Ethereum’s Dencun upgrade forces Ether supply to stagnate, changing the crypto landscape
The recent deployment of the highly anticipated Dencun upgrade on the Ethereum mainnet has been a monumental event, met with enthusiasm and relief from users. This upgrade signifies a crucial advancement in Ethereum’s scaling strategy, aiming to enhance the scalability of Layer-2 chains and introduce new possibilities for application development.
Impact of Dencun on Ethereum’s Supply Dynamics
The implementation of Dencun has already started to demonstrate its impact on the Ethereum network, particularly through a noticeable decrease in the total supply of ether. Reports from CryptoQuant indicate that ether’s total supply plummeted to its lowest level since August 2022 within the first week of Dencun going live.
This reduction in ether supply echoes a similar scenario observed during Ethereum’s transition from proof-of-work to proof-of-stake consensus mechanisms during The Merge, marking a significant milestone in the network’s evolution.
In the past month alone, ether’s supply has dwindled by 0.872%, showcasing a rapid decline not witnessed since May 2023. Comparatively, post-The Merge, the rate of supply reduction stood at 0.246%, highlighting the substantial impact of Dencun on ether’s circulation.
Ethereum’s Transaction Surge and Fee Burning
The accelerated decrease in ether supply can be attributed to the surge in daily transactions on Ethereum, surpassing 1.2 million transactions on average. This heightened activity has led to increased fee burning and subsequently contributed to the decline in total ether supply.
Since August 2022, over 1.56 million ether have been burned while only 1.12 million new ether have been issued, resulting in a net reduction of more than 446,000 ether valued at approximately $1.62 billion based on current market prices.
Potential Impact on Ethereum’s Token Price
The ongoing decline in ether supply coupled with heightened network activity could potentially drive up Ethereum’s token price significantly if this trend continues. Presently, Ethereum is trading at $3600 per token, reflecting the positive impact of Dencun on market dynamics.
Layer-2 Networks and Fee Reductions
Conversely, following the Dencun upgrade, most layer-2 networks have reported substantial declines of up to 99% in their transaction fees. Despite these optimistic developments, concerns have been raised by experts regarding a potential resurgence in Layer 2 fees as more networks adopt these solutions and competition intensifies within the fee market.
Users Embrace L2 Benefits
Bridging, the process of transferring funds from Layer 1 (L1) to Layer 2 (L2), allows users to leverage the high-speed and low-cost capabilities of L2s. Data shows that the total deposited value has exceeded $25 billion as of March 16, marking a 5x increase from the previous year. Arbitrum [ARB] attracted 42% of total deposits, followed by OP Mainnet [OP].
ETH Profit Calculator
Each transaction on an L2 results in a small percentage of the total ETH supply being burned. Therefore, high network activity on Ethereum L2s directly benefits ETH’s value. As of writing, ETH was trading at $3,570, reflecting a 4.56% decline in the last 24 hours, according to CoinMarketCap.
In conclusion, the introduction of Ethereum’s Dencun upgrade has had a significant influence on ether supply dynamics, resulting in a noticeable slowdown in its circulation. The drop in ether supply following the upgrade demonstrates the network’s dynamic ecology and the transformational potential of scaling solutions such as Layer-2 chains. As Ethereum navigates these developments, the implications of a stable ether supply following Dencun demonstrate the network’s endurance and agility in creating the future of decentralized finance and blockchain technology.
