The cryptocurrency market is going through a tumultuous period, with a majority of crypto assets in decline. Ethereum, despite its transition to Proof of Stake (PoS), is no exception to the general trend. As Ethereum’s supply continues to grow, concerns are arising about its inflation and its impact on the price of ETH. In this article, we will explore these challenges and the outlook for the number two crypto.
Ethereum: inflation persists despite PoS
Unlike Bitcoin with its cap of 21 million tokens, Ethereum supply remains unlimited. Despite the hope that the transition to Proof-of-Stake so championed by founder Vitalik Buterin would reduce inflation, the reality turns out to be different.
Indeed, although the transition eliminated miner rewards and introduced a more reasonable staking systeminflation has returned.
In the last 30 days, Ethereum supply increased by 77,091 ETHreaching a total of 120.28 million ETH.
THE burn mechanismset up to counterbalance this increase, could only burn 19,438 ETH over the same period, which leaves a net surplus of 57,653 ETH in circulation.
The reduction in transaction fees following the establishment of a competitive landscape of booming Layer 2 solutions also contributed to this inflationary environment.
What direction for Ethereum in the crypto universe?
The future looks uncertain for Ethereumwith inflation likely to continue to rise. The success of retaking platforms, such as EigenLayer, is accelerating the growth of supply, with an 11% increase in the total value locked in EigenLayer in just one week. Considering that retaking shook Ethereum, analysts estimate last April.
This situation helps to keep inflation at a moderate level.
However, Ethereum ETF development could offer some respiteEven in the worst-case scenario where inflation reaches between 1% and 5% per year, the impact on the price should not be catastrophic.
Other cryptocurrencies have thrived despite much higher inflation rates. However, the idea that inflation would support the price or cause long-term shortages now seems illusory.
Meanwhile, Cardano has teeth grinding with 2.5% inflation, enough to annoy the competition.
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