Ethereum’s inflation rate has spiked to 0.74%, raising concerns about the long-standing “ultrasonic money” narrative, according to Binance’s Monthly Market Insights report, October 2024.

The research report indicates that the issuance rate of Ether (ETH) is at its highest level in the past two years, as reduced on-chain activity and lower burn rates change the economic status of the asset.

These findings highlight growing pains for the asset co-founded by Vitalik Buterin, calling into question the long-held assumption that ETH can sustain its deflationary nature.

Chart showing the change in ETH issuance surpassing the burn rate in 2024. Source: Binance Research

Layer-2 Scaling Reduces ETH Burn

The development of layer-2 solutions such as Arbitrum and Optimism has significantly impacted the on-chain operations of the layer-1 Ethereum blockchain.

These L2 networks process transactions outside of the Ethereum mainnet, reducing gas fees and thus, reducing the amount of ETH burned through transaction fees.

Ethereum Improvement Proposal (EIP) 1559, introduced in 2021, burns a portion of transaction fees, but the decline in the number of transactions on the mainnet has led to a decrease in the amount of ETH burned.

The story of “pre-ultrasound” is questioned

The “ultrasonic money” narrative, which positions ETH as a deflationary coin, is being questioned in Binance’s report:

“As L2s took over network activity throughout the year – further impacted by broader market conditions – transaction fees and, therefore, fees burned on Ethereum declined, with September recording one of the lowest levels since the Merge.”

With ETH issuance now surpassing burn, the net increase in total supply has pushed Ethereum further away from its deflationary target.

Buterin promotes single-factor staking

On October 3, Buterin joined a community discussion on X and expressed support for reducing the minimum ETH deposit amount for solo stakers.

Stakeholders individually run full nodes using their personal computing devices without relying on third-party services, staking pools, or central entities to operate.

Currently, the 32 ETH lockup requirement may prevent wider participation on the network, but ETH co-founders advocate lowering this number to 16 to 25 ETH to run a node.

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