[NEWS] CoinShares Analyzes the Possibility of Ethereum’s Major Upgrade, Denkun, Affecting Supply

Luke Nolan, an Ethereum (ETH) analyst at CoinShares, announced his analysis that Ethereum's next major upgrade, "Dencun," may affect the supply. The overseas Web 3.0 media The Block reported on the 22nd.

In Dencun, "Proto-Dansharding," which reduces fees on transactions from Layer 2 by replacing data called call data, which currently accounts for the majority of gas fees (transaction fees), with data called BlobSpace, is attracting attention.

According to Nolan, call data accounts for 90% of gas fees. Improving this is expected to significantly reduce gas fees.

On the other hand, it is expected that the amount of Ethereum burned as a base fee in gas fees will also decrease.

In response to this prediction, Nolan pointed out that "if each layer 2 network supports proto-dank sharding, the amount of Ethereum burned may decrease as the base fee stabilizes at a low level," and said that it is likely to affect the increase in the supply of Ethereum.

He added that "the demand for gas fees on the Ethereum network is to cause Ethereum deflation through burning. This could reduce the circulating supply of Ethereum."

However, the impact of the introduction of Blobspace may be mitigated by other factors. Nolan emphasized that Layer 1 demand is the big driver of deflation, and "even if blob usage is very high, the impact on circulating supply is small."

In addition, "Even if gas fees are reduced because Layer 2 uses Blobspace, there is no concept of Ethereum being significantly inflated. The point of Denkun is to reduce gas fees for users who trade using rollups. With low transaction fees, users are more likely to return to the network, and as activity increases, overall gas usage will also increase."

Nolan argues that the reduction in base fees is unlikely to significantly change supply, as users are expected to trade more frequently through the Ethereum blockchain due to the reduced gas fees.

He further states that Denkun's ultimate goal is to "solidify Ethereum's market share." Therefore, he predicts that it will have a positive effect in the long term, regardless of short-term fluctuations in gas fees.

Denkun is currently refraining from implementation on the testnet, and it is widely believed that the implementation on the mainnet will occur as early as March.

Reference:The Block
Image: Shutterstock

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