Ethereum (ETH) Returns to Inflation Amid 73-Day Surge

The Dencun upgrade is blamed for driving Ethereum deep into prolonged inflation post The Merge in 2022.

Ethereum (ETH) Returns to Inflation in the Past 73 Days. Image: Newsbit

As reported by Coin68, Ethereum's supply has been steadily increasing since mid-April, as transaction fees burned dwindled post the Dencun upgrade. To date, this upward trend shows no signs of abating or reversing.

Data from ultrasound.money reveals over 112,000 ETH have been added to the overall supply since April 14. In the past 7 days alone, this figure surged to 44,500 ETH, equivalent to $150 million USD.

Graph depicting Ethereum's supply growth in the past 7 days. Screenshot from Ultrasound.money as of 01:00 PM on 26/06/2024

The March 13 Dencun upgrade is cited as the reason for Ethereum's return to inflation. One of Dencun's key proposals, EIP-4844, introduced a new block creation structure called "blobs" — significantly reducing transaction fees on layer-2 solutions like Optimism and Arbitrum by orders of magnitude. The upgrade also mitigated block space competition on the mainnet.

While users benefit from these improvements, the total ETH burned on the mainnet has decreased significantly.

Ethereum operates on a fee-burning mechanism. Simply put, as network traffic increases, gas prices — required to complete transactions on the chain — rise. High gas fees mean more ETH is burned or permanently removed from circulation. Ethereum gas fees also hit record lows recently, averaging below 5.2 gwei.

Average gas fees on Ethereum over the past 30 days. Source: Ultrasound.money

Despite Ethereum experiencing "deflationary stalling," overall supply remains well-controlled, marking a substantial decrease from pre-The Merge levels.

Total ETH supply remains well-controlled. Source: Ultrasound.money

In total, over 1.7 billion ETH have been removed from circulation since September 2022, while only 1.36 billion new ETH have been minted, resulting in a net decrease of 344,000 ETH, equivalent to over $1.1 billion USD at current prices.

Over $1.1 billion USD worth of ETH has been burned since The Merge. Source: Ultrasound.money

ETH is currently trading at $3,390 per token. Despite nearly an 90% increase over the year, the coin has seen diminished performance compared to the previous month and week.