Denkun is destroying Ethereum’s “ultrasound money” – CryptoQuant.

While Denkun, Ethereum's major upgrade in mid-March, promised to boost the network's expansion, it is having a nasty side effect. According to analysts at CryptoQuant, Ethereum may not be the “ultrasound currency” after Denkun.

“Ultrasonic money” is a term used to describe an asset that has stable purchasing power and experiences price appreciation over time. While “sound money” such as gold or bitcoin have a constant total supply, the total supply of “ultrasound money” decreases, leading to deflation.

Ethereum is often labeled as the “ultrasound currency”. However, analysts suggest that Ethereum is becoming more inflationary and losing its “ultrasound money” character following Denko.

As noted, Ethereum's fee burn has dropped to its lowest level since the merger, an event that marked the transition of the Ethereum token from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS).

People like to denigrate token systems because they think it adds value. But this may not be very important compared to safety.

Will ETH burn?

According to data from ultrasound.money, over the past 30 days, the global supply of ETH has increased by nearly 35,000 ETH, worth nearly $106 million at current prices. The reason may be the dominance of layer-2 solutions that absorb the efficiency of the Ethereum network.

Denkun's update brought many improvements, the main one being EIP-4844. The proposal introduces a new block structure called “blobs” specifically designed to significantly reduce layer-2 transaction fees.

Following the Denkun reform, gas charges on many Tier-2 networks have come down significantly.

Starting in 2021, Ethereum will implement a payment burning mechanism, and the price of Ethereum gas will increase with higher network traffic. As gas prices rise, more ETH is burned through the network, effectively removing it from circulation.

Still open market

It's worth noting that Ethereum gas fees have dropped significantly in recent times, averaging below 10 GWEI, roughly equivalent to $0.5.

Analysts say that the high network activity before the Denkun update led to high ETH burning, which limited the growth of the token supply. However, they noted that Denkun's improvements, particularly EIP-4844, would reduce the reliance on network activity for payload burning.

Based on this observation, the report suggests that Ethereum's downward trend is unsustainable and the concept of “ultrasound money” is no longer viable.

Ethereum Pectra meets the controversy

Ethereum is heading towards its next major update, the Pectra hard fork. However, there is controversy surrounding one of the proposals – EIP-3074. This proposal aims to improve the convenience and security of managing wallets and transactions. Some community members have raised concerns about potential security risks.

A major concern is the level of Evoker responsible for processing and packaging marketing authorizations. Without rigorous auditing, there is a chance that malicious actors could exploit vulnerabilities at this level.

The lack of transparency at the Invoker level can lead to users unwittingly giving permission to malicious actors, which can lead to significant resource losses.

According to Itamar Lesusse, the founder of Argentinian wallet, EIP-3074 may suffer from vulnerability. According to him, the proposal would allow fraudsters to withdraw all funds from a wallet with just one chain of authentication.

“A fraudster should be allowed to withdraw your wallet with a single off-chain signature. I expect this to be a big use case,” said Lesuisse in his comments on X.

Mudit Gupta, Chief Information Security Officer of Polygon Labs, has called for the signatures of EIP-3074 MAGIC to be blocked. He expressed concern that cold wallets would suffer if transaction requests were merged.

Despite these mixed opinions, the Ethereum development team decided to implement EIP-3074 in the upcoming Pectra hard fork. Additionally, the Ethereum community proposed to include EIP-7251 in the same update. This proposal aims to increase the ETH buffer limit, simplifying the validator configuration process for operators.