Ethereum Supply Growth Hits 0.74%, Sparks Inflation Concerns

Ethereum has entered a notable inflationary phase, with its supply growth reaching 0.74% in September, the highest rate in two years. This shift is primarily attributed to the rise of layer 2 networks, which have significantly decreased transaction fees and, consequently, the rate at which ETH is burned.

Following the recent Dencun upgrade, layer 2 solutions like Arbitrum and Optimism have seen a surge in activity, accounting for approximately 82% of all Ethereum transactions. This migration has resulted in lower gas fees on the main Ethereum network, which have plummeted to record lows—averaging just 4.81 Gwei. While this enhances user experience on layer 2 platforms, it has also led to a dramatic decline in ETH's burn rate, undermining its previously deflationary narrative.

Since the Ethereum Merge in 2022, the network had maintained a deflationary stance with an annual inflation rate of -0.2%. However, the current increase in supply—exceeding burn rates by about 30,000 ETH—has raised concerns among investors and analysts alike. Fidelity Digital Assets noted that while fluctuations in supply may stabilize over time, the growing preference for low-fee layer 2 platforms suggests that inflationary trends could become more common.

As Ethereum navigates this new landscape, its status as "ultrasound money" is increasingly challenged, prompting discussions about potential adjustments to its issuance mechanisms to restore balance.