Ethereum Inflation Surge Casts Doubt On “Ultrasound Money” Claim: Report

Source Newsbtc

According to the latest Binance Research report, the Ethereum (ETH) issuance rate continued to rise in September 2024, raising concerns about the digital asset’s “ultrasound money” claim.

Ethereum Issuance Rate Continues To Surge

In its October 2024 Monthly Market Insights report, Binance Research highlighted that the ETH issuance rate continued its ascent in September, moving away from its previously deflationary status.

The second largest digital asset by reported market cap had a 30-day annualized inflation rate of approximately 0.74%, a level not observed in the last two years. The sharp uptick in ETH supply inflation has questioned its “ultrasound money” positioning.

eth issuance

Interestingly, the term “ultrasound money” draws inspiration from Bitcoin’s (BTC) “sound money” narrative. While BTC’s supply is capped at 21 million, ETH’s supply can become deflationary, theoretically increasing scarcity and protecting it from inflation-driven erosion of purchasing power.

Ethereum’s high issuance rate could be attributed to several factors, including low mainnet on-chain activity, leading to a low transaction fee and, consequently, lower ETH burn rates. 

In 2021, Ethereum core developers implemented EIP-1559, which introduced a fee-burning mechanism that aimed to reduce ETH’s circulating supply, thereby creating deflationary pressure on the token. 

However, with declining mainnet activity, the amount of ETH being burned is lagging behind the ETH issuance rate, leading to a net inflationary trend.

Notably, September 2024 experienced one of the lowest ETH burn rates since the highly anticipated Merge event, when Ethereum transitioned from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism.

Ethereum Layer-2 Solutions To Blame For Low ETH Burn Rate?

The report points to March 2024 as the starting point of Ethereum’s inflationary trend, following the implementation of EIP-4844 or the Dencun upgrade, which reduced transaction costs on layer-2 scaling platforms such as Optimism (OP), Arbitrum (ARB), Base, and Polygon (MATIC). The report adds:

As L2s cannibalized network activity throughout the year – further impacted by broader market conditions – transaction fees and, consequently, burned fees on Ethereum declined, with September recording one of the lowest levels since the Merge. This has prevented ETH from decreasing in supply to remain deflationary, leading to the net positive daily supply changes we now see.

Recent trends corroborate the assertion above, as network activity on layer-2 solutions grows across different metrics. For instance, a report in July 2024 noted that daily active addresses and transaction volume on Polygon had soared significantly.

Similarly, decentralized finance (DeFi) activity on Arbitrum increased earlier this year when decentralized exchange (DEX) Uniswap surpassed $150 billion in total swap volume on the network.

Another report found that over 48% of digital assets bridged from the Ethereum network end up on Arbitrum, indicating users’ high trust in the layer-2 network’s robust security and reliability. ETH trades at $2,385 at press time, up 1.7% in the past 24 hours.

ethereum
Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Ripple says XRP reports will look different moving forward, avoiding an SEC repeat-case scenarioRipple CEO Brad Garlinghouse announced late Monday that the company will end its quarterly XRP Markets Report updates after Q2 2025.
Author  Cryptopolitan
May 06, Tue
Ripple CEO Brad Garlinghouse announced late Monday that the company will end its quarterly XRP Markets Report updates after Q2 2025.
placeholder
Solana’s first spot staking ETF launched with $33 million in trading volumeSolana’s first spot staking ETF launched with $33 million in trading volume on its debut day.
Author  Cryptopolitan
Jul 03, Thu
Solana’s first spot staking ETF launched with $33 million in trading volume on its debut day.
placeholder
House GOP announces crypto week in Mid-July to review key billsThe US House GOP has designated the week of July 14 as "Crypto Week" to focus on key cryptocurrency legislation.
Author  Cryptopolitan
Yesterday 01: 17
The US House GOP has designated the week of July 14 as "Crypto Week" to focus on key cryptocurrency legislation.
placeholder
Solana (SOL) Cools After Recovery — Resistance Proving Difficult to CrackSOL price is now correcting gains and might struggle to rise above the $155 resistance.
Author  NewsBTC
22 hours ago
SOL price is now correcting gains and might struggle to rise above the $155 resistance.
placeholder
Gold price edges up as the post-NFP USD rally falters amid US fiscal concernsGold price (XAU/USD) attracts some dip-buying during the Asian session on Friday and for now.
Author  FXStreet
22 hours ago
Gold price (XAU/USD) attracts some dip-buying during the Asian session on Friday and for now.
goTop
quote