Ethereum
Ethereum Loses Deflationary Status After Dencun Upgrade, Here’s the Reason
Tomiwabold Olajide
The Ethereum network has become inflationary at the current rate of network activity
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Earlier in the year, the Ethereum Network underwent the Dencun upgrade, which was a combination of the Cancun and Deneb updates – a significant step forward for Ethereum, aimed at improving scalability and reducing transaction fees.
This upgrade, which introduced Proto-Danksharding and temporary data blobs for cheaper cumulative Layer 2 storage, inadvertently moved Ethereum from deflationary to inflationary status, a recent analysis by a research firm on-chain data. CryptoQuant noted.
According to CryptoQuant, the Dencun upgrade made ETH inflationary again, as a structurally lower amount of transaction fees burned on Ethereum did not decrease the total supply of ETH to remain deflationary.
Historically, the total amount of fees burned has been positively correlated with higher network activity or total number of transactions.
Before the Dencun upgrade, higher network activity resulted in higher fees and, therefore, a lower ETH supply. However, the narrative changed after the Dencun upgrade, as the overall amount of fees burned became decoupled from network activity.
THE Ethereum the network underwent a downward structural change after Dencun, Head of CryptoQuant Research Julio Moreno It was noted that median transaction fees, and therefore total fees burned, fell despite significant network activity.
The Dencun upgrade had the effect of reducing transaction fees paid by users, but also reduced the total amount of fees burned, with the corresponding effect of not decreasing the total ETH supply to maintain it deflationary.
As a result, the total amount of fees burned fell to its lowest point since the September 2022 merge upgrade, and new ETH supply returned to positive, increasing at the fastest daily rate since the upgrade. fusion level.
Given that new ETH supply is now increasing at the fastest daily rate since the merge, as fees burned have decreased, and at the current rate of network activity, the Ethereum network has become inflationary.
About the Author
Tomiwabold Olajide
Tomiwabold is an experienced cryptocurrency analyst and technical analyst. It pays special attention to cryptocurrency research, conducting comprehensive price analysis and trading forecasts on estimated market trends. Tomiwabold graduated from the University of Lagos.