.
Ether temporarily losing its deflationary status is not a major concern for the Ethereum network since its primary benefits are related to decentralized applications (DApps), according to the founder and CEO of CryptoQuant. In a May 9 X post, Ki Young Ju wrote:
“Post-Dencun upgrade, $ETH lost deflationary status with reduced fees, departing from 'ultrasound money.' Ethereum’s strength lies in DApps; it’s wiser not to compare it to Bitcoin’s sound money narrative.”
Ether supply first became deflationary after the Merge on September 15, 2022, when a mechanism was introduced that permanently burned transaction fees, resulting in a decreasing Ether supply.
Since the Merge, over 419,713 Ether tokens have been burned, permanently removing them from circulation, as per ultrasound.money.
The Dencun upgrade has reversed Ether’s deflationary trend by making median transaction fees up to four times cheaper than before, while maintaining the same level of network activity.
While this is a significant improvement for the Ethereum network and its users, it may signal the end of Ether’s status as ultra-sound money, according to a May 8 report by CryptoQuant.
“The Dencun upgrade has made ETH inflationary again, potentially killing the narrative of 'Ultra sound' money as a structurally lower amount of transaction fees burned on Ethereum have had the corresponding effect of not decreasing the total supply of ETH to keep it deflationary.”
Due to lower transaction fees, the amount of Ether being burned has declined to its lowest levels since the Merge, while supply growth has reached its highest level since the upgrade.
Sources:
https://cointelegraph.com/news/ethereum-dencun-upgrade-ether-supply-shift
https://cryptoquant.com/community/dashboard/663b98328403fa3034f40749
https://twitter.com/ki_young_ju/status/1788531635677479323/photo/1
