Dencun Upgrade Turns Ethereum's Ether from Deflationary to Inflationary Supply
Summary:
In the wake of the Dencun upgrade, Ethereum's Ether (ETH) has shifted from a deflationary to an inflationary supply, marking the first time the supply turned inflationary since transitioning to a proof-of-stake model in September 2022. While the change is a significant step for Ethereum and its users, it could potentially end Ether's status as ultra-sound money, due to a decrease in transaction fees burning on Ethereum. The burn rate of Ether is now at its lowest since the Merge, while supply growth has reached its highest peak following the upgrade.
Ether (ETH), the cryptocurrency of the Ethereum blockchain, has transitioned from a deflationary to an inflationary supply in the wake of the eagerly awaited Dencun upgrade, which was implemented two months ago. As per CryptoQuant data, the total supply of Ether grew from 120 million on March 12 to 120.1 million on May 7, following the mainnet release of the Dencun upgrade. This minute increase signifies Ethereum's first switch to an inflationary supply since September 2022, when Ethereum was transformed to a proof-of-stake consensus model during the Merge.
Despite ETH's temporary shift from a deflationary status, it remains central to the Ethereum network, whose primary benefits are associated with decentralized applications (DApps), said Cryptoquant's founder and CEO. In a post on May 9, Ki Young Ju pointed out the importance of not comparing Ethereum to Bitcoin's sound money narrative.
Since the Merge on September 15, 2022, which introduced a mechanism to permanently burn transaction fees, leading to a decreasing Ether supply, Ethereum's supply initially turned deflationary. Since then, over 419,713 Ether tokens have been burned and permanently withdrawn from circulation, as per ultrasound.money.
However, the Dencun upgrade, which significantly reduced median transaction fees, has turned Ether inflationary again. This could also potentially end Ether's narrative as ultra-sound money, a CryptoQuant report hinted on May 8. The report explained how a structurally lower amount of transaction fees burned on Ethereum did not effectively keep reducing the total ETH supply, thus revoking its deflationary status.
Ether burn rate has now dipped to its lowest since the Merge, while the supply growth has soared to the highest level following the upgrade, primarily due to lower transaction fees. This trend could be seen as a crucial development for Ethereum and its users, but it may also mark the demise of Ether's ultra-sound money status.
Published At
5/9/2024 4:51:49 PM
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