Ethereum (ETH) Experiences Inflation for the First Time Since The Merge
Ethereum (ETH) Experiences Inflation for the First Time Since The Merge
The Ethereum (ETH) supply has experienced inflation for the first time in one and a half years since the upgrade known as The Merge occurred. The ETH supply ceased to be deflationary after the Dencun upgrade.
Ethereum (ETH) Supply Returns to Inflation
The total ETH supply increased to 120.1 million on May 7, 2024, from 120 million on March 12, 2024, before the Dencun upgrade was launched on the mainnet according to CryptoQuant data.
Though this is a small increase (only about 100 thousand ETH), it marks the first period when the ETH supply has turned inflationary since September 2022, when The Merge transitioned Ethereum to a proof of stake (PoS) consensus model.
The loss of its deflationary status for ETH isn’t critically concerning for the Ethereum network as its primary benefits are more related to decentralized applications (dApps).
"Post-Dencun upgrade, ETH lost its deflationary status with lower fees, abandoning the concept of ultrasound money. Ethereum's strength lies in dApps; it's wiser not to compare it to Bitcoin's strong money narrative," explained CryptoQuant founder and CEO, Ki Young Ju.
The ETH supply first became deflationary after The Merge on September 15, 2022, when the mechanism burning transaction fees on the network permanently was introduced, resulting in a decrease in ETH supply.
Around 418,352 ETH has been permanently removed from circulation since The Merge, according to Ultrasound Money data.
The Merge and Dencun Seem to Be Contradictory
The Dencun upgrade ended the inflationary trend of ETH by making transaction fees up to four times cheaper than before, with the same network activity level.
Although this is a significant step for the Ethereum network and its users, it could mark the end of ETH's status as ultra-sound money (deflationary supply), according to a CryptoQuant report on May 8, 2024.
"The Dencun upgrade has made ETH inflationary again, potentially ending the Ultra-sound money narrative as transaction fees burned on Ethereum are structurally lower, resulting in not reducing the total ETH supply to keep it deflationary."
Due to lower transaction fees, the amount of ETH burned has decreased to the lowest level since The Merge, while the growth p
Conclusion
Ethereum (ETH) has undergone a significant shift as it experiences inflation for the first time since The Merge upgrade. The introduction of the Dencun upgrade has reversed ETH's deflationary status, leading to a small but notable increase in the total supply of ETH. While this change may seem contradictory given the network's previous trajectory towards deflation, it reflects a broader shift in Ethereum's ecosystem dynamics, particularly with regards to transaction fees and the role of decentralized applications (dApps).
The loss of ETH's deflationary status is not seen as a critical issue for the Ethereum network, as its fundamental strength lies in its dApps rather than its status as ultra-sound money. The Dencun upgrade, while reducing transaction fees and increasing network efficiency, has also raised questions about Ethereum's narrative as a deflationary asset. However, it underscores the network's adaptability and willingness to evolve in response to changing market dynamics and technological advancements.
Moving forward, Ethereum's journey as a leading blockchain platform will continue to be shaped by ongoing upgrades, innovations, and the evolving needs of its user base. While the transition to inflation may represent a departure from its previous trajectory, it also opens up new possibilities for growth and adoption within the Ethereum ecosystem. As such, the Ethereum community remains optimistic about the network's future prospects, confident in its ability to navigate challenges and embrace opportunities in the ever-changing landscape of decentralized finance and blockchain technology.
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