What’s Up with Ethereum’s Supply Inflation?
Ethereum, a major player in the cryptocurrency scene, has experienced some intriguing shifts in its supply inflation. Let’s dive into the events of mid-April and examine how the Dencun update has been impacting your wallet for Ethereum.
Recent Supply Increase
Since the big merge in 2022, Ethereum’s supply has been on the rise. Over 112,000 ETH have been added since mid-April 2024. This uptick has folks worried about the network’s long-term health. Initially, Ethereum was seen as deflationary after switching to proof-of-stake in September 2022. But now, the tables have turned. In the last two weeks alone, ETH outflows have hit $119 million, making it the worst-performing asset this year in terms of net flows.
Time Period | ETH Added | Note |
Since April 14, 2024 | 112,000+ | Post Dencun Update |
Last 2 weeks | $119 million outflows | Worst-performing asset YTD |
Impact of Dencun Update
The Dencun update on March 13, 2024, is a big reason for this inflation. It brought in nine Ethereum improvement proposals. One of the big ones, EIP-4844, introduced “blobs” to cut down on transaction fees for Ethereum’s layer 2 networks. While this was supposed to make transactions cheaper, it also messed with Ethereum’s deflationary plans. Lower fees mean fewer ETH are burned, pushing the supply up.
EIP | Impact | Description |
EIP-4844 | Increased Inflation | Introduced “blobs” to reduce layer-2 transaction fees |
Other EIPs | Network Adjustments | Various improvements and tweaks |
The Dencun upgrade has shaken things up, leading to lower layer-2 transaction fees and less overall network activity. This has caused a drop in the burn rate, adding to the current inflationary trend in Ethereum’s supply.
Ethereum Supply Dynamics
Burning Mechanism Tweaks
Since the Merge in 2022, Ethereum’s supply has been on a bit of a rollercoaster. Over 112,000 ETH have been added since April 14, thanks to the Dencun update in March. This inflation is mainly due to nine Ethereum improvement proposals (EIPs) introduced in the Dencun update on March 13, with EIP-4844 being the big game-changer.
EIP-4844 brought in “blobs” to cut fees for block data on Ethereum’s layer 2 networks. While this was great for reducing transaction fees, it threw a wrench in Ethereum’s deflationary plans. The result? Less ETH burned on the mainnet, leading to the current inflation.
But hey, it’s not all bad news. Since the Merge, Ethereum’s burning mechanism has done more good than harm. Over 1.5 million ETH have been burned, while only 1.36 million ETH have been added, giving us a net reduction of around 345,000 ETH. This shows we’re still on track to keep Ethereum deflationary. Developers might tweak the burning mechanism in future updates to keep things balanced between transaction fees and supply control.
Period | ETH Burned | ETH Added | Net Reduction (ETH) |
Since The Merge | 1.5 million | 1.36 million | 345,000 |
Post-Dencun (April 14) | N/A | 112,000 | N/A |
Teamwork for Network Health
Keeping Ethereum healthy isn’t a solo job. Developers, miners, and stakeholders need to team up to tackle inflation. This means regular updates, listening to community feedback, and rolling out new proposals to keep the network strong and efficient.
A big part of this teamwork is fine-tuning the burning mechanism. By making it better, Ethereum can manage its supply and keep inflation in check. Plus, when everyone pitches in, it’s easier to spot problems and come up with cool new ways to boost the network’s performance.
So, while Ethereum’s got some inflation issues, ongoing tweaks to the burning mechanism and teamwork within the community can help keep the network balanced and sustainable.