Ethereum Faces Inflationary Pressure Post-Dencun Update

The Dencun update has rendered Ethereum (ETH) inflationary once more, potentially challenging its narrative as “ultra-sound” money, according to analysts at CryptoQuant.

Following the hard fork, the average transaction fees on the network have decreased by approximately fourfold, despite maintaining the same level of activity as before the update. Consequently, the burn rate has plummeted to its lowest since The Merge, when the blockchain transitioned to the Proof-of-Stake algorithm.

The supply of Ethereum is now increasing at its highest daily rate since that transition, experts have noted.

“Prior to the Dencun update, high network activity on Ethereum meant more fees were burned, resulting in less ether. However, post-hard fork, the coin destruction rate no longer correlates with on-chain activity,” remarked CryptoQuant analysts.

Under current conditions, Ethereum will not revert to a deflationary model—achieving this would require a significantly higher level of user activity, the company specialists assert.

The Dencun hard fork was successfully implemented on the mainnet on March 13. A key component of the upgrade was EIP-4844, which introduced the Proto-Danksharding option, aimed at scaling the network by creating a new type of transaction for large binary data blobs.

This has significantly reduced fees in L2 networks within the ecosystem, particularly those based on Rollups technology.

According to Ultra Sound Money, post-hard fork, Ethereum’s burn rate has slowed, and around early April, the market supply of ether began to rise.

Since The Merge, the cryptocurrency has maintained a negative annual inflation rate of 0.2%.

The Ethereum team has scheduled the Pectra update for late 2024 or early 2025, which will introduce numerous additional features for crypto wallets and enhancements to user experience.