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Ethereum's Dencun upgrade is making ETH inflationary again: CryptoQuant

Ethereum's Dencun upgrade is making ETH inflationary again: CryptoQuant

The BlockThe Block2024/05/08 19:16
By:The Block

The new supply of ether is growing at its fastest daily rate since the Merge, as the amount of fees burned has plummeted following the Dencun upgrade, analysts said.

Ethereum's Dencun upgrade is making ETH inflationary again: CryptoQuant image 0The Dencun upgrade has made ether inflationary again, potentially killing its characteristic as “ultra-sound” money, analysts at data firm CryptoQuant said.

A report released Wednesday by CryptoQuant said that due to decreased transaction fees on the Ethereum ETH -1.44% network because of the Dencun upgrade, the amount of ether burned has dropped to one of its lowest levels since the Merge, when Ethereum went from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism. The report added that the supply of ether is growing at its fastest daily rate since the Ethereum network's Merge.

"Before the Dencun upgrade, the higher network activity on Ethereum meant higher fees burned and hence less ether supply. However, after the Dencun upgrade, the total amount of fees burned has decoupled from the network activity," CryptoQuant analysts said.

The report concluded that, at the current rate of network activity, Ethereum will not be deflationary again and that the narrative of ether as "ultra-sound” money has probably died or would need much higher network activity to come back to life.

Ethereum's Dencun upgrade is making ether inflationary again, according to a new report. Image: CryptoQuant.

What is the Dencun upgrade?

Ethereum's Dencun upgrade was implemented on March 13, 2024. The upgrade enables storing additional data in "blobs" on the Ethereum network, thereby enhancing efficiency and reducing the costs associated with Layer 2 transactions.

Ether is changing hands at around $3,018 at the time of writing, having fallen around 1% in the past 24 hours, according to The Block’s price page .

The GM 30 Index , representing a selection of the top 30 cryptocurrencies, fell 0.71% to 129.87 in the same period.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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