The world’s second largest company by market value cryptocurrency the one which… Ethereum, is witnessing a significant change in its economic model.
According to a report by data analysis firm CryptoQuant, the recent Dencun upgrade has made Ethereum inflationary again, potentially undermining ETH’s claim to being an “ultra-sound” currency.
Dencun’s upgrade, implemented on March 13, 2024, led to a decrease in transaction fees on the Ethereum network. This caused the amount of ETH burned to drop and reach one of its lowest levels since the Merge. Merge was a significant event in Ethereum’s history when it moved from proof-of-work (PoW) consensus mechanism to proof-of-stake (PoS) consensus mechanism.
Analysts explain the incident as follows:
“Prior to the Dencun upgrade, higher network activity on Ethereum resulted in higher fees being burned, which led to a reduction in ETH supply. However, post-Dencun, the total amount of fees burned has decoupled from network activity.”
The report also emphasized that ETH supply reached the fastest daily increase rate since Merge. Given the current rate of network activity, it is unlikely that Ethereum will return to a deflationary state, according to analysts. This suggests that the narrative of ETH being an “ultra-hard” currency may have become obsolete or will require significantly higher network activity to be revived.
The Dencun update introduced the feature of additional data storage in “blobs” on the Ethereum network. This improvement increased efficiency and reduced costs associated with Layer 2 operations.
*This is not investment advice.
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