Dencun Upgrade Reverses Deflationary Benefits of Ethereum’s Merge

Following the implementation of the Dencun upgrade, which significantly reduced transaction fees on the Ethereum network, ether (ETH) has reverted back to an inflationary asset, potentially undermining one of the key advantages of the 2022 Merge. A report by CryptoQuant indicates that transaction fees on Ethereum are currently four times lower than they were prior to the upgrade, resulting in a decline in the quantity of ETH being burnt and an escalated rate of supply growth, which has not been observed since mid-2022. Prior to the Merge, Ethereum operated under a proof-of-work consensus mechanism, and the London update included a feature that eliminated a proportion of transaction fees, causing a reduction in the number of ETH in circulation and resulting in deflationary pressure. However, after the Dencun upgrade, the quantity of fees being burnt has lost correlation with network activity, leading to a situation where the net increase in supply surpasses the quantity being burnt. Since April, approximately 400,000 additional ETH have entered circulation. Correction: Spelling error corrected on “danksharding.” Edited by Stephen Alpher.