Ethereum’s inflation rate has risen to 0.74%, raising concerns about its long-standing history of being an “ultrasonic money,” according to Binance’s October 2024 Monthly Market Insights report. The research report found that Ether’s issuance rate is at its highest in two years, as lower on-chain activity and lower burn rates change the asset’s economic status. The findings highlight a growing problem for the asset co-founded by Vitalik Buterin, calling into question the long-held assumption that ETH can maintain its deflationary nature.
The rise of Layer 2 solutions like Arbitrum and Optimism has significantly impacted activity on the Ethereum Layer 1 blockchain. As L2 networks process transactions outside the Ethereum mainnet, reducing gas fees reduces the amount of ETH burned in transaction fees. As a reminder, Ethereum Improvement Proposal (EIP) 1559, introduced in 2021, burns a portion of transaction fees, but the reduction in the number of transactions on the mainnet has led to a decrease in the amount of ETH burned.
This conflict can be explained by the fact that the Dencun upgrade has led to greater adoption of L2 solutions with lower fees and a slower rate of ETH supply burn. However, it is worth noting that Ethereum inflation is still below 1%, and this should not be seen as a negative result. Inflationary pressures usually increase during periods of low network activity, but can return to a deflationary state when activity increases.
That said, Ethereum co-founder Vitalik Buterin has acknowledged the importance of lowering the minimum amount of ETH required for crypto investors to earn passive income through solo staking. On October 3, Buterin joined a community discussion on X and supported lowering the minimum Ethereum (ETH) deposit requirement for solo stakers (solo stakers run full nodes using private computer hardware, rather than relying on third-party services, centralized organizations, or staking pools. However, the current 32 ETH lockup requirement is a deterrent to broader participation). In recent discussions with community members, Buterin has outlined ideas for developing a larger community of solo stakers. His interim solution included increasing the bandwidth requirement in exchange for lowering the minimum staking deposit to 16 or 24 ETH. However, the Ethereum developer pointed out that the bandwidth available to home networks depends on their physical location and may work against the intended purpose.
The Bitcoin (BTC) rate has exceeded $64,000, recouping the fall that occurred in early October. The first cryptocurrency has grown by 2.7% in a day, by 17% in a month. At 21:00 Hong Kong time on October 7, BTC is trading at around $64.3 thousand. The moderate growth of Bitcoin this week reflects investors’ hopes for a strengthening US economy and the release of positive unemployment data in the middle of this week. If the employment forecast is confirmed, market participants will expect further easing of monetary policy by the US Federal Reserve, which will attract capital to risky assets.
