Ethereum Goes Inflationary Amid Wave of Negative Sentiment Against Rollups

While there are several theories about the cause of this, many revolve around Ethereum’s scaling path, adopting L2 structures that interfere with the burn mechanisms designed to prevent this.

Ethereum Inflation Goes Positive: Are L2s Guilty?

Ethereum, the second-largest cryptocurrency ecosystem in the industry, is experiencing widespread criticism due to its poor price performance and low utilization of its base layer. Recently, the issuance of the network has skyrocketed, making its market supply inflationary again and undermining the mechanisms designed for these numbers to be negative.

According to Ultrasound Money, a site that tracks Ethereum’s behavior, Ethereum has currently added close to 20,000 ETH to its market cap since the merge, the update that transitioned the network’s legacy proof-of-work consensus to a proof-of-stake mechanism considered less wasteful and more energy efficient.

Nikita Zhavoronkov, lead developer at Blockchair, delved into what he considers the main cause of this: the abandonment of the previous L1-focused scaling roadmap for the current rollup-based scaling strategy.

In social media, Zhavoronkov stated:

All that Merge hype about Ethereum’s deflation is now fully undone: the L2 roadmap has basically torpedoed the burn mechanism.

Zhavoronkov and others attribute this change, generally considered negative, to the rising influence and growth of L2 structures, that siphon activity from the base chain and generate earnings while paying low fees, bypassing the burning mechanisms put in place before.

Andre Cronje, co-founder of Sonic, has also criticized the current state of Ethereum, calling into question the value that rollups bring to the ecosystem.

Promoting Sonic’s tech to address Ethereum flaws, he declared:

L2s are why Ethereum is inflationary again. SCALE ETHEREUM. They can get the Sonic tech for free. 0 charge. Will 1000x their throughput. Make Ethereum Great Again!

Nonetheless, rooting out the value that is now captured by L2s seems impossible, and any movement to do so might wreak havoc in these organizations. According to L2beat, over $37 billion in funds are currently secured by these structures, with Arbitrum at the front securing over $14 billion. #Write2Earn