The token supply of Ethereum has reached its highest level since January 2023, which is comparable to the level before The Merge upgrade on September 15, 2022.
According to data from ultra sound money, the current supply of Ether (ETH) is approximately 1.205 billion, which is about 383 ETH higher than the supply on the day of The Merge upgrade.
Source: ultra sound money
Jaehyun Ha, an analyst at cryptocurrency research firm Presto Research, stated in an interview with The Block that the inflation of Ether’s supply is related to the DenCun upgrade in March last year, and he believes that Ethereum’s “ultrasound money” narrative may be threatened.
Since the upgrade of The Merge in 2022, the supply of Ether has been decreasing and reached a low point of approximately 1,200,645,000 ETH in April 2024, but it quickly rebounded and began to steadily rise (the DenCun upgrade occurred in March of the same year).
Ha explained that before the DenCun upgrade, the fees users had to pay when sending transactions were calculated based on the Gas Price multiplied by the amount of Gas, a large portion of which was removed through a burning mechanism.
Ha pointed out that this change resulted in a decrease in the proportion of fees being burned, as a large amount of transaction activity shifted to blob transactions. “The reduction in fee burning means that the balancing effect that previously limited the net supply of ETH is now less apparent, even though overall network activity remains at a high level or is growing,” he said.
Byoungjoon Kim, a researcher at DeSpread Research, also believes that DenCun is the main cause of the inflation of Ether’s supply and mentioned that many users and liquidity have shifted to the Solana network and many Layer 2 networks that have emerged after the DenCun upgrade.
Nevertheless, Ha from Presto stated that the surge in ETH supply is not an immediate concern because there has not been a decline in Ethereum network activity. However, he added, “The important narrative of ‘ultrasound money’ may be threatened.”
On the other hand, Kim from DeSpread believes that the continued increase in Ether’s supply may have a negative impact on the security of the network in the long term, as the price of Ether is directly related to network security in the Proof of Stake (PoS) mechanism.
Meanwhile, the Ethereum community reached a consensus on Tuesday to increase the network’s gas limit from 30 million to 36 million gas units, marking the first adjustment since 2021. The increase in the gas limit (the maximum amount of gas that can be consumed by all transactions within a single block) aims to enhance the scalability of the network. Data source
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