Ever since Ethereum launched the much awaited Dencun upgrade two months ago, the supply of Ether has not been deflationary.According to data from CryptoQuant, the total amount of ether supply rose to 120.1 million on May 7 from 120 million on March 12 prior to the Dencun update being sent out on mainnet.Although it is a slight increase, this is the first time since September 2022, when the much-awaited Merge moved Ethereum to its present proof-of-stake consensus process, that the supply of Ether has been inflationary.
According to the founder and CEO of Cryptoquant, Ether’s temporary loss of its deflationary status is not catastrophic for the Ethereum network because its primary advantages are more closely linked to decentralized applications (DApps).Ki Young Ju posted on May 9th, X.
“Post-Dencun upgrade, $ETH lost deflationary status with reduced fees, departing from “ultrasound money.” Ethereum’s strength lies in DApps; it’s wiser not to compare it to Bitcoin’s sound money narrative.”
Following the Merge on September 15, 2022, a mechanism was introduced that permanently burnt transaction fees on the network, causing a decrease in the amount of Ether available. This is when the Ether supply first become deflationary.According to ultrasound.money, more than 419,713 Ether tokens have been destroyed, or taken out of circulation permanently, since the Merge.
With the same level of network activity, Ether’s inflationary trend has come to a halt thanks to the Dencun upgrade, which has made median transaction costs up to four times less than they were previously.Although this is an important development for the Ethereum network and its users, a May 8 report by CryptoQuant suggests that Ether’s standing as ultra-sound money may be jeopardized.
“The Dencun upgrade has made ETH inflationary again, potentially killing the narrative of “Ultra sound” money as a structurally lower amount of transaction fees burned on Ethereum have had the corresponding effect of not decreasing the total supply of ETH to keep it deflationary.”
The amount of Ether burned has decreased to its lowest levels since the Merge as a result of lower transaction fees, while supply growth has increased to its greatest point since the upgrade.