The Dencun upgrade is being blamed for plunging Ethereum into prolonged inflation following The Merge in 2022.
As reported by Cryptoholic, the supply of Ethereum (ETH) began to increase steadily from mid-April, as the amount of transaction fees being burned has not been as substantial since the Dencun upgrade. To date, this upward trend shows no signs of slowing down or reversing.
According to data from ultrasound.money, more than 112,000 ETH have been added to the overall supply since April 14. In just the past seven days, this number has reached 44,500 ETH, equivalent to $150 million.
The Dencun upgrade on March 13 is once again being cited as the reason for Ethereum’s return to inflation. One of the key proposals of Dencun is EIP-4844, which introduces a new block structure called “blobs”—helping to reduce transaction fees on layer-2 solutions like Optimism and Arbitrum by up to ten times. The upgrade also reduces competition for block space on the mainnet.
While users benefit from this, the total amount of ETH being burned on the mainnet has significantly decreased.
Ethereum has long operated on a fee-burning mechanism. Simply put, the more traffic on the network, the higher the gas fees—required to complete transactions on the chain. Higher gas fees mean more ETH is burned or permanently removed from circulation. Ethereum gas fees have also hit record lows recently, averaging just under 5.2 gwei.
Despite Ethereum experiencing a “reverse deflation,” the overall supply is still well-controlled and has decreased significantly compared to the pre-Merge period.
In total, more than 1.7 billion ETH have been removed from circulation since September 2022, while only 1.36 billion ETH have been newly minted, resulting in a net supply reduction of 344,000 ETH, equivalent to more than $1.1 billion at current prices.
ETH is currently trading at $3,390 per coin. Despite nearly a 90% increase year-over-year, the coin has underperformed compared to the previous month and week.