The recent influx of Ethereum’s supply has caused a stir in the cryptocurrency community, with an addition of Ether (ETH) tokens valued at over $47 million entering circulation in the past month.
This has taken many Ethereum supporters off guard, as the shift to proof-of-stake (PoS) last year was anticipated to render ETH deflationary.
The uptick in supply can be traced back to the reduced transactional activity on the Ethereum platform.
A dip in NFT transactions and a slowdown in decentralized finance (DeFi) operations have led to fewer ETH being incinerated.
Ethereum’s fee-burning protocol implies that intensified network utilization causes a spike in gas fees. This escalation results in a larger volume of ETH being irrevocably taken out of circulation.
But the recent decrease in gas charges, with an average network transaction now priced at merely $0.24, has lessened the ETH burn rate, playing a role in the uptick of its supply.
Core developers unfazed
Although certain factions within the cryptocurrency realm are voicing apprehensions regarding Ethereum’s inflationary trajectory, the core developers of Ethereum seem unperturbed.
Micah Zoltu, one of Ethereum’s main developers, downplayed the importance of this trend. Speaking to the crypto journalism platform Decrypt, he remarked that in the broader perspective, it’s merely an “insignificant” blip.
Echoing similar sentiments, Danno Ferrin, another prominent Ethereum developer, highlighted in the same piece that even with the current scenario, Ethereum’s short-term inflation is still more contained than that of other blockchain networks and the wider economic landscape.
“Even now, the [ETH] supply hasn’t reached its peak,” Ferrin stated in the article. He further emphasized that Ethereum’s short-term inflation rate remains “significantly lower than that of other blockchains and the broader economy.”
For context, the issuance rate of new BTC on the Bitcoin network undergoes a 50% reduction every four years, and at present, BTC’s annual inflation rate hovers around 1.8%.
Comparatively, the Consumer Price Index (CPI) inflation in the U.S. was recorded at 3.7% on an annual basis just last month.
Regardless of these perspectives, it’s evident that this change in supply dynamics casts doubts on Ethereum’s long-term economic viability. Questions arise as to whether it can truly live up to the aspirations of being “ultrasound money” – a phrase Ethereum aficionados employ to characterize a currency that is inherently deflationary.