Concerns Over Ethereum Inflation Mount After 73 Days of Continuous Supply Growth

Ethereum’s “deflation dream” may be fading as it is currently experiencing its longest period of inflation since transitioning to a proof-of-stake model in September 2022. 

According to the data from Ethereum dashboard ultrasound. money, over 112,000 ETH has been added to the total supply of Ethereum (ETH) since mid-April. This development has raised concerns among users about the network’s long-term sustainability. 

What’s causing the inflation?

A significant portion of this increase in supply can be attributed to the Dencun upgrade, which was implemented last March 13. This upgrade introduced nine Ethereum Improvement Proposals (EIPs), notably EIP-4844, which is the main reason behind the inflationary trend. 

EIP-4844 introduced “blobs,” a mechanism enabling transaction data to be stored separately and temporarily, lowering fees associated with block data on Ethereum layer-2 networks. Moreover, the Dencun upgrade implemented proto-danksharding, improving the efficiency of data availability for block space on the Ethereum mainnet. 

Despite the massive reduction in transaction costs on Ethereum layer-2 networks like Arbitrum and Optimism, the total amount of ETH burned on the mainnet has notably declined. 

Although ETH supply has turned inflationary in recent months, the total supply of ETH has decreased substantially since the merge.

Since September 2022, over 1.5 billion ETH has been burned, while 1.36 billion ETH has been added, resulting in an overall supply reduction of 345,000 ETH. This reduction is valued at just over $1.1 billion at its current price since Ethereum transitioned to a proof-of-stake consensus mechanism. 

The long-term impact of EIP-4844 on Ethereum’s supply dynamics remains uncertain. However, it is reasonable to anticipate that developers will consider adjustments to the burning mechanism in future upgrades. This adjustment aims to maintain a healthy balance between transaction fees and supply control.