Ethereum Inflation Rises, Threatens ‘Ultrasound Currency’ Status: Report

Update Oct 4, 1:05pm UTC: This article has been updated to add comments to Binance.

Ethereum inflation rose to 0.74%, raising concerns about the long-held “ultrasound money” narrative, according to Binance's October 2024 Monthly Market Insights report.

The research report indicates that Ether (ETH) issuance is at its highest level in two years, as reduced on-chain activity and lower burn rates change the asset's economics.

The findings highlight a growing case for the property, which co-founded Vitalik Buteri. They have cast doubt on the long-term assumption that ETH can maintain its declining behavior.

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Layer 2 expansion reduces ETH burning

The addition of layer-2 solutions such as Arbitrum and Optimism has had a significant impact on the onchain activity of Ethereum's layer-1 blockchain.

These L2 networks process transactions from the Ethereum mainnet, reducing gas fees and in turn reducing the amount of ETH burned through transaction fees.

The Ethereum Improvement Proposal (EIP) introduced in 2021 will burn a portion of the 1559 transaction fees, but the decrease in the number of mainnet transactions has reduced the amount of ETH burned.

Speaking to Cointelegraph, a Binance spokesperson said that the Denkun upgrade “has led to lower fees” for L2 solutions and increased the speed of burning ETH supply. He added:

However, it is worth noting that the inflation rate of Ethereum is still below 1%, and this should not be seen as a negative result. […] Inflationary pressures typically increase during periods of low network activity. […] It may revert to a negated state when an activity is triggered.

Related: Ethereum Price Drops 12% in 2 Days – Are Investors Running Out of Reasons to Hold ETH?

“Ultrasound money” narrative in question

The “ultrasound money” narrative that positioned ETH as a rejected currency was questioned in a Binance report:

“As L2s disrupted network activity throughout the year – further influenced by broader market conditions – transaction fees and consequently burn fees on Ethereum declined, with September recording one of the lowest levels since the merger.”

With ETH's withdrawals now outpacing the burn, the overall net increase in supply has pushed Ethereum further than its inflows.

Related: Ethereum traders are pricing in ‘extreme moves' ahead of US election.

Buterin push for sole staking

On October 3, Buterin joined the community discussion on X and expressed his support for lowering the minimum ETH deposit required for solo stakeholders.

Solo Stakeholders run entire nodes using personal computing devices without relying on third-party services, playing pools, or centralized entities to operate.

Currently, the need to lock 32 ETH can prevent widespread participation in the network, but the co-founder of ETH supports leaving this number to 16 to 25 ETH to run the node.

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