Binance explored Ether’s ‘Ultrasound Money’ status shattering as inflation rates rise to levels unseen since the Merge due to burgeoning layer-2 adoption.
Ethereum’s deflationary mechanisms may not be working as intended with most of its action moving to layer-2 networks. Binance’s Monthly Market Insights report for October questioned the inflationary risk the second largest blockchain’s native asset faces as growing transactions conducted on layer-2s reduce ETH burning.
“ETH’s 30-day annualized inflation reached ~0.74% this month, a level not seen in two years,” the report read. That means the asset’s issuance rate is growing. However, it is doing so lopsided. As Ethereum underwent the Dencun upgrade to introduce EIP (Ethereum Improvement Proposal)-4884, which brought the long-awaited Proto-danksharding to reduce layer-2 transaction fees, the layer-1 has witnessed declining transaction fees. It has declined to the lowest amounts since ‘The Merge’ from last year.
Ether’s issuance rate goes beyond burn rate
Reducing transaction fees also implies reducing ETH burning from the fees—a mechanism Ethereum adopted in 2021 through EIP-1559 to keep ETH deflationary. Essentially, a portion of fees collected for every transaction is burnt to ensure the asset remains deflationary. This is like Bitcoin’s sound money property, except achieved via the burning mechanism.
“As L2s cannibalized network activity throughout the year – further impacted by broader market conditions – transaction fees and, consequently, burned fees on Ethereum declined, with September recording one of the lowest levels since the Merge,” the report added. “This has prevented ETH from decreasing in supply to remain deflationary, leading to the net positive daily supply changes we now see.”
Getting ETH into its deflationary arc can prove difficult considering the amount of usage Ethereum layer-2 networks are witnessing. With rapid transaction settlements and improved user experience, networks built atop Ethereum as scaling solutions are witnessing adoption like no other. Still, the Ethereum community is figuring out measures to keep ETH deflationary.
WBTC Dominates Despite Ecosystem Outrage
The Monthly Market Insights report covered multiple other topics, including wrapped bitcoin (WBTC) dominance. The token has now achieved weekly transaction numbers surging over 100,000, marking a new high for the asset. This comes despite the bad reception the token has received due to its issuer joining hands with a company in which Justin Sun holds a stake.
WBTC weekly transaction rate
WBTC, exclusively controlled by BitGo so far, will now be controlled by its BitGo and BiTGlobal. The crypto ecosystem opposed the idea, with Sky (formerly Maker) delisting WBTC from acting as collateral on its platform.
