Since the Dencun upgrade, Ethereum has changed significantly. CryptoQuant CEO Ki Young Ju remarked on the shift in Ethereum’s monetary dynamics. He noted that the upgrade had changed Ethereum’s status from deflationary to inflationary. Therefore, it deviates from the Ultrasound money concept. Moreover, the comparison of Ethereum to Bitcoin and the sound money narrative is unfair. The fundamental value of Ethereum lies in decentralized applications, unlike Bitcoin, which defined its design from the sound currency viewpoint.
Post-Duncun upgrade, $ETH lost deflationary status with reduced fees, departing from "ultrasound money."Ethereum's strength lies in DApps; it's wiser not to compare it to #Bitcoin's sound money narrative.h/t @jjcmoreno pic.twitter.com/dchZCE7X3k
— Ki Young Ju (@ki_young_ju) May 9, 2024
Post-Dencun Upgrade, Ethereum’s Fee Reduction Raises Deflationary Status Concerns
The Dencun upgrade has introduced inflationary features to ETH by reducing transaction fees and, technically, stripping it from its deflationary status. This has undermined the notion of Ethereum as “ultrasound money,” as it was supposed to build a financial structure that was free from inflation or, at least, would reduce the supply of ETH as the years went by.
After the upgrade, Ethereum’s median transaction fee was much lower than before. Naturally, the amount of *ETH* being burned from transaction fees also decreased sharply, shifting the drawdown of the daily supply strength as well. Prior to Dencun, the Ethereum network’s high activity was met with high fees burned, meaning that the total supply of ETH was reduced.
However, after the upgrade, the correlation between high network activity and high fees burned dissipated significantly. Despite the increased activity, fees burned decreased dramatically, indicating a substantive change in Ethereum’s fee-burning activity.
Ethereum’s Dencun Upgrade Raises Questions on Economic Model
The primary incentivization of the Dencun upgrade was to improve the user experience by decreasing the transaction fees. While this was successful, the decline in the total amount of fees burned was an unintended consequence that jeopardized Ethereum’s deflationary narrative as well.
This outcome led to reflection on Ethereum’s economic model as “ultrasound money.” While the Dencun upgrade did a good part and improved user experience in the end, it remains a big question how economically Ethereum uses money and where it exists in real from cryptocurrencies.
In the end, Dencun upgraded fundamentally changed how Ethereum’s economics work and transformed it from stay deflationary to inflationary. However, for its measure, the upgrade could bring more freedom to the user making the fees cheaper.