Dencun Upgrade Triggering Ethereum Inflation Resurgence
The Ethereum supply is rapidly increasing since The Merge, as transaction fees burned decreased significantly post Dencun upgrade.
Dencun Upgrade Triggering Ethereum Inflation Resurgence. Photo: Decrypt
According to findings from CryptoQuant, the Dencun upgrade has reignited Ethereum inflation, jeopardizing its "Ultrasound Money" characteristics.
"Ultrasound money" is a term implying an asset with stable purchasing power that increases over time. While assets with a fixed supply (like gold, Bitcoin, etc.) are considered sound money, "ultrasound money" refers to assets with decreasing supply (deflationary), such as Ethereum.
Researchers at CryptoQuant observed that Dencun has reduced Ethereum gas fee burns to some of the lowest levels since The Merge. This marks Ethereum's transition from the Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus mechanism, significantly impacting its security model, energy consumption, and tokenomics.
Global ETH supply has increased by nearly 35,000 ETH, equivalent to approximately $105 million USD, over the last 30 days according to ultrasound.money metrics. The surge is attributed to Ethereum's inefficient operation amidst the proliferation of Layer-2 solutions.
Growth correlation of Ethereum's supply. Screenshot from Ultrasound.money at 11:30 AM on 09/05/2024
The successful Dencun upgrade took place on March 13th. One of its key proposals, EIP-4844, introduced a new block structure named "blobs" to significantly optimize transaction fees across Layer-2 networks. Thanks to Dencun, gas fees on many Layer-2 networks have reduced by multiples.
Average transaction fees across Ethereum's Layer-2 networks in the last 30 days. Source: Ultrasound.money
Since 2021, Ethereum has operated on a fee-burning mechanism, where increased network usage results in higher gas prices - required to complete transactions on-chain. With gas prices significantly lower lately, averaging under 10 gwei ($0.5 USD).
Average gas fees on Ethereum in the last 30 days. Source: Ultrasound.money
Analysts commented:
"Before the Dencun upgrade, Ethereum was a busy network burning substantial ETH, thus reducing token supply. Post Dencun, fee burns are no longer contingent on network activity."
Concluding, the report forecasts that Ethereum, at its current pace, will unlikely deflate again, signaling a gradual erosion of its ultrasound money narrative.
ETH is trading at $2,997 USD, down nearly 1% in the past 24 hours.
1D chart of ETH/USDT pair on Binance at 11:40 AM on 09/05/2024
