Ethereum’s token supply has climbed to its highest since January 2023, matching levels seen before The Merge update that took place on Sept. 15, 2022.

According to data from ultrasound.money, ether supply currently stands at 120,521,523 ETH, which is around 383 ETH higher than the supply seen on the day of the Merge upgrade. Justin Bram, co-founder and CEO at Astaria, brought the matter to attention on social media platform X.

Presto Research analyst Jaehyun Ha told The Block that the ether’s inflation followed last year’s Dencun upgrade, and that Ethereum’s status as the “Ultrasound money” — a deflationary asset that makes it a superior store of value compared to bitcoin — may be at risk.

Prior to Dencun, Ethereum users sending transactions would pay a fee calculated as gas price multiplied by gas amount, and a considerable part of that fee was removed by burning, Ha said.

“With the introduction of the Dencun upgrade, Ethereum added support for blob transactions designed to handle large data payloads (especially, L2s) more efficiently,” Ha told The Block. “These transactions utilize a separate fee unit known as 'blob gas,' which is distinct from the standard gas fee applied to regular transactions.”

Ha noted that this change resulted in a decline in the proportion of fees being burned, as a large amount of transaction activity moved to blob transactions.

“This reduction in the burning of fees means that even if overall network activity remains high or grows, the counterbalancing effect that previously limited the net ETH supply is now less pronounced,” Ha said.

Since the 2022 Merge upgrade, Ethereum supply had been moving downwards to a low of around 120,064,500 ETH in April 2024, but soon rebounded and began to surge steadily afterward. The Dencun upgrade took place in March of that year.

Byoungjoon Kim, researcher at DeSpread Research, who also saw Dencun as a primary factor in ether’s inflation, mentioned that many users and liquidity have migrated to the Solana network with the ongoing memecoin rally and numerous Layer 2s that emerged after Dencun.

Nonetheless, Ha of Presto explained that the supply surge is not an immediate cause for concern, as Ethereum has yet to see a decline in network activity despite the supply surge.

“However, the key narrative of 'ultrasound money' could face a threat,” Ha said. “The upcoming Pectra upgrade scheduled for the first half of this year is expected to include an EIP that will further increase both the blob target and the maximum limit, which could lead to even greater inflation.”

DeSpread researcher Kim, on the other hand, said that a continued increase in ether supply may negatively impact the network’s security in the long run, as the price of ether and the network’s security share a direct relationship under the PoS mechanism.

Meanwhile, Ethereum reached a consensus on Tuesday to increase the network’s gas limit for the first time since 2021, from a 30 million limit to over 31 million gas units. Raising the gas limit, which is the maximum amount of gas transactions can consume within a single block, aimed to boost the network’s scalability. 

The Ethereum Foundation has also been dealing with the contentious debate surrounding its leadership with concerns of inefficiencies, with a recent unofficial vote pushing for former Ethereum researcher Danny Ryan to lead the foundation instead of current executive director Aya Miyaguchi.

As Ethereum co-founder Vitalik Buterin dismissed the requests for the leadership change, several core developers, including Eric Conner, left the Ethereum community.

Ether’s price rose 1% in the past 24 hours to trade at $2,744, while falling 12% in the last seven days, according to The Block’s ether price page.

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