Ethereum’s supply increase has been linked to the Dencun upgrade, which reduced ETH fees burning.
Experts warn that continued inflation could impact Ethereum’s security and price stability.
Ethereum’s ETH supply has risen to heights not seen since over two years ago. This follows after from ultrasound.money showed Ethereum’s total supply standing at 120,521,523 ETH.
The figure is 383 ETH higher than that which was recorded on the day of The Merge upgrade back in September 2022. With the current situation, experts are now wondering what may be responsible for the increase, and how telling its impact could be on the coin and its ecosystem at large.
Dencun Upgrade and Gas Fee Changes Fuel ETH Inflation
Some experts have pointed accusing fingers at Ethereum’s , saying it may pose serious risks to ETH in the long run. The upgrade, which took place last year, basically changed how transaction fees are processed.
By introducing blob transactions, designed to handle large data more efficiently, the process of routinely burning a large portion of Ethereum transaction fees to reduce overall supply became abolished.
The new transactions use a different fee structure, and according to Presto Research analyst Jaehyun Ha, this poses a serious threat to Ethereum’s status as the “ultrasound money”.
For now, Ethereum’s network activity may be strong. However, the reduced fee burning rate suggests that there remains a strong possibility that supply continues to rise, Ha added.
Ethereum’s Supply Trend and Network Security Concerns
Shortly after The Merge, Ethereum’s supply started falling. It continued its fall till it reached a low of around 120,064,500 ETH in April 2024.
However, once the Dencun upgrade took place in March, the supply levels started rising again. Although a connection has already been established between the Dencun upgrade and ETH’s inflation, some analysts believe that there may be other factors in play too.
Byoungjoon Kim of DeSpread Research, for example, believes that the increase in supply is also being driven by the fact that users are moving on to other networks like Solana. Migrating to Solana is not exactly a surprise due to the ongoing memecoin frenzy. However, users are also moving to various other Layer 2s that have also recently emerged.
According to Kim, continued ETH inflation could weaken Ethereum’s security in the long run. Citing the Proof-of-Stake (PoS) model of Ethereum, Kim noted that the security of the network is closely linked to the value of its token. So, if supply keeps rising unchecked, it could impact ETH’s price stability and, in turn, the network’s overall security.