Originally published on: October 04, 2024
According to the latest insights from Binance, Ethereum is facing a significant increase in its inflation rate, currently standing at 0.74%. This surge has raised concerns about the cryptocurrency’s reputation as “ultrasound money.”
The research report points out that the issuance rate of Ether has reached its highest level in two years due to decreased on-chain activity and lower burn rates, shifting the asset’s economic landscape. This development challenges the long-standing assumption that ETH could maintain its deflationary characteristics.
The rise of layer-2 solutions like Arbitrum and Optimism has had a profound impact on Ethereum’s on-chain activity. These solutions process transactions off the mainnet, reducing gas fees and subsequently cutting down on the amount of ETH burned through transaction fees.
Although Ethereum Improvement Proposal (EIP) 1559 introduced in 2021 aimed to burn a portion of transaction fees, the decline in mainnet transactions has led to a reduction in the volume of burned ETH.
A spokesperson from Binance highlighted that the increased adoption of lower-fee L2 solutions and a slower ETH supply burn rate can be attributed to the Dencun upgrade. As a result, the “ultrasound money” narrative, positioning ETH as deflationary currency, is now being called into question.
In a recent community discussion, Ethereum co-founder Vitalik Buterin voiced his support for reducing the minimum ETH deposit required for solo stakers. This move is aimed at encouraging wider participation on the network by lowering the entry barrier from 32 ETH to 16-25 ETH to run a node.
As Ethereum grapples with the challenges of its evolving economic landscape, it remains to be seen how the cryptocurrency will navigate this inflation surge while striving to maintain its status as a pioneer in the digital currency realm.
