According to CryptoPotato, Ethereum's status as an ultrasound money system is increasingly questionable due to its rapidly increasing supply. Since mid-April 2024, approximately a month after the Ethereum network underwent the Dencun upgrade, over 112,000 ether (ETH) has been added to the market at the fastest daily rate following the Merge.
Ethereum has seen several developments over the years that have shaped the network as we know it today. The Merge in September 2022 marked its transition from a proof-of-work consensus mechanism network to that of proof-of-stake. In mid-March, Ethereum underwent another upgrade that reduced the transaction fees of its layer-2 networks by roughly 4x and enhanced the blockchain’s scalability by expanding its capacity.
The Dencun upgrade introduced nine Ethereum improvement proposals (EIPs), including EIP-4844, which implemented proto-danksharding, a mechanism that allowed for data blobs. With blobs, layer-2 solutions like Arbitrum, Optimism, and Polygon were able to submit transaction data to Ethereum for collective settlement within a dedicated blobspace without additional expenses.
Before the Dencun upgrade, Ethereum implemented some upgrades to ensure it remained deflationary. One such was the London upgrade in August 2021, which introduced a mechanism that removed ETH from circulation with every transaction by burning a portion of the network’s gas fees. The Merge further cemented this approach to deflation and lowered ETH’s inflation rate by 90%.
However, since the Dencun upgrade, Ethereum’s transaction fees have been low, meaning less ETH has been burned. On-chain analysts believe Ethereum is no longer deflationary, as the new ETH supply has turned positive. The amount of fees burned on Ethereum is no longer positively correlated with higher network activity; fewer fees are burned regardless of how many users are transacting on the network.
Despite this, the total supply of ETH since the Merge has plunged significantly, with an overall reduction of 345,000 ETH. Around 1.36 billion ETH has been issued, but more than that has been burned. With Ethereum’s inflationary rate increasing post-Dencun, the purchasing power of ETH is reducing, which may negatively impact investors. At the time of writing, ETH was worth $3,374, down 4.8% in the past week in correlation with the drawdown in the crypto market.