Researchers at CryptoQuant, a cryptocurrency analysis platform, are here refute The idea that Ethereum is “super money,” especially after the upcoming Dencun upgrade took effect in mid-March.
Analysts note that the hard fork slowed down the number of coins going into the “furnace.” Accordingly, ETH is now more deflationary, considering the rise in daily supply over the past weeks.
Dencun impact on gas fees
Analysts say the Dencun upgrade was one of the major updates after The Merge. With Dencun, Ethereum developers introduced raw data sharding technology to process transactions more efficiently and cheaply, especially through layer-2 platforms like Arbitrum.
Besides helping to reduce gas charges for Layer 2 solutions, the upgrade has enhanced scalability on the mainnet. Therefore, the base layer can handle more transactions without congestion or high gas fees.
Although Tier 2 gas fees fell significantly, activity on Arbitrum, Optimism and Base recorded more activity. However, the issue of lower gas fees from layer 2 transactions, which are aggregated and confirmed on the mainnet, means that Ethereum is now running fewer coins.
As such, Ethereum (ETH) has gradually become inflated after months of low supply, reflecting the adoption of mainnet and off-chain solutions.
The rate at which ETH became deflationary before Dencun meant that the “ultra-fine money” narrative was correct. Due to the rapid decline in supply, ETH, like BTC or gold, could become a store of value.
Ethereum has become inflationary: a study
However, CryptoQuant data now paints a worrying picture. A report found that reducing gas fees from layer 2 platforms leads to lower withdrawals of Ethereum from supply.
Researchers discovered that this “structural shift” means that the supply of Ethereum is no longer decreasing as quickly as it used to be. In their assessment, they are male In recent days, ETH supply has increased at the fastest daily rate since the merger.
At this pace, if the Ethereum burn rate continues to decline, Ethereum may not be on track to become deflationary. This will be especially so if, as has been the case, activity shifts to competing, low-fee, scalable networks like Solana and Avalanche.
Falling prices of Ethereum and Bitcoin will exacerbate the burn rate. When prices collapse, activity across the chain tends to contract sharply over time.
Featured image from Canva, chart from TradingView
