Ethereum’s inflation rate has experienced a notable increase, reaching 0.74%. This has prompted concerns about its traditional status as “ultrasound money,” as highlighted in Binance’s October 2024 Monthly Market Insights report.

The report delves into the fact that the issuance rate of Ether has reached its peak in a span of two years. This trend is primarily attributed to reduced on-chain activity and lower burn rates, which are causing a shift in the asset’s economic standing.

The recent findings underscore a mounting challenge for Ethereum, the cryptocurrency co-founded by Vitalik Buterin.

These findings have called into question the longstanding belief that ETH can sustain its deflationary characteristics.

The growing popularity of layer-2 solutions such as Arbitrum and Optimism has had a profound impact on the on-chain operations of the Ethereum layer-1 blockchain.

These L2 networks facilitate the processing of transactions away from the Ethereum mainnet, resulting in a reduction in gas fees and subsequently less ETH being consumed through transaction fees.

This shift has helped alleviate congestion on the Ethereum network and has made transactions more affordable for users.

In 2021, Ethereum Improvement Proposal (EIP) 1559 was implemented to introduce a mechanism that involves burning a portion of transaction fees.

However, due to a decrease in the number of mainnet transactions, the amount of ETH being burned has decreased as well.

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