Over the past month, Ethereum (ETH), the world’s second-largest cryptocurrency, has seen a surprising trend that has attracted the attention of enthusiasts and critics alike. The cryptocurrency that was once hailed as “ultrasound money” due to its transition from proof of work to proof of stake now finds itself grappling with a surge in its supply. In just 30 days, the global supply of Ethereum increased by almost 30,000 ETH, which is equivalent to approximately $47.9 million at the time of writing.
The mysterious link with transactional activity
According to a report from Decrypt, the increase in supply of Ethereum is closely linked to the decline in transaction activity on its blockchain network. Notably, the network saw a significant reduction in NFT transactions and DeFi activity, leading to a decline in overall transaction volumes.
This drop is particularly surprising given Ethereum’s fee burning mechanism, in place since 2021. This mechanism is designed to burn ETH when network traffic increases, thereby removing it from circulation.
However, with gas fees dropping to an average of 7 gwei, or just $0.24 per transaction, ETH’s burn rate has declined sharply.
Gas fees and their impact
Just over a year ago, Ethereum users burned over $157 million worth of ETH while selling NFTs, representing a substantial average transaction fee of $2,854. In contrast, current average transaction fees are significantly lower, potentially benefiting the average Ethereum user.
Lower gas fees also mean less ETH is burned, contributing to its recent increase in supply.
Mixed Feelings in the Ethereum Community
Ethereum’s recent inflationary trend has sparked various opinions within the crypto community. While some express concerns about the potential implications for the network’s long-term financial health, others remain relatively unfazed.
Ethereum lead developer Micah Zoltu noted that many of his colleagues seem indifferent, viewing the increase in inflation as relatively insignificant in the grand scheme of things. Meanwhile, Danno Ferrin, another Ethereum core developer, pointed out that Ethereum’s current supply, even with recent inflation, remains below its all-time high and relatively low compared to other blockchain networks and the economy in general.
Economic context and global inflation
Ethereum’s recent inflationary trend is also occurring against a backdrop of global bullishness. inflation rate. Notably, the United States experienced the largest year-on-year price increase since 1981 in June of the previous year.
In response, the US Federal Reserve has raised interest rates several times, leading to constant downward pressure on the values of cryptocurrencies like Bitcoin and Ethereum.
The centralization of Ethereum
Additionally, the staking pEthereum’s protocol has come under fire amid growing concerns over a possible move to a centralized network. According to JP Morgan’s findings, more than 50% of the stakes on the platform are now collectively controlled by just five entities, namely Lido, Coinbase, Figment, Binance and Kraken.
In this regard, Ethereum co-founder Vitalik Buterin presented a proposal involving a two-tier model designed to maintain the decentralized state of the network and strengthen the security of its staking protocol and pools.
The recent inflationary surge in Ethereum supply has undoubtedly raised eyebrows within the crypto community. This stands in stark contrast to initial expectations that Ethereum’s transition to proof-of-stake would solidify its status as a deflationary currency.
While some express concerns about the long-term implications, others downplay its importance. Ethereum’s ability to navigate this new phase of its business model will undoubtedly be a topic of continued discussion in the crypto world.