Ethereum
Ether becomes an inflationary asset again after Dencun upgrade reduces fees
Ethereum’s recent Dencun upgrade, designed to reduce fees and help scale the network, has sparked ether (ETH) reverting to an inflationary asset – potentially negating one of the key benefits of the 2022 merger.
A CryptoQuant report reveals that Dencun has made transaction fees on Ethereum on average four times lower than they were before, but this also means that the amount of ETH burned has decreased to one of the lowest levels low since the merger and supply is increasing at the fastest rate since 2022.
The 2022 merger saw Ethereum move from a proof-of-work to proof-of-stake blockchain. This worked in tandem with an earlier London upgrade that implemented a mechanism that burned a portion of transaction fees (the base fees), effectively removing ETH from circulation and causing a squeeze deflationary.
Dencun, the most recent upgrade, implemented dark shanking, which improved block storage and made layer 2 networks cheaper.
Ether was a deflationary asset after the merger, with the token’s total supply increasing from 120.491 million to 120.097 million since September 2022. However, the total amount of fees burned decoupled from network activity after Dencun, meaning that the natural increase in supply exceeds the amount spent on fees. The supply of Ether has increased by 400,000 tokens since April.