Ethereum’s Dencun Upgrade: A Hidden Inflationary Effect
With Ethereum’s major upgrade, Dencun, in mid-March promising to boost network scalability, there is a hidden inflationary effect surfacing. Post Dencun, Ethereum may not be the “ultrasound money” it was once considered to be, as per analysts at CryptoQuant.
- Ultrasound Money:
- The term “ultrasound money” is used for assets with stable purchase power and potential price appreciation over time.
- Assets like gold or Bitcoin are considered “sound money” with a fixed total supply, whereas “ultrasound money” has a diminishing total supply leading to deflation.
The Impact on ETH Burn
Following the Dencun upgrade, Ethereum’s fee burn rate has plummeted to one of its lowest levels since the network transitioned from PoW to PoS during the Merge event. This transition has raised concerns about Ethereum’s deflationary characteristics post Dencun.
- Data Insights:
- According to recent data, the global ETH supply has surged by nearly 35,000 ETH, valued at around $106 million in the last 30 days.
- Layer-2 solutions leveraging Ethereum’s inefficiencies appear to be the primary reason behind this surge.
Is Ethereum Still An Open Market?
Despite a significant drop in Ethereum gas fees to an average of nearly 10 GWEI ($0.5), the post-Dencun scenario has seen a decline in ETH burning due to reduced reliance on network activity for fee incineration. This shift raises concerns about Ethereum’s deflationary sustainability.
- Expert Insights:
- Analysts highlight a notable reduction in high network activity-induced ETH burning, limiting token supply growth pre-Dencun.
- They suggest that the Dencun upgrade, specifically EIP-4844, has altered Ethereum’s fee-burning dynamics, potentially making the concept of “ultrasound money” obsolete.
Ethereum’s Pectra Upgrade Faces Controversy
As Ethereum gears up for the Pectra hard fork, controversies surrounding EIP-3074, aimed at enhancing wallet and transaction security, have emerged. Community concerns revolve around potential security vulnerabilities, particularly at the Invoker stage.
- Risks Unveiled:
- The Invoker stage’s lack of transparency raises alarms about users unwittingly granting authorization to malicious actors, leading to significant asset losses.
- Itamar Lesuisse and Mudit Gupta express concerns about potential vulnerabilities and security risks associated with EIP-3074.
Impending Decision on EIP-3074
Despite the mixed opinions and warnings, Ethereum’s development team is set to implement EIP-3074 in the upcoming Pectra hard fork. Additionally, the proposal to include EIP-7251 in the same update aims to enhance the ETH staking limit, streamlining validator operations.
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