At the beginning of the year, the Ethereum network underwent the Dencun upgrade, which was a combination of the Cancun and Deneb upgrades, a major step forward for Ethereum, aimed at improving scalability and reducing transaction fees.
At the beginning of the year, the Ethereum network underwent the Dencun upgrade, which was a combination of the Cancun and Deneb upgrades, a major step forward for Ethereum, aimed at improving scalability and reducing transaction fees.
This update, which introduced Proto-Danksharding and temporary data blobs for cheaper layer 2 cumulative storage, has inadvertently shifted Ethereum from its deflationary state to an inflationary one, according to a recent analysis by a chain data company. CryptoQuantum indicated.
According to CryptoQuant, the Dencun upgrade has made ETH inflationary again, as a structurally lower amount of transaction fees burned on Ethereum has not decreased the total supply of ETH to remain deflationary.
Historically, the total amount of fees burned has been positively correlated with increased network activity or the total number of transactions.
Prior to the Dencun upgrade, increased network activity resulted in higher fee burn and therefore lower ETH supply. However, the narrative changed after the Dencun upgrade, as the total amount of fees burned was decoupled from network activity.
The Ethereum network suffered a downward structural shift after Dencun, head of research at CryptoQuant Julio Moreno The median transaction fee, and therefore total fees burned, was observed to plummet despite significant network activity.
The Dencun upgrade had the impact of reducing the transaction fees paid by users, but also reduced the total amount of fees being burned, with the corresponding effect of not decreasing the total supply of ETH to keep it deflationary.
As a result, the total amount of fees burned fell to its lowest point since the Merge update in September 2022, and new ETH supply returned to positive, increasing at the fastest daily pace since the Merge update.
With new ETH supply now increasing at the fastest daily rate since the Merger, as burn fees have decreased, and at the current rate of network activity, the Ethereum network has become inflationary.
