Inflation Strikes Ether post-Merge

The recent Dencun upgrade on the Ethereum network has caused a change in the supply of Ether (ETH). Previously, Ether had a deflationary supply, meaning that the total amount of tokens in circulation was decreasing over time. Since the Dencun upgrade was implemented, the total supply of Ether has actually increased slightly.

According to data from CryptoQuant, the total Ether supply rose from 120 million on March 12 to 120.1 million on May 7, marking the first time the supply has become inflationary since September 2022. This shift occurred when Ethereum transitioned to its proof-of-stake consensus model, known as the Merge.

Despite the shift in supply, experts believe that this change is not critical for the Ethereum network. The true value of Ethereum lies in its decentralized applications (DApps), rather than its deflationary properties. Ki Young Ju, founder and CEO of CryptoQuant, stated in a recent post that it is not wise to compare Ethereum’s value to Bitcoin’s “sound money” narrative.

The introduction of the Merge in September 2022 was the catalyst for Ether’s deflationary status. This mechanism permanently burned transaction fees on the network, resulting in a decrease in the supply of Ether. Since the Merge, over 419,713 Ether tokens have been burned and permanently removed from circulation.

The Dencun upgrade, Has changed the game. It has made transaction fees on the Ethereum network significantly cheaper, up to four times less than before while maintaining the same level of network activity. This is a positive development for the Ethereum network and its users. It also means the end of Ether’s status as “ultra-sound” money.

According to CryptoQuant, the Dencun upgrade has made Ether inflationary again. The reduced amount of transaction fees burned on Ethereum has resulted in a decrease in the total supply of Ether, therefore removing its deflationary properties. This could potentially change how Ether is perceived and valued in the crypto community.

As a result of the lower transaction fees and reduced burning of Ether, the amount of tokens being removed from circulation has reached its lowest levels since the Merge, while the supply growth has reached its highest level since the upgrade. This signifies a significant shift in the dynamics of the Ether supply.

The Dencun upgrade has had a noticeable impact on the supply of Ether. It has shifted from being deflationary to inflationary, leading to changes in how Ether is perceived in the crypto community. The true value of Ethereum lies in its DApps, and the shift in supply is not considered critical for the network’s overall success.