Two months after the highly anticipated Dencun upgrade, Ethereum has seen a shift in its Ether supply dynamics, no longer exhibiting deflationary characteristics.
According to CryptoQuant data, the total supply of Ether grew slightly from 120 million on March 12 to 120.1 million by May 7, marking the first inflationary trend since the Merge transition in September 2022.
The Merge was a significant shift for Ethereum, moving from a proof-of-work to a proof-of-stake consensus model.
This change included a mechanism for burning transaction fees, which initially led to a deflationary supply of Ether.
Since the implementation of the Merge, over 419,713 ETH has been permanently removed from circulation, based on data from ultrasound.money.
The recent Dencun upgrade, however, has reduced the median transaction fees by up to four times, despite maintaining the same level of network activity.
This reduction in fees has resulted in a decrease in the amount of Ether being burned, contributing to the increase in total supply.
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As noted in a CryptoQuant report from May 8, “The Dencun upgrade has made ETH inflationary again, potentially killing the narrative of ‘Ultra sound’ money as a structurally lower amount of transaction fees burned on Ethereum have had the corresponding effect of not decreasing the total supply of ETH to keep it deflationary.”
Ki Young Ju, founder and CEO of CryptoQuant, emphasized on May 9 that the loss of deflationary status is not particularly critical for Ethereum’s broader ecosystem.
He stated in an X post, “Post-Dencun 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.”
This development signals a shift in the economic dynamics of Ether but does not undermine the foundational benefits of the Ethereum network, particularly its application in decentralized applications (DApps).
While the narrative of ‘ultra sound’ money may be diminishing, Ethereum’s core utility and innovation in decentralized solutions continue to hold strong.
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