Dencun Upgrade Raises Concerns of Ethereum’s Inflationary Risk

• The amount of ether burned has dropped to one of its lowest levels since the Merge.
• According to the analysis, Ethereum will remain deflationary for the time being.

The data researchers at CryptoQuant have said that the Dencun upgrade has rendered ether inflationary once again, which might lead to the loss of its characteristic as “ultra-sound” money.

Since the Merge, when Ethereum switched from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism, the amount of ether burned has dropped to one of its lowest levels. This is attributed, according to a report released Wednesday by CryptoQuant, to decreased transaction fees on the Ethereum network as a result of the Dencun upgrade.

Deflationary for the Time Being

According to the post, the daily growth rate of ether supply is the highest it has been since the Ethereum network’s Merge. There was a shortage of Ethereum before the Dencun upgrade because more users were using the network, which led to more fees burnt. According to CryptoQuant’s experts, the overall number of fees burnt has become independent of network activity after the Dencun upgrade.

According to the analysis, Ethereum will remain deflationary for the time being given the present pace of network activity. It also suggests that the idea of Ethereum as “ultra-sound” money may have died out or would need much greater network activity to revive.

March 13, 2024 was the date of Ethereum’s Dencun upgrade. Thanks to the upgrade, more data may be stored in “blobs” on the Ethereum network, which improves efficiency and lowers the prices of Layer 2 transactions.

Even now, the bulk of cryptocurrencies on the market are continuing their downward patterns. After a month of bullish price action, Ethereum (ETH), the biggest altcoin by market size, has fallen 19% over the last 30 days. 

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