HomeEthereumDencun Destroyed The Ethereum "Ultra-Sound Money" Narrative: CryptoQuant

Dencun Destroyed The Ethereum “Ultra-Sound Money” Narrative: CryptoQuant

-


Researchers at CryptoQuant, a crypto analytics platform, are now disproving the idea that Ethereum is “ultra-sound money,” especially after activating the highly anticipated Dencun Upgrade in mid-March.

Analysts observe that the hard fork has slowed the number of coins going to the “furnace.” Accordingly, ETH is now more deflationary, considering the rising daily supply over the past weeks. 

The Impact Of Dencun On Gas Fees

Analysts say the Dencun Upgrade was one of the major updates after The Merge. With Dencun, Ethereum developers introduced proto-danksharding for more efficient and cheap transaction processing, especially by layer-2 platforms like Arbitrum. 

Besides helping reduce gas fees for layer-2 solutions, the update enhanced the mainnet scalability. Accordingly, the primary layer could handle more transactions without congestion or gas fees spiking.

Though layer-2 gas fees have drastically fallen, activity on Arbitrum, Optimism, and Base have registered more activity. However, the problem with lower gas fees from layer-2 transactions, which are bundled and confirmed mainnet, means Ethereum is now increasing fewer coins. 

Ethereum price trending sideways on the daily chart | Source: ETHUSDT on Binance, TradingView

As such, ETH gradually becomes inflation after months of supply reduction, reflecting the adoption of the mainnet and off-chain solutions.

The rate at which ETH became deflationary pre-Dencun meant the “ultra-sound money” narrative was valid. Due to the rapidly falling supply, ETH, like BTC or gold, could become a store of value.

Ethereum Is Becoming Inflationary: Study

However, CryptoQuant data now paints a concerning picture. A report found that shrinking gas fees from layer-2 platforms translates to lower ETH being taken from supply. 

ETH supply rising after Dencun | Source: CryptoQuant
ETH supply rising after Dencun | Source: CryptoQuant

This “structural shift” researchers discovered, means that ETH supply is no longer decreasing as rapidly as before. In their assessment, they noted that in recent days, the ETH supply has been growing at the fastest daily rate since the Merge.

ETH burning post-Dencun is falling | Source: CryptoQuant
ETH burning post-Dencun is falling | Source: CryptoQuant

At this pace, if the rate of ETH burning continues to drop, Ethereum may no longer be on track to become deflationary. It will be especially so if activity shifts, as has been the case, to competition low-fee and scalable networks like Solana and Avalanche.

Falling Ethereum and Bitcoin prices will further exacerbate the burn rate. Whenever prices crumble, on-chain activity tends to contract sharply over time.

Feature image from Canva, chart from TradingView

LEAVE A REPLY

Please enter your comment!
Please enter your name here

LATEST POSTS

Congressman Matt Gaetz Introduces Bill to Allow Federal Income Tax Payments in Bitcoin

Congressman Matt Gaetz (R-FL) has introduced legislation to allow federal income tax payments to be made in Bitcoin. Exclusively reported first by the Daily Wire,...

Rivian’s stock rockets 41% higher on $1 billion Volkswagen investment, planned JV

Shares of Rivian Automotive Inc. skyrocketed after hours Tuesday after Volkswagen AG said it will invest $1 billion in the electric-vehicle maker, with plans...

Play Games, Win Bitcoin With THNDR Games CEO Desiree Dickerson

Company Name: THNDR GamesFounder: Desiree Dickerson, Jack Everitt, Greg Flor and Rafal GawelDate Founded: Originally founded in 2019 | Re-launched in 2021Location of Headquarters:...

Unclogged Now Officially Live in Six Countries

New Features and Game ModesAmong the new features introduced is Arcade Mode, designed to provide players with levels featuring specific objectives.This mode aims to...

Most Popular