Binance's latest report questions Ethereum's deflationary nature due to inflation rising to 0.74%. Reasons and potential changes are discussed.

Current Ethereum Inflation

Ethereum's inflation has risen to 0.74%, reaching its highest level in two years. This is due to reduced on-chain activity and lower burn rates. Binance’s research report highlights this as conflicting with Ethereum's long-held image as 'ultrasound money'.

Impact of Layer-2 Solutions

The rise of layer-2 solutions like Arbitrum and Optimism has significantly reduced on-chain activity on Ethereum. These networks process transactions off the mainnet, lowering gas fees and, consequently, the amount of ETH being burned. Introduced in 2021, EIP 1559 was designed to burn a portion of transaction fees, but fewer mainnet transactions have led to a decline in the volume of burned ETH.

Future of Ethereum and Community View

Ethereum's departure from a deflationary model was further complicated by issuance now outpacing burns. On October 3, Vitalik Buterin expressed support on the X platform for lowering the minimum ETH deposit for solo stakers, which could increase network activity.

The decline in Ethereum's mainnet activity and the rise of layer-2 solutions have pushed ETH inflation above burn levels. Despite this, inflation remains below 1%, and the community considers steps such as reducing the staking deposit threshold to improve network dynamics.