Ethereum successfully completed the Dencun upgrade on March 13th, significantly reducing the transaction costs (Gas) for multiple Ethereum Layer 2 solutions by more than 90%. This upgrade has been hailed by the community as the most impactful upgrade in history. However, as the fees paid by users decrease, the Ethereum network is currently burning ETH at its slowest rate since the Merge in September 2022, resulting in an accelerated growth of the ETH supply.
The ETH supply is accelerating
Yesterday, crypto analytics firm CryptoQuant released a report indicating that due to the Dencun upgrade, the transaction fees on the Ethereum network have decreased, leading to the fastest daily growth rate of the ETH supply since the Merge.
Data from YCharts shows that the ETH supply has indeed started to decline slowly after the completion of the Dencun upgrade and has been steadily increasing since April 13th. The total supply is currently 120 million ETH.
At the same time, data from ultrason.money shows that Ethereum has burned 488,000 ETH in the past 30 days, which is lower than the newly minted 913,000 ETH, resulting in a positive inflation rate of 0.353% for ETH.
Since the Merge, Ethereum’s consensus mechanism has transitioned from proof-of-work to proof-of-stake, reducing the issuance rate of new ETH by 90% and making it slower than network consumption. This change has turned ETH into a deflationary currency, making it a better long-term store of value. Therefore, ETH has gained the nickname “Ultrasound money” in contrast to Bitcoin’s “Sound Money” due to its fixed total supply. However, if the supply of Ethereum continues to increase, this advantage will no longer exist.
The total amount of burning fees on Ethereum is now unrelated to network activity
CryptoQuant analysts further pointed out that before the Dencun upgrade, the transaction fees on Ethereum were positively correlated with network activity, resulting in a smaller ETH supply. However, after the Dencun upgrade, despite higher network activity, transaction fees have remained low, and the total amount of burning fees is now detached from network activity.
The conclusion of the report is that the Ethereum network has achieved a significant reduction in fees with the Dencun upgrade, but the impact on the ETH supply is a notable increase.