Ethereum finds itself in troubled waters as it grapples with an unexpected supply surge adding over $47 million worth of Ether (ETH) tokens to circulation in the last 30 days. This development has taken the wind out of the sails of many Ethereum proponents who anticipated a deflationary trend for ETH following the transition to proof-of-stake last year.
The surge in Ethereum’s supply is being linked to falling transaction activity on its network. Lower NFT trades and a decrease in decentralised finance activity have culminated in fewer ETH coins being withdrawn from circulation, given Ethereum’s unique fee-burning mechanism. The subsequent drop in ETH burnt has exacerbated the supply increase.
This unique fee-burning process involves the Ethereum network charging gas prices in relation to its usage, with heightened activity leading to elevated gas prices and subsequently, more ETH being removed from circulation. However, a fall in these gas prices and reduced transactions on the Ethereum network have contributed to the burgeoning pile of ETH.
Nevertheless, Ethereum’s core developers remain indifferent despite the increase. Micah Zoltu, an Ethereum developer, and Danno Ferrin both emphasised the insignificance of the event in relation to Ethereum’s broader landscape.
Ferrin highlighted that Ethereum’s short-term inflation, despite the recent surge, still stands at a lower rate compared to other chains and the broader economy. One could also argue that the increase in ETH supply does not negatively reflect on Ethereum given that the annual inflation rate for Bitcoin, with its issuance of new BTC halved every four years, still stands at 1.8%. Furthermore, the inflation rate for the US economy is pegged at 3.7% as of the last month.
However, such affirmation aside, it’s undeniable that the sudden shift in Ethereum’s supply dynamics has buoyed questions regarding its long-term financial future. Many are now left wondering whether Ethereum can achieve its lofty ambition of becoming ‘ultrasound money’, a deflationary currency that easily navigates hurdles posed by monetary inflation. The journey to this destination, it seems, is littered with more obstacles than what Ethereum enthusiasts anticipated.
Source: Cryptonews
